Bond insurer Build America Mutual rode the recent wave of
BAM, which, along with Assured Guaranty, is one of the top two insurers in the municipal bond market, released its second quarter earnings Wednesday. The company saw an 18% year-over-year increase to $6.2 billion of par insured and a 61% increase in total premiums to $47 million for the quarter.
"BAM is on course for another record year, and we're achieving these results while maintaining high standards for credit selection, and risk/return discipline that achieves an appropriate balance for BAM members and stakeholders," BAM CEO Seán McCarthy said in a statement. "That gives institutional investors confidence that they can rely on our guaranty as a tool to mitigate risks and improve price stability in their portfolios over the long run."
In the first half of the year, BAM wrapped $9.02 billion of municipal bonds. That included its largest-ever deals in California, Kentucky, New Jersey, Ohio, and Washington, and 11 transactions with par of $100 million or more, the company said.
The deals come as primary bond supply is expected to reach the highest to date this year and as the muni market is seeing an "expansion of the 'insurable universe,' particularly on larger and higher-rated transactions," said BAM's head of strategy and communications Mike Stanton.
A total of 35% of BAM's second quarter insured par holdings carried public underlying ratings in the double-A category from S&P Global Ratings or Moody's Ratings.
The secondary market has become more popular for bond insurers as they look to take advantage of higher premiums on discounted bonds. Assured,
BAM has been increasing its secondary-market efforts for several years and remains the leader in the space, with roughly 58% of market share, Stanton said. "It's been a strong focus for us," he said, adding that "overall market conditions drive secondary market opportunities."
BAM's secondary market coverage totaled $1.25 billion for the first six months of the year, up 30% from the same period last year, Stanton said.
"BAM's long-term commitment to secondary market insurance keeps us closely connected to a broad network of institutional investors," said Grant Dewey, BAM's head of capital markets. "That real-time insight into buyer objectives enables us to generate actionable, relevant trade ideas and execute them seamlessly in varying market environments."
BAM, which only insures bonds that carry internal investment-grade ratings, has as its top holding Metropolitan Transportation Authority's mass transit farebox bonds, with $568.5 million of outstanding par, which accounts for 0.4% of its total gross par outstanding, according to a June 30 operating supplement. That's followed by Sherman, Texas combined water and sewer bonds, at $509 million; the South Carolina Public Service Authority; Chicago's Midway Airport GARBs; Chicago, Illinois' general obligation debt and Chicago's sales tax bonds.
As a mutual financial guaranty insurance company, BAM's issuers are members of the company and are required to contribute to the company's surplus.
