Bond Accountability Commission 2 Recommendations Page 83
Recommendations: We recommend that CMSD exercise significant care in determining whether to purchase bond insurance, taking into consideration not only price and securities yield factors, but all relevant facts and circumstances. We also recommend that CMSD investigate with its Financial Advisors the potential for an aggressive investor education program to inform investors about the actual credit strength of CMSD’s municipal rating scale rating category and the strength of CMSD’s unlimited tax general obligation credit. Even after “recalibration” of ratings on “global” scales, CMSD may not be given full recognition by rating agencies with respect to CMSD’s true relative credit strength based on default risk. Investors that fully understand CMSD’s default risk—both unenhanced and enhanced by the Department of Education— should be less likely to assign significant value to bond insurance. We also recommend that, if CMSD determines that there is value in purchasing bond insurance on top of CMSD’s own credit and the credit of the Ohio Department of Education’s Credit Enhancement Program, CMSD obtain satisfactory full certification as to both the material accuracy and the material completeness (in typical language based Regarding the ability of issuers to investigate bond insurers’ information, R OLES OF C OUNSEL adds— Furthermore, both municipal issuers and conduit borrowers lack both the expertise and the opportunity to investigate credit enhancers, and there is no evidence that investors believe that such issuers or borrowers should assume such responsibility. Accordingly, the most common approach for such issuers and borrowers is to rely upon the information supplied by the credit enhancer without independent investigation of its accuracy and completeness, while noting in the Official Statement that the credit enhancer is in fact the source of such information.
Published on May 14, 2014