Muni Think

We welcome Robert Barnes and Donald Hunt’s commentary [published Sept. 28] and general support for a municipal bond insurer similar to our recently proposed Issuers Mutual Bond Assurance Co. However, we feel compelled to clarify several misconceptions they expressed about the plan.

Since last fall, new issues of less than double-A rated municipal bonds have been severely constrained. Why should we care? Because these bonds are typically issued by governmental and tax-exempt entities, often to fund shovel-ready projects ranging from bridges to hospitals - and the failure of that market continues to seriously crimp a national economic recovery.

A recent article in The Bond Buyer reports that investors are gravitating toward longer maturities (“Investors Going out Longer,” Aug. 31). Yet in spite of the longer focus of investors, the pillars of credit analysis and ratings continue to be largely based on analysis of what can be seen in the rear-view mirror.

Since the autumn of 2007, the municipal market has been reeling from the crash of the mortgage market and the collateral-damage impact on the ratings of, and appetite for, bond insurers.

We write to clarify and reinforce the long-standing position of governmental municipal issuers in support of complete and full disclosure in the municipal bond market.

We read with interest the comments of the Government Finance Officers Association's debt committee, reported in The Bond Buyer article "GFOA Shifts on Muni Disclosure" in the June 30 edition.

Municipal bonds, issued by state and local governments to build the infrastructure of our nation, historically have been among the safest investments available to the public. Yet public disclosures about such bonds have long been viewed by investors and others as murky and difficult, if not impossible, to find.

Borrowers today are a little like Ali MacGraw in “Love Story.” For them, ample liquidity means never having to say they’re sorry to their creditors, their board, or their community.

The American Recovery and Reinvestment Act created a new kind of municipal debt instrument called a Build America Bond. BABs were designed so that issuers, if they chose, could raise capital through the broader and deeper liquidity of the taxable market.

HRF Associates' comprehensive plan (Monitor Assurance Corp.) to address the liquidity and credit needs of the municipal market has drawn comparisons to a plan offered by the National League of Cities. HRF detailed its plan with the NLC in January and it appears that some elements have been incorporated into their proposal. However, there are significant and fundamental differences in the plans' approaches to underwriting and risk management, reliance on federal involvement, and federal exit strategy.