Identifying municipal bond securities exposed to external events

Assessing municipal bond exposure to the East Palestine Train Derailment

External events — like the bankruptcy of a major employer, a natural disaster, or the spill of an environmental hazard — can have dramatic effects on the financial stability of nearby populations and governments. In this series, ICE uses our geospatial library for the municipal bond market to analyze municipal bond exposure to several different kinds of geographically defined events.

Here we look at municipal bond exposure to the East Palestine, Ohio, train derailment.

In February 2023, a Norfolk Southern train with cars carrying significant amounts of hazardous materials derailed just outside of East Palestine, Ohio.1 A few cars caught fire, sending billowing plumes of dark smoke into the air, and some of the hazardous material entered a ditch that drained into a nearby stream. Hundreds of people had to be evacuated. A month later, the smell of chemicals was still in the air along the main street of the town. Many residents were fearful that the contamination would not go away, pointing to the sheens of pollution clearly visible in nearby streams.2

The effects were long-lasting. A full year after the disaster, some residents had still not returned to the town,3 and the governments and services of nearby towns and counties were also affected. In the immediate aftermath of the disaster, town police and government employees worked 12-hour shifts for 14 days, leading to an estimated annualized $1.8 million cost to the local government largely due to overtime pay.4 Looking to the future, the communities and municipalities around East Palestine are likely to face additional costs or responsibilities related to cleanup, monitoring, and recovery. The Environmental Protection Agency states that the Columbiana County Health District, for example, has been testing private wells since the disaster.5

Figure 1. Map of boundaries for obligors with areas less than 5,000 square miles that overlap with a five-kilometer radius around the East Palestine derailment site. A selection of issuer names associated with the securities and geospatial footprints are included as labels. Source: ICE as of 6/21/2024.

In some cases, disaster relief or settlement-related funds could improve the financial position of local communities, even as health hazards and other negative impacts may persist. For example, in May 2024, a judge preliminarily approved a $600 million settlement agreement between Norfolk Southern and local residents that will undoubtably have an impact on East Palestine and the surrounding area. Under the settlement, households living within two miles of the disaster could receive about $70,000 for property damage and $10,000 for injuries.6

In terms of local municipal bond debt in the East Palestine area, there are over 130 individual securities with obligor boundaries that overlap with the area within a five-kilometer radius of the derailment site. The total value of the associated outstanding debt is over $220 million (Figure 1).

Depending on the context, the time horizon, and the details of any given event, the reasons that an investor or asset manager might wish to identify exposed municipal obligors are likely to vary. In the upcoming months, we will continue to highlight other examples of municipal bond exposure to geographically defined events.