Municipal Bond Forum
ACA rating affirmed
Q
With the current illiquidity in the market for ACA insured bonds it seems to me that their ability to write new municipal bond business is going to be severely hampered. I would also assume that any new Collateralized Debt Obligation (CDO) business is dead. How can they survive under these conditions? Where are the revenues going to come from?
A
James A. Klotz responds:
ACA’s CDO exposure and general business mix have been reviewed by Standard & Poor’s and its rating has been affirmed. Market liquidity varies over time, and we’re now seeing a resurgence in paper insured by Radian Asset Assurance, a AA-rated insurer that has a similar niche to ACA. This may presage a similar rebound for ACA as well.
The capital markets are fickle and current conditions are challenging, no doubt. However, ACA has a sound business strategy and capital position in the eyes of S&P and there will always be infrequent issuers of municipal bonds whose size and specialized projects will be a good fit for ACA’s underwriting approach. While financial firms large and small have been reporting mixed results as of late, we anticipate that ACA will perform in a similar fashion as the rest of its peers.
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The responses provided in this forum are meant to address specific questions posed by investors about their municipal bonds and to provide market insight for our general audience. Please note, your investments, objectives, results and experience may differ significantly. Our answers and any potential strategies discussed should not be construed as a solicitation to buy nor sell any security or investment product. All investing entails risk.