Lower issuance leads to drop in bond insurance in Q1

Assured Guaranty accounted for a total of $4.816 billion in 169 deals for a 60.1% market share in the first quarter of 2021, down from the $5.513 billion in 252 deals for a 67.6% market share over the same period as the year before.

During the first quarter of 2022, Assured Guaranty Municipal Corp. insured $5.1 billion of par in the primary and secondary markets with a total count of 224 transactions, said Robert Tucker, senior managing director, Investor Relations and Corporate Communications.

“We saw tremendous gains in our secondary market par insured, with a 500% increase in par insured year-over-year during the first quarter,” he said. “We believe this indicates that investors were actively seeking the security of our guarantee to protect portions of their fixed-income portfolios from the potential effects of the economic stress and market volatility in the current environment.”

Tucker said the primary market volume utilizing bond insurance during the first quarter of 2022 was 8.5% of par issued, in line with the annual par rate of 8.2% of par issued that Assured saw in 2021, which was the highest rate in 12 years.

He said an important trend in recent years has been the ability to support some of the municipal bond market’s largest transactions, which he believes indicates growing institutional demand for Assured and the relative price stability and increased market liquidity its insurance can potentially provide.

As of April 11, Assured’s insurance of 58% of primary market insured par included seven large transactions with insured par over $100 million, including a $691 million transaction for the Metropolitan Washington Airports Authority, a $400 million transaction for the Department of Airports for the City of Los Angeles and a $152 million transaction for the Louisville-Jefferson County Metro Government.

Among double-A credits, Assured insured 27 transactions for a total of $535 million of insured par during the quarter, reflecting what Tucker believes is the market’s recognition of the value its guaranty can add even to highly rated credits.

Build America Mutual insured $3.360 billion, or a 40.8% market share, in 240 deals during the first three months of 2022. That is up from the $2.929 billion, or a 33.8% market share, in 271 deals over the same period in 2021.

Michael Stanton, head of strategy and communications, said the municipal market historically starts the year slowly, but that wasn’t BAM’s experience in 2022. The dramatic increase in market volatility starting at the beginning of the year and related shift to outflows for municipal bond mutual funds increased uncertainty for issuers and investors and fueled strong interest in insured bonds. He said BAM had its strongest first quarter in its 10-year history, including more than 230 new-issue series insured for more than 200 member issuers.

“The most important factor was the demand environment: As mutual fund portfolio managers contended with outflows, insurance was an important tool that helped issuers attract a broader range of buyers to their transactions,” Stanton said. “Those trends have continued into the second quarter, as we start to see more activity from crossover buyers, who have more limited internal capacity to monitor muni credits.”

Stanton said BAM’s activity in the first quarter was widespread across a range of sectors and 27 states. The benefits of insurance were particularly relevant for larger transactions and higher-rated issues with double-A category underlying ratings, including its largest insured new-issue of the quarter, $181 million of water revenue bonds for the Jefferson Parish, La., Consolidated Water District #2, which carried an Aa3 underlying rating from Moody’s Investors Service.

He said BAM saw continued strong interest in insurance for higher-rated bonds: More than 30% of BAM’s par insured in the quarter had public underlying ratings in the double-A category from Moody’s Investors Service or S&P Global Ratings. In addition, issuers sold 19 series of BAM GreenStar bonds that aligned with the International Capital Market Association’s Green Bond Principles, totaling more than $260 million.