Have you noticed the recent headlines about the ratings downgrade of certain bond insurers? If your organization has issued bonds with municipal bond insurance, you are probably wondering whether such downgrades have affected your bonds and whether you are required to do anything.
This newsletter is to remind you that bond issuers have certain reporting obligations stipulated by Securities and Exchange Commission Rule 15c2-12. These obligations are typically outlined in the continuing disclosure certificate or agreement signed at the bond closing. You probably know to file your audits and operating data with the nationally recognized municipal securities information repositories ("NRMSIRs") on an annual basis. However, you should know that certain "Material Events" relating to a bond issue, if and when they occur, must be reported as well. In fact, there are eleven different Material Events that must be reported to the NRMSIRs and/or to the Municipal Securities Rulemaking Board ("MSRB"). Each of these are detailed in the continuing disclosure certificate/agreement and a rating change on a bond issue is a Material Event.
So, how do you know if your bonds have been downgraded? Note that if the rating of a bond insurer has been downgraded, the rating on the securities guaranteed or insured by that bond insurer will likely be affected thereafter. In that respect, the following is a list of the major bond insurers that have been recently downgraded for your information:
Bond Insurer Prior Rating Current Rating Rating Agency
Financial Guaranty Insurance Co(FGIC) AAA/AAA/Aaa A/A/A3 S&P/Fitch/Moody's
XL Capital Assurance Inc. Ambac Assurance Corp. AAA/AAA/Aaa/AAA A-/A/A3/AA S&P/Fitch/Moody's Fitch
If you have a bond issue that is insured by any of the above bond insurers, it is likely that such bond issue has been (or will soon be) downgraded. Information on bond ratings can be found on the websites for each of the rating agencies as follows: Moody's Investors Service (www.moodys.com); Standard & Poor's (www.standardandpoors.com) and Fitch (www.fitchratings.com). Once you have determined that the rating on your bond issue has been downgraded, the next step is to review the continuing disclosure certificate/agreement to confirm whether there is an obligation to report a rating downgrade on the bonds. If such obligation exists, you must report such downgrade to the NRMSIRS or the MSRB. In addition, please note that additional bond insurers not listed above ( e.g., MBIA Insurance Corp.) have been placed on "watch" by one or more rating agencies, which means they are being reviewed for possible future downgrade. Currently, Financial Security Assurance Inc. and Assured Guaranty Corp. are reported as "stable". As a result, it is important to determine your bond rating now and on a continuing basis.