RobertB
January 22nd, 2008, 09:56 PM
Bond Issuers Face New Costs In Insurance Crisis
Liz Moyer, 01.21.08, 6:00 AM ET
With four bond insurance companies facing the potential loss of their triple-A financial strength credit ratings, the effects are bound to ripple through not only banks but bond issuers.
In the $2.6 trillion municipal bond market alone, the debt downgrades threaten some 563,000 individual ratings on municipal issues backed by bond insurance, according to Moody's Investor Service. About half of municipal bonds are backed by insurance, Moody's says, though some of the underlying bonds carry their own ratings and often those are at least single- or double-A.
But downgrades to the bond insurers, including the two biggest, Ambac Financial Group (nyse: ABK - news - people ) and MBIA (nyse: MBE - news - people ), could trigger downgrades of municipal bonds, especially those without underlying ratings. Late Friday the dominoes were set in motion after Fitch downgraded Ambac's financial strength rating to double-A from triple-A, and it downgraded 420 classes of asset-backed securities transactions backed by insurance provided by an Ambac subsidiary.
The uncertain fate of the bond insurers means municipal issuers may have to look elsewhere to guarantee their debt offerings, a requirement of some bond mutual funds. That doesn't mean municipal issuance will drop off. "No one is predicting a significant decline," says Gail Sussman, managing director of public finance at Moody's. "But the landscape will continue to be in flux for a while."
http://www.forbes.com/business/2008/01/20/financial-bond-insurance-biz-wallst-cx_lm_0121bond.html?boxes=author
Liz Moyer, 01.21.08, 6:00 AM ET
With four bond insurance companies facing the potential loss of their triple-A financial strength credit ratings, the effects are bound to ripple through not only banks but bond issuers.
In the $2.6 trillion municipal bond market alone, the debt downgrades threaten some 563,000 individual ratings on municipal issues backed by bond insurance, according to Moody's Investor Service. About half of municipal bonds are backed by insurance, Moody's says, though some of the underlying bonds carry their own ratings and often those are at least single- or double-A.
But downgrades to the bond insurers, including the two biggest, Ambac Financial Group (nyse: ABK - news - people ) and MBIA (nyse: MBE - news - people ), could trigger downgrades of municipal bonds, especially those without underlying ratings. Late Friday the dominoes were set in motion after Fitch downgraded Ambac's financial strength rating to double-A from triple-A, and it downgraded 420 classes of asset-backed securities transactions backed by insurance provided by an Ambac subsidiary.
The uncertain fate of the bond insurers means municipal issuers may have to look elsewhere to guarantee their debt offerings, a requirement of some bond mutual funds. That doesn't mean municipal issuance will drop off. "No one is predicting a significant decline," says Gail Sussman, managing director of public finance at Moody's. "But the landscape will continue to be in flux for a while."
http://www.forbes.com/business/2008/01/20/financial-bond-insurance-biz-wallst-cx_lm_0121bond.html?boxes=author