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S&P CreditWatch Update

By Susan Borries Reed, Director of Disclosure Strategy and Services, July 18, 2017

Several weeks ago, Umbaugh highlighted recent S&P Global Ratings (S&P) actions that placed the ratings assigned to municipal bond insurance providers (insurance providers), Build America Mutual Assurance Co. (BAM), MBIA Inc. (MBIA) and National Public Finance Guarantee Corp. (National) under review on a “CreditWatch Negative” based upon their evaluation of the bond insurers' competitive positions.  At that time, BAM held an 'AA' financial strength rating, MBIA had an 'A-' long-term counterparty credit rating and National maintained an 'AA-' financial strength rating.  S&P reviewed all municipal bond insurers at the same time it reviewed those placed on a credit watch.

S&P resolved the credit watch quickly by taking the following action on June 27:

  • 'AA' financial strength rating on Build America Mutual Assurance Co. (BAM) was affirmed, and S&P removed it from CreditWatch Negative, with a stable outlook.
  • National Public Finance Guarantee Corp. (National) was downgraded to 'A' from 'AA-' and its long-term counterparty credit rating on MBIA Inc. to 'BBB' from 'A-', with a stable outlook.
  • 'A' long-term counterparty credit rating on Assured Guaranty Ltd. (AGL) was affirmed, and its 'AA' financial strength ratings on its bond insurance subsidiaries (collectively Assured), with a stable outlook.
  • 'CCC' financial strength rating on MBIA Insurance Corp. (MBIA Corp) was affirmed, and S&P revised the outlook to stable from negative. The rating agency also withdrew its 'D' rating on MBIA Corp.'s surplus notes and preferred stock. 

When an issuer’s bonds are insured by an insurance provider, rating actions affecting insurance providers also apply to the ratings on the bonds insured by this insurance provider.  Many issuers had bonds placed on a credit watch when S&P made this determination.  Since the credit watch has been resolved, these bonds are also off the credit watch.  There was no rating change on bonds insured by BAM or MBIA Corp.  Only bonds insured by National or MBIA, Inc. were downgraded, and these bonds would be older bonds that pre-date the recession.

In order for municipal bond insurance to be an attractive option for bond issuers, the bond insurers rating would generally need to be stronger than an issuer’s.  Post downgrade, National laid off employees and announced that it would shutter its business operation. 

What does this mean for issuers?  Some of the impacts to issuers include:

  • And then there were two…With National’s exit from the bond insurer market, this essentially leaves Assured and BAM as providers of municipal bond insurance.
  • Less available options for insurance providers ultimately translates to less competition when an issuer may want to purchase an insurance policy or a debt service reserve surety to make the bond financing more marketable.
  • If an issuer’s bonds were downgraded as a result of an insurance provider’s downgrade, this is a “material event” for any bonds subject to SEC Rule 15c2-12.  Issuers should double check any insured outstanding debt to make sure that no outstanding bonds were impacted.

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Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at


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