Municipal Bond Forum
Why specialists matter Part II
Q
How can you show Jefferson County, Alabama, sewer bonds with a “AAA” rating when the county is going down the sewer into bankruptcy? You should not even be offering such bonds for sale, much less representing their quality.
A
James A. Klotz responds:
Although we regret having offended you, we respectfully submit that you are overlooking some significant factors in regard to this offering.
The bonds to which you refer are rated “AAA” by S&P because they are insured by FSA. The purpose of bond insurance is to serve as a remedy for the potential bankruptcy to which you refer.
As municipal bond specialists, we are quite familiar with the plight of Jefferson County and its beleaguered sewer authority.
Though not for everyone, there are many astute investors who are pleased to take advantage of a short-term “AAA” bond that is priced to reflect the inherent risk. These investors are counting on the financial wherewithal of FSA and Assured Guaranty to ensure payment of principal and interest.
Start here.
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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.