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The Handbook of Municipal Bonds by FRANK J. FABOZZI, SYLVAN G. FELDSTEIN

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CHAPTER 68
How to Analyze the Municipal Bond Insurers and the Bonds They Insure
Donald King Cirillo Principal Municipal Disclosure Advisors, Inc.
 
 
 
The role of municipal bond insurance in the marketplace has grown greatly since it was first introduced in 1971. Today, almost $600 billion worth of outstanding municipal bonds carry some form of enhancement and up until 2008 approximately 50% of all new issues coming to the primary market annually had been insured by one of the guarantors providing this service.
This chapter explains what municipal bond insurance is, how it works, the different types available, and how and why an issuer would go about choosing this option. Also addressed will be why a potential buyer of the bonds would be interested in this service and, additionally, what operational highlights an analyst needs to look at in terms of comparing the various municipal bond insurers. Finally, this chapter comments on some of the most important financial points for evaluation and comparison purposes and what major points an analyst needs to know in order to arrive at a proper credit decision concerning the choice of one insurer over another.

WHAT IS MUNICIPAL BOND INSURANCE?

To better understand how municipal bond insurance works and its effect on the trading market, an analyst must be fully aware of both the public ratings system and the relative value and creditworthiness of one credit versus another.
What is important to remember about municipal bond insurance, ...

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