Get used to hearing a new name in bond insurance: BAM.
Licensed in 12 states so far, including New York, Pennsylvania, Texas, and Michigan, BAM (Build America Mutual Assurance Co.) is sponsored by the National League of Cities, which recognized the need of municipalities for bond insurance to reduce the cost of future financings.
BAM has received an “AA” rating with a Stable Outlook from Standard & Poor’s and expects to be licensed across the country. Currently, the only other active bond insurer is Assured Guaranty, which has ratings of “AA-“ and “Aa3” from S&P and Moody’s, respectively.
BAM opened its doors last summer with $500 million of initial funding. It’s staffed by seasoned industry professionals who previously guided other major bond insurance firms.
The company intends to insure bonds rated “AA-“ and “A” up to $100 million, as well as “BBB”-rated bonds up to $75 million in par value. The immediate plan is to insure general obligation and essential public service revenue bonds only.
As a mutual insurance company, issuers will be charged 1% of the par amount of a bond issue to become members, along with an insurance premium. Standard & Poor’s views this mutual aspect of the company as a strength that will contribute to widespread market acceptance. S&P foresees excellent growth potential, estimating it will insure at least $10 billion in face value during BAM’s first 12 months, followed by $15 billion in its second year.
Muni market participants welcome a new entrant in this arena following the decimation of bond insurers who, during the financial crises, strayed from their core competency in municipal finance.