Bond Accountability Commission 2 Recommendations Page 69
municipal securities ratings on a fully comparable default risk basis with corporate securities ratings, the “global” ratings for CMSD on a stand-alone basis and as enhanced by the Ohio Department of Education’s credit enhancement program can be expected to be at higher levels than their municipal scale ratings, thus decreasing further any value that bond insurance might provide76 •
Given the 100% subsidy now available to CMSD under the federal direct-pay QSCB program, there would not appear to be value to CMSD from reductions in interest costs once CMSD’s interest yields already are below the federally-prescribed subsidy rate published by the Treasury Department
CMSD would pay for bond insurance a premium that would take into account CMSD’s debt service over a long-term, but in connection with a refinancing of the insured securities, CMSD may lose much of any “net” benefit from the original purchase of insurance77
Municipal Market Advisors—Weekly Outlook (March 22, 2010) opined that— This [rating recalibration] is not exactly good news for the bond insurers as it will eliminate many safe sector rating scale arbitrage opportunities or, at a minimum, reduce the potential premium issuers will pay to receive the insured rating while not alleviating the capital the insurers must book against the insured risk.
In some cases, bond insurers may agree to insure the refinancing at a lower insurance cost than required for the original bonds, but that lower cost, if any, still would add additional cost above the original cost of insuring the same debt.
Published on May 14, 2014