The largest municipal default this year was for conduit bonds of the Clare at Water Tower, a 53-story housing development for retirees in Chicago with about $229 million of long-term debt. It missed a Sept. 1 payment after occupancy failed to meet expectations.
Bonds for the property, developed by the Franciscan Sisters of Chicago Service Corp., were issued for Clare by the Illinois State Finance Authority. The agency has financed 496 projects worth $25 billion, according to its website.
Conduits can include top-rated, junk and unrated bonds, so investors have to research deals individually, Pynchon said.
"You need to do the analysis," he said. "Particularly if you're talking about high yield -- a lot of times ratings aren't available."
Each issue has its own revenue, security and legal protections that can affect the ultimate payout and recovery for holders.
"There is opportunity if you do your homework," said Richard Ciccarone, managing director of McDonnell Investment Management in Oak Brook, Illinois. "Not all conduit issues are risky."
Bonds backed by AMR's American Airlines for airport facilities fell earlier this month on concern that the third- largest U.S. carrier may be forced to seek bankruptcy protection as it heads for its fourth consecutive annual loss.
A Chapter 11 filing "is certainly not our goal or our preference," Andy Backover, an American spokesman, said on Oct. 3, the day AMR's shares plunged the most since 2001 on the speculation.
An American-backed bond sold by Dallas-Fort Worth International Airport traded at an average of about 81 cents on the dollar on that day, down from about 98 cents Sept. 23.
Following is a description of pending sales of municipal debt: