Bond insurers reach highest coverage rate in a decade

July 22, 2021 1:17 PM

The two active bond insurers combined for a total of $18.28 billion of insured par in the first half of 2021 in 1,127 deals, up from the $13.92 billion in 979 transactions in the first half of last year.

The municipal bond industry continued the strong run it has been on since the beginning of the COVID-19 pandemic and now has the highest insured rate in the past decade to show for it. The first-half 2021 par insured nears the full-year totals pre-COVID. In 2019, the total par insured was $23.927 billion.

Assured Guaranty Municipal Corp. and Build America Mutual insure 8.4% of the market, the highest it has been since it was 8.64% at the end of 2009. The first-half insured par is up 31% year-over-year compared to the overall market volume growth of 15%. The number of insured transactions is up 88%, while the total transaction count in the muni market increased by 19%.

Robert Tucker, senior managing director of communications and investor relations for Assured Guaranty.

"We saw heightened demand for our wraps on larger transactions, which typically signals interest from institutional investors," said Robert Tucker, senior managing director of communications and investor relations for Assured Guaranty.

Roger Tully

Assured's active first half

Assured Guaranty accounted for a total of $10.74 billion in 543 deals in the first half of 2021 and 58.8% market share, compared to $7.84 billion in 476 deals and 60.7% share of the market from a year prior. Those figures include Assured's subsidiary, Municipal Assurance Corp, according to Refinitiv.

“Assured Guaranty continued to see outstanding production for the first half of 2021, guaranteeing 58% of new-issue insured par sold," according to Robert Tucker, senior managing director and head of investor relations and communications at Assured.

Assured's internal figures showed they insured $11.1 billion, or 34% higher than the first half of last year, and 94% more than the first half of 2019.

"We also increased the number of new issues we insured in the first half of 2021 to 545, up 71% compared with the first half of 2020," he said.

For the second quarter alone, Assured insured $5.27 billon in 292 transactions and 52.5% market share, according to Refinitiv. That does not include corporate CUSIPs.

"In the second quarter, Assured Guaranty continued to lead the bond insurance market with 53% of primary market insured par sold," Tucker said. "We guaranteed 290 transactions for a total of $5.5 billion in insured par. Both our first half and second quarter insured par amounts include our $312 million corporate CUSIP deal for Summa Heath."

Tucker also noted that Assured continues to see "heightened demand" for AGO's wraps on larger transactions, which "typically signals interest from institutional investors."

"During the first half of 2021, Assured Guaranty selectively insured 21 transactions of over $100 million in insured par each, 13 of which were in the second quarter," he said.

The largest active municipal bond insurer is "adding value" on a number of double-A credits.

"During the second quarter, insuring $800 million of par on 29 deals with underlying ratings of AA by S&P Global Ratings and/or Aa by Moody’s Investors Service, bringing first-half production in this category to $2.3 billion with 56 deals."

"Institutional buyers focused on preserving value in their portfolios have been active buyers of higher-rated insured transactions in both the primary and secondary markets," said Sean McCarthy, CEO of Build America Mutual.

Maury A. Spadoto

BAM building its business

Build America Mutual accounted for a total of $7.54 billion in 584 deals or 41.2% market share in the first half of 2021, up from its first half 2020 total of $6.09 billion in 504 transactions and a market share of 43.7%.

“BAM guaranteed half of all insured new-issues in the quarter," according to Seán McCarthy, CEO of BAM. "Primary market par insured totaled $3.7 billion in the quarter, up 35% from 2020, and through the first half, BAM has insured more than $6 billion of new issues, 27% ahead of last year’s pace."

For the second quarter alone, BAM totaled $4.77 billion in 345 issues and a 47.5% share of the market.

McCarthy said that BAM continues to see uncertainty and volatility in the market even as the overall credit landscape has improved, and that continues to drive demand for their insured bonds.

"Institutional buyers focused on preserving value in their portfolios have been active buyers of higher-rated insured transactions in both the primary and secondary markets: BAM insured $1.1 billion of bonds with underlying double-A category ratings during the quarter," he said.

He added that they are also seeing growth in the green bond and public higher education sectors.

"We’ve also seen strong results in the green bond and public higher education sectors, including our largest transaction of the quarter, $277 million to finance new, energy efficient dormitories at UC-Davis," McCarthy said.

According to BAM internal data, BAM GreenStar bond sales totaled $755 million in 28 issues in the quarter, up from $240 million in Q2 2020 and public higher education sector issuance more than doubled to $1.19 billion.