BRADENTON, Fla. - Assured Guaranty Municipal Corp. said Monday that it disagrees with the decision of the trustee for Jefferson County, Ala.’s sewer warrants to suspend payments. Assured said it will continue to make good on its insurance policies.
Bank of New York Mellon, trustee for $3.14 billion of defaulted warrants, said Friday that all payments - including those from insurance - would be suspended until further notice because holders of bank warrants with overdue principal payments would no longer consent to the distribution of principal payments on other warrants when due. BNY Mellon did not say why bank warrant holders would no longer agree to provide a forbearance on their payments.
The county’s sewer debt portfolio contains mostly warrants in variable- and auction-rate mode. As market liquidity dried up in during the 2008 financial crisis, interest penalties kicked in and principal payments were automatically accelerated. Creditors entered forbearance agreements on all or a portion of their payments until now.
Assured “disagrees with the trustee’s decision to suspend distributions and will take all steps necessary to ensure that each holder of an AGM-insured sewer warrant will receive scheduled debt service payments in full and in a timely manner,” the insurer said Monday, adding that it had paid amounts due Feb. 1.
“Assured Guaranty is committed to honoring its unconditional and irrevocable guaranty to holders of its insured obligations,” AGM said.
Matt Fabian, managing director with Municipal Market Advisors, said Monday that withholding insured payments is unusual.
“We are unaware of this happening before, and it contradicts our own understanding of the workings of monoline bond insurance, which should in no way be affected by the condition or insolvency of the underlying obligor,” he said.
Fabian said the suspension of payments may or may not indicate that a settlement is imminent between the county and bank warrant holders, “many of which include hedge funds who have bought positions from prior liquidity providers.”