Sell Side

BAM Sees Best Quarter Yet as Assured Launches MAC

Build America Mutual Assurance Corp., the bond insurer launched in July 2012, had the best quarterly performance to date as league leader Assured Guaranty Municipal launched its own muni-only business, Municipal Assurance Corp.

Quarterly League Tables

Orrick, Herrington & Sutcliffe LLP retained its top spot as bond counsel at the end of the third quarter, while Wells Fargo remained the No. 1 provider of letters of credit.

The total amount of bonds backed by insurance fell in the third quarter to $2.54 billion from $3.48 billion in the second quarter. Assured maintained its leadership position with $1.46 billion in par value of insured bonds in the primary market, while BAM was responsible for $1.07 billion. Including the secondary market, Assured wrapped more than $2 billion in bonds.

BAM took 42.3% of the insured bond market in the third quarter, the company's highest market share since it began doing business. The muni-only insurer was responsible for insuring 113 issues during that time period. In September, BAM insured $76 million in Michigan deals that had stumbled coming to market without insurance, and received licensing to insure bonds in Florida, the fifth-most prolific state for public finance.

"We are pleased with our rate of growth and progress in the market," Sean McCarthy, chief executive officer of BAM, said in an emailed statement. "Most important, despite lower overall market volume, we continued to increase the number of small and medium-sized issuers that benefit from becoming mutual members of BAM."

The percentage of bonds with insurance fell to 3.53% in the third quarter from 3.71% in the second quarter, even as evidence of a revival of the industry began to take hold. Insured bonds outperformed general obligation debt from May to August, and an August Citigroup report said insurers may wrap up to 10% of the market over the coming years as financial guarantees become more valuable. Insurers have wrapped a total of $8.17 billion in par, or 3.27% of all issues so far this year.

Assured's muni-only insurer, MAC, began operating in July, The company wrapped its first deal two weeks later, $2.48 million of New York school district bonds, and wrapped $60 million of deals in the third quarter. MAC wrapped a total of seven deals in the third quarter, bringing Assured's third-quarter market share to 55.3%, compared with 63.7% in the second quarter of this year.

"We continued to see strong demand for our secondary market insurance, issuing 289 policies and insuring over $522 million in par," Robert Tucker, managing director of corporate communications at Assured, said in an email. "Looking specifically at MAC, the company's new muni-only platform launched at the end of July, we insured $67 million in par in five different states."

Assured has backed 59% of insured bonds across 364 issues so far this year. With Berkshire Hathaway Assurance doing a single deal worth 1.3% of the market, BAM took the remaining 39% of the insured bond market with 403 deals.

Ambac Financial Group, the bond insurer that emerged from bankruptcy in May, reported $206 million of net income in the following two months. The defunct bond insurer announced in August that it would begin making supplemental payments on troubled policies that had been placed into a segregated account.

Bond insurers could wrap between 10% and 20% of new issues within the next two years, Assured CEO Dominic Frederico, Bob Cochran, chairman of Build America Mutual and William Fallon, CEO of National public Finance Guarantee, said in September during a panel at The Bond Buyer's California Public Finance Conference.

Fallon said MBIA's National expects to reenter the market by next year, saying the company needs to talk to issuers and receive strong ratings before it can begin insuring bonds.

In bond counsel ranking, Orrick Herrington & Sutcliffe LLP, long the leading figure in the industry, retained its first-place position for another quarter, with $24.8 billion in par of bonds across 244 issues as of Sept. 30. That represents a 10.5% share of the market, up from 8.5% at this point a year ago.

The runner-ups to Orrick are in a tight race for the number two spot, with Hawkins Delafield & Wood LLP currently ranked second with $11 billion in par over 222 issues, or 4.7% of the market. Squire Sanders LLP, Kutak Rock LLP and Norton Rose Fulbright all took 4.3% of the bond counsel market.

Stradling Yocca Carlson & Rauth broke into the top 10 as counsel to $5.97 billion in par across just 147 issues so far this year. The firm ranked 13th at this point last year.

Sidley Austin LLP, the firm representing MBIA in the Detroit bankruptcy case, was counsel to $5.34 billion in par amount through Sept. 30, at No. 8 among bond counsel. At this time a year ago, Sidley ranked third among bond counsel.

Wells Fargo Bank led letter of credit providers, with JP Morgan Chase trailing closely behind. Wells, which ranked second in the category at this point last year, climbed to $375 million in principal amount through the first nine months of this year. That's 24.7% of the market. JP Morgan's $369 million in principal amounted to 24.2% of the market.

The Bank of New York Mellon acted as the top trustee, with $44.7 billion in par, followed by US Bank NA's $42.9 billion.



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