Bond insurers capitalizing on influx of taxable deals
The two active municipal bond insurers for municipals insured $5 billion more in 2019 than they did in 2018 thanks to a surge of issuance in the fourth quarter.
Assured Guaranty and Build America Mutual combined for $23.92 billion of insured volume spanning 1,724 transactions and 5.67% coverage rate in 2019. That is up from $18.92 billion in 1,249 deals and 5.58% insured rate in 2018.
Assured wrapped $14 billion in 839 deals for a 58.5% market share, versus $10.52 billion in 597 transactions, or 55.6% market share, in 2018. The figures are according to Refinitiv and include Assured's subsidiary Municipal Assurance Corp.
Build America Mutual accounted for $9.92 billion of insured volume spanning 886 transactions, or 41.5% market share in 2019, compared with $8.41 billion in 655 deals and 44.4% market share in 2018.
Assured said the fourth quarter was its strongest of the year, “insuring $5.2 billion of primary market par, up 71% year over year, representing 62% of the insured market,” said Robert Tucker, senior managing director and head of investor relations. “In aggregate, our primary and secondary market activity totaled an industry-leading $5.6 billion for the quarter across 383 transactions/policies.”
Assured’s 2019 full-year primary market insured par sold increased by $3.7 billion, or 34%, year over year.
“We guaranteed $14.7 billion of primary market par, representing 60% of the insured market,” he said. For competitively bid issues, the insured market share was 64%. "In aggregate, Assured Guaranty insured $16.3 billion in the primary and secondary markets with a total transaction/policy count of 1,232.”
Additionally, Tucker added that there were a number of transactions that stood out in 2019 for Assured Guaranty. One of the deals was the largest single insured transaction in nearly a decade: $700 million of CommonSpirit Health’s $6.5 billion transaction, which was awarded The Bond Buyer’s Deal of the Year.
“We also insured $535 million of the $897 million Foothill/Eastern Transportation Corridor transaction. Additionally, in February and August 2019 and January 2020, we guaranteed the three largest insured Green Bond transactions on record, all for the New York MTA," he said. "In total during 2019, we insured $100 million or more of par on 22 different transactions.”
In addition to underwriting larger transactions, Assured wrapped deals ofvarious sizes across a range of sectors.
“More than half of our 840 primary market transactions in 2019 were for bank-qualified issuers, who continue to benefit from the market liquidity our product can create,” Tucker said. “Significantly, investors saw the added value in our guarantees of 40 transactions, totaling $1.5 billion of insured par, that S&P or Moody’s rated in the double-A category on an uninsured basis.”
For the fourth quarter of 2019 alone, BAM was responsible for $3.16 billion over the course of 273 transactions and a 37.8% market share. The taxable trend that took over the market in the second half of 2019, helped with BAM’s busy last three months of the year.
“The taxable municipal market is attracting a wider range of issuers than it has in the past due to the ban on tax-exempt advance refundings,” Grant Dewey, head of municipal capital markets for BAM, said. “As the number of taxable issuers increases, there’s been a greater role for bond insurance generally, and a greater opportunity for BAM to participate in those transactions.”
He noted that historically, the largest issuers of taxable municipals have been private, nonprofit hospitals and colleges and universities, which are sectors in which BAM is not active.
“Taxable buyers have less experience with the more traditional sectors of the market that have become more common in the taxable market, so they appreciate the added security and analysis BAM provides on GO and essential-purpose revenue transactions, including our annually updated BAM Credit Profiles detailing the underlying credit.”
Dewey added that structurally, bond insurance can also be more cost effective on taxable issues because they are more likely to be sold with make-whole calls.
“That means the issue has a longer expected life, and issuers will amortize the cost of insurance over a longer period, which increases the savings.”