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U.S. muni bond insurers grow in number, but business still shrinks

Thomson Reuters

July 12, 2013

WASHINGTON, July 12 (Reuters) – The amount of insured municipal bonds continued to drop in the first half of 2013 even as the field of insurers expanded, according to Thomson Reuters data released on Friday.

Assured Guaranty Municipal Corp. remained the top company by guaranteeing $3.39 billion of debt in the first six months of the year, with newcomer Build America Mutual Assurance Co. taking the second spot at $2.13 billion. Berkshire Hathaway Assurance Corp., a unit of Berkshire Hathaway Inc., came in third, guaranteeing $106.9 million.

The total amount was 26.9 percent less than in the first half of 2012, when Assured was the only company backing debt, the data showed. By comparison, five years ago, in the first half of 2008, nearly $60 billion of new bonds were insured, though that was down from around $130 billion of new sales insured in the first part of 2005.

The total number of insured deals, meanwhile, fell to 561 in the first six months of 2013, 139 fewer than in the same period in 2012.

The bond insurance industry was perhaps the least-likely victim of the housing crisis. Once called “monolines,” the companies had exclusively insured relatively risk-free municipal bonds for years, with their top-shelf credit ratings allowing issuers to pay less in interest. Then the companies expanded into guaranteeing mortgage-backed assets, which proved a fatal mistake for many when those assets crumbled and pulled down their ratings.

Assured was the last company standing. Even though Berkshire Hathaway ventured into guaranteeing debt, it has never matched Assured’s volumes and did not insure any sales between the end of 2009 and the beginning of this year.

Build America started writing business last July. The first mutual insurer for municipal bonds, Build America, which is rated AA by Standard & Poor’s Ratings Services, counts cities, states and other issuers as its members and the National League of Cities as its sponsor.

Also in 2013, the surge in letters of credit ebbed. Some issuers turned to the letters to replace bond insurance, and many had used them to move their debt from auction-rate securities to variable-rate when the market for auction-rates froze in 2009.

In the first half of 2013, there were 78 percent fewer letters of credit issued than in the same period of 2012.

Wells Fargo Bank was the top provider over the opening six months of 2013, with 30 percent market share, while Citibank, which provided the most letters in the same time frame last year, slipped to third. J.P. Morgan Chase was second.

Orrick Herrington & Sutcliffe LLP remained the leader for bond counsel in the first half of 2013, a rank it also held in 2012, while Hawkin Delafield & Wood LLP maintained its second-place position.

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