Municipal underwriting veteran Steven Citron was named chief risk officer of start-up bond insurer BondModel Co. yesterday.
Most recently Citron was chief risk officer of MBIA Inc. subsidiary National Public Finance Guarantee Corp. He worked at MBIA for 28 years, including a stint as head of public finance underwriting at MBIA Insurance Co. for 11 years. When MBIA restructured the company and established NPFG early last year, he was named chief risk officer.
“For someone who is attuned to the monoline space, Steve’s reputation, thoroughness, and professionalism speaks for itself, so we’re delighted to have him come on board,” said Brad Wendt, BondModel’s president.
BondModel is a New York-based firm founded by former public finance veterans from Goldman, Sachs & Co. The outfit hopes to begin underwriting in the second quarter of this year, pending high grades from rating agencies and regulatory approval from the New York Insurance Department.
The firm is currently staffed by eight senior members and plans to hire another 12 senior individuals by the beginning of March.
Citron said his role with BondModel is “fundamentally the same” work that he has been doing for nearly three decades, “with the added challenge of creating BondModel’s infrastructure.”
The company plans to insure bonds using a structure which, it claims, provides “a six-fold increase in the efficiency of cash capital required by the rating agencies and insurance regulators.”
The company owns a patent to create a structure with a certain number of pools, each populated with a tranche of insured municipal bonds and a tranche of uninsured munis.
The company sells two positions in each pool — a senior position would be entitled to the insured tranche and a junior position would be entitled to the uninsured tranche.
If the insured tranche in a given pool defaults, BondModel would intercept the payments from the junior portion to repay the senior portion.
If the junior portion in that pool is not enough to compensate the senior tranche, then BondModel would intercept payments from the junior portions in other pools to repay the senior portion in the pool with the default.
That way, all the senior tranches are senior to all the junior tranches. No uninsured bondholder in the structure would be paid until all the insured bondholders were paid first.