Fitch Ratings believes a small number of special tax bonds with slim debt service coverage could see a noticeable narrowing of margins with the potential reduction in the direct subsidy payments that issuers receive from the U.S. government on Build America Bonds (BABs).

The Office of Management and Budget's report on budget cuts under sequestration projected a 7.6% reduction in the subsidy. Unless Congress and the President make changes to the sequestration cuts, the reductions will become effective on Jan. 2.

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