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Abstract: 

Just before July 2013, only two insurers, Build America Mutual Assurance Company (BAM) and Assured Guaranty Municipal Corporation (AGM, a subsidiary of Assured Guaranty Ltd.) were providing new municipal debt insurance. On July 22, 2013, Assured Guaranty Ltd. announced the launching of the newly formed Municipal Assurance Corporation (MAC). Standard & Poor’s Corporation rated BAM-insured bonds as AA from 2013 through 2015 and rated AGM- and MAC-insured bonds as AA– before upgrading them to AA on March 18, 2014. Moody’s Investors Service rated AGM-insured bonds as A2 throughout this period but did not rate BAM- and MAC-insured bonds. Findings suggest that during the pre-upgrade period, AGM-insured bonds had the highest interest costs, followed by MAC-insured bonds and BAM-insured bonds. After the rating upgrade, the interest cost of AGM-insured issues is no longer statistically different from BAM-insured issues; however, MAC-insured bonds have a lower interest cost than AGM- and BAM-insured bonds.

Keywords: Municipal bond insurance, bond interest cost, bond ratings, Build America Mutual Assurance Company, Assured Guaranty Municipal Corporation, Municipal Assurance Corporation

Affiliations:  1: Western Washington University; 2: University of Houston–Clear Lake.