Financial Securities Assurance Inc. is getting a makeover. The company was acquired by and became a subsidiary of Assured Guaranty Ltd. in July, and it was announced Monday its name would be changed to Assured Guaranty Municipal Corp.
Assured will continue to operate its two subsidiaries, Assured Guarantee Corp. and Assured Guarantee Municipal Corp., as distinct bond insurers. A press release said that would allow investors the choice between “two proven, financially strong guarantors.”
“Some issuers and investors may prefer a muni-only bond insurer and some may prefer a diversified provider,” said Assured president and chief executive officer Dominic Frederico. “Additionally, having two strong names in the market provides investors with greater diversification.”
As of June 30, 2009, FSA had total claims-paying resources of $7.3 billion and Assured Guaranty Corp. had $2.7 billion.
During the credit crunch, the seven viable bond insurers were trimmed to just two, leaving the Bermuda-based company with a quasi-monopoly in the market. That status has helped Assured’s stock skyrocket 358% since early March, closing at $16.73 yesterday.
However, while Assured’s share of the insured bond market pie was nearly 100% in the third quarter, the pie itself is dramatically smaller than it was before the crisis.
Less than 10% of new issuance was insured in the third quarter, compared to more than 50% before the crisis. According to Mike Pietronico, chief executive officer of New York-based Miller Tabak Asset Management, that ratio is unlikely to improve any time soon.
“Our view is that the market will remain skeptical towards the municipal bond insurance industry altogether, and we’re not so certain that a name change is going to have any meaningful impact — positive or negative — on the outstanding bonds,” he said.
Even over the long term, Pietronico said it would be unlikely that private insurance would regain the status it once held in the market.
Frederico was more optimistic, however. “Our market activity for the first 10 months fully supports the demand for bond insurance,” he said. “Through October 2009, [the two subsidiaries] have insured approximately $32 billion of new municipal issues, representing about 9.5% of all new issuance.”
He added: “When you look at the breakdown of market issuance by rating category, you can readily see the pressure that credits below double-A are under, and this is the segment where bond insurance provides significant value based on the insurer’s higher ratings and investor confidence in our analysis and structuring. All of this leads to reduced cost of funding.”
Frederico did acknowledge there is a lack of appetite for insured executions of bonds rated double-A or higher.
Looking forward, Frederico said outstanding bonds guaranteed by FSA “remain guaranteed in the name of FSA on the indenture.” Once the name change has been approved in all of the licensed jurisdictions, listing services will be updated under the new name but with the same Cusip numbers.
