Recent credit deterioration of Puerto Rico's public corporations and legislation that would enable some public corporations to restructure their debt have prompted investor questions on the potential ratings impact for bond insurers, according to an article titled "Bond Insurers And The Recent Downgrades Of Puerto Rico's Public Corporations."
"We believe that there are no negative ratings or solvency implications at this time, based on our capital adequacy analysis for Assured Guaranty Ltd. and National Public Finance Guarantee Corp.," said Standard & Poor's credit analyst David Veno.
Despite the significant recent credit deterioration of their various Puerto Rico exposures, as well as existing or potential incurred losses due to each insurer's Detroit exposures, our view is that the legacy bond insurers maintain very strong and sufficient capital cushion to sustain actual or theoretical losses from their insured exposures.
The report addresses the following questions:
- What are the ramifications for bond insurers' solvency and Standard & Poor's ratings following the Commonwealth of Puerto Rico's legislative changes and comments with regard to the various public finance authorities?
- How does Standard & Poor's determine a bond insurance company's capital adequacy and its ability to sustain insured losses?
- Would a bond insurer have to pay the total claim amount immediately after a missed or partial debt service payment?
- Is it a concern that the legacy bond insurers' exposure to issuers within Puerto Rico is large relative to their surplus?
- Is Standard & Poor's considering any change to its bond insurance criteria, given the recent legislative action?
