Bond insurers see surge in business

July 15, 2020 9:54 AM

The largest active municipal bond insurers wrapped $13.65 billion in the first half of 2020, an uptick from the $9.76 billion of deals done in the first six months of 2019.

The industry par amount was achieved in 962 deals, up from the 798 the year before. The insurance penetration rate inched up to 6.93% year-to-date, compared to from 5.67% in 2019. If the saturation rate stays above 6.36% at years end, it would be the highest since 2009 when the rate was sitting at 8.64%.

COVID-19 has and will continue to hamper state and local government revenues. It has already and will likely lead to more rating downgrades. The result is already changing how investors view credit and how to evaluate it in their investments. Bond insurance in its heyday, prior to the Financial Crisis of 2008 had half the municipal market insured. This new reality in 2020, dealing with the pandemic's effects on the markets, issuer credit quality, and investor sentiments may help the municipal bond insurance industry grow. Just recently, S&P Global Ratings released a report, that some experts and analysts predicted, COVID-19 has hit state and local municipalities hard but the bond insurers are making the most of the opportunity.

Assured adds on

Assured Guaranty insured $7.68 billion in 469 deals for a 56.3% market share, versus $5.71 billion in 423 transactions or 58.6% market share in the same time period the year before. The figures are according to Refinitiv and include Assured's subsidiary Municipal Assurance Corp.

“Assured Guaranty continued to operate effectively and saw outstanding production in the second quarter of 2020, increasing our primary-market par insured to 63%, compared with the second quarter of last year, Assured Guaranty’s production was up 58% to $5.8 billion in primary insured par, surpassing the 51% increase in the total insured market, and up 22% to 317 new issues in transaction count," said Robert Tucker, senior managing director and head of investor relations at Assured.

In aggregate, for the primary and secondary markets, Assured’s par insured totaled $9 billion for the first half of 2020, including $6.3 billion for the second quarter, up 42% and 58%, respectively year-over-year.

“The market disruption caused by COVID-19 widened credit spreads temporarily, but more importantly, we believe, the pandemic refocused investors’ attention on credit considerations, price volatility and market liquidity, leading to greater demand for our insurance,” Tucker said. “Second quarter industry insurance penetration of 8.8% of total par issued was the highest quarterly level since 2009, and during May, issuers used bond insurance on more than 10% of municipal par issued, only the third time monthly penetration has reached double digits in the last 10 years. We continue fielding a high volume of requests for insurance bids in both the primary and secondary markets even as yields have returned to historical lows.”

Compared with the second quarter of last year, production for Assured was up 58% to $5.8 billion in primary insured par, surpassing the 51% increase in the total insured market, and up 85% to 481 new issues in transaction count.

In the case of AA credits (defined as those credits that have an “AA” category rating from S&P or Moody’s on an uninsured basis), Assured Guaranty insured a total of $1.045 billion in the second quarter alone, one of the highest quarterly insured par amounts Assured has insured in this category in one quarter.

“Assured Guaranty continued to be the insurer of choice for larger transactions,” Tucker noted. “During the second quarter, Assured Guaranty selectively insured 11 transactions of over $100 million in insured par, the largest of which was a $385 million school district transaction for DASNY.”

Other select deals include $225 million for the San Luis/Westlands Water District Financing Authority, Calif., $148 million for the Marshfield Clinic Health System, Wisc., and $112 million for the New Jersey Educational Facilities Authority.