This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

The Deal: Assured Guaranty to Insure Even More Municipals

Stocks in this article: AGO MBI RDN

NEW YORK ( The Deal) -- After getting sucked into major municipal bankruptcies that include the City of Detroit, the City of Stockton, Calif., Jefferson County, Ala., and the City of Harrisburg, Pa., bond insurer Assured Guaranty (AGO) made a bold move Monday, announcing that it has started a new subsidiary to underwrite the risk of even more municipal bonds.

Some observers believe these bankruptcies will make municipal bond insurance look all the more attractive to bond investors, increasing demand for their products.

"It's somewhat ironic, but the situation in Detroit could end up being a positive for Assured Guaranty and fellow bond insurer MBIA (MBI)," said BTIG LLC analyst Mark Palmer. "The events in Detroit have confirmed the value proposition associated with bond insurance."

On July 22, Assured opened a new subsidiary, Municipal Assurance Corp., that will focus exclusively on U.S. municipal bonds. The new subsidiary is jointly owned by the insurer's existing municipal subsidiary, Assured Guaranty Municipal Corp., and Assured Guaranty Corp. MAC's parent subsidiaries gave it $1.5 billion of claims-paying resources and capitalized it with $800 million in cash and securities.

The parent subsidiaries also gave MAC some of their existing business. MAC will focus on healthy bonds, leaving the riskier plays to Assured Guaranty Municipal.

Standard & Poor's Ratings Services gave MAC a rating of AA-, while brand-new Kroll Bond Rating Agency pegged it at AA+.

It remains to be seen how Detroit's bankruptcy will affect the insurers of its bonds, although sources expect that the bankruptcy court will treat them more favorably than Emergency Manager Kevyn Orr did in his scuttled June 14 restructuring plan.

Orr's plan took the unusual step of classifying Detroit's general obligation bonds, which are generally viewed as extremely safe since they are backed by a pledge of city revenue streams, as unsecured debt.

"Detroit's default and restructuring plan are credit negative for bond insurers," Moody's Ratings Service trumpeted in a June 24 report, citing the plan's unusual credit structure that would give holders of general obligation bonds a big haircut -- which bond insurers would be expected to make up.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs