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73-738: Financial Guaranty Insurance Company ( FGIC ) is an American monoline bond insurer established in 1983. It faced significant financial difficulties in 2008 which affected its ability to write new business. The firm was acquired in December 2003 by a consortium of investors including PMI Group , The Blackstone Group , The Cypress Group and CIVC Partners . As of March 24, 2009, it was rated "CC" by Standard & Poor's (S&P) and "Caa3" by Moody's Investors Service. Fitch Ratings had already withdrawn its rating, while Moody's announced it would remove its rating. The ratings are negative from both Moody's and Standard & Poor's. On November 24, 2009, it

146-477: A "when issued" market, and also immediately after they are issued. Once the bonds find their way into retail and mutual fund portfolios, the volume of trade drops off dramatically. The MSRB reports that from March 1998 to May 1999, 71% of the outstanding issues did not trade at all. A 2005 study concluded that 4–6 months after issuance, less than 10% of the sampled bonds traded at all; the probability then rises somewhat so that by four years from issuance, roughly 15% of

219-575: A bond insurance subsidiary that was owned by Radian Asset but never launched, renamed it Municipal Assurance Corp. ("MAC"), and launched the new company as a municipal-only bond insurer in July 2013. Municipal bond A municipal bond , commonly known as a muni , is a bond issued by state or local governments, or entities they create such as authorities and special districts. In the United States, interest income received by holders of municipal bonds

292-446: A discount. While minimum denominations contribute to illiquidity, another such reason is the total amount of municipal bonds outstanding. There are over 1,500,000 individual municipal CUSIPs representing over 50,000 issuers. To put this into context, there are ~4300 US domestically incorporated exchange-listed stocks and 10,500 stocks that trade over-the-counter . Over the last decade, technology solutions have been applied to make

365-465: A lower interest rate in exchange for the credit enhancement provided by the insurance. The interest savings are generally shared between the issuer (as its incentive to use the insurance) and the insurer (as its insurance premium). Since an issuer has the option of selling its securities with or without insurance, it will generally only use insurance when doing so results in overall cost savings. Municipal bond insurance premiums are generally paid up-front as

438-575: A lump sum; while non-municipal bond insurance premiums are generally paid in periodic installments over time. In July 2008, the Association of Financial Guaranty Insurers ("AGFI"), the trade association of financial guaranty insurers and reinsurers, estimated that, since its inception in 1971, the bond insurance industry had saved municipal bond issuers and their taxpayers $ 40 billion. A majority of insured securities today are municipal bonds issued by states, local governments and other governmental bodies in

511-497: A monoline business, limiting industry members to writing bond insurance and closely related lines of insurance that include surety, credit, and residual-value insurance. The monoline restriction also prevented other types of insurance companies from offering financial guaranty insurance. A cited rationale for the monoline approach was to simplify regulation and help ensure capital adequacy. The 1990s saw industry members insure both municipal bonds and asset-backed securities (ABS). At

584-413: A municipal bond is calculated as follows. Where r m = interest rate of municipal bond, r c = interest rate of comparable corporate bond and t = investor's tax bracket (also known as marginal tax rate): For example, assume an investor in the 38% tax bracket is offered a municipal bond that has a tax-exempt yield of 1.0%. Using the formula above, the municipal bond's taxable equivalent yield

657-443: A municipal bond sale to be spent on capital projects within three to five years of issuance. In the United States, although not all municipal bonds are tax-exempt, most are. Tax-exempt securities represented about 80% of trading volume in U.S. municipal bonds in 2020. Interest income from most municipal bonds is excludable from gross income for federal income tax purposes, and may be exempt from state income tax as well, depending on

730-458: A proposal are issued in series over a period of time, in order to allow contractors a steady stream of work and the jurisdiction to not be overwhelmed in managing too many projects at once. Before a particular municipal bond is offered to the public, the issuer must publish an "official statement" disclosing material information about the offering. Key players in the issuance process include: Tax regulations generally require all money raised by

803-558: A small portion of the bonds, and holders of the insured debt received full and timely payment from Ambac, which demonstrated the value of bond insurance to the market. This proved to be a watershed moment for the bond insurance industry, igniting steady growth in demand for many years. During the 1980s, other participants emerged in the sector including Bond Investors Guaranty Insurance Company ("BIG") (1985) and Capital Markets Assurance Corp. ("CapMac") (1988), both of which were subsequently acquired by MBIA; Capital Guaranty Corp. (1986), which

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876-399: Is 1.6% (0.01/(1-0.38) = 0.016) - a figure which can be fairly compared to yields on taxable investments such as corporate or U.S. Treasury bonds for decision making purposes. Typically, investors in the highest tax brackets benefit from buying tax-exempt municipal bonds instead of taxable corporate bonds, but those in the lowest tax brackets may be better off buying corporate bonds and paying

949-428: Is a stub . You can help Misplaced Pages by expanding it . Monoline The insurer is paid a premium by the issuer or owner of the security to be insured. The premium may be paid as a lump sum or in installments. The premium charged for insurance on a bond is a measure of the perceived risk of failure of the issuer. It can also be a function of the interest savings realized by an issuer from employing bond insurance or

1022-501: Is among the risks evaluated by a rating agency , which assigns a credit rating to the bond. Credit ratings are generally the starting point buyers use when deciding how much to pay for a municipal bond. Historical default rates have been lower in the municipal sector than in the corporate market. This may be due in part to the fact that some municipals are backed by state and local government power to tax, or revenue from public utilities. However, sharp drops in property valuations (as in

1095-620: Is more highly rated than the issuer. Following the global financial crisis of 2008, municipal market events have helped to refocus investors and issuers on the benefits that bond insurance provides. A number of well-publicized municipal defaults, bankruptcies and restructurings occurred, which proved that bond insurance remains valuable in the public finance market. For example, holders of insured bonds were kept whole by Assured Guaranty and National Public Finance Guarantee in situations involving Detroit, Michigan; Jefferson County, Alabama; Harrisburg, Pennsylvania; Stockton, California and Puerto Rico. In

1168-423: Is often, but not always, exempt from federal and state income taxation. Typically, only investors in the highest tax brackets benefit from buying tax-exempt municipal bonds instead of taxable bonds. Taxable equivalent yield calculations are required to make fair comparisons between the two categories. The U.S. municipal debt market is relatively small compared to the corporate market: total municipal debt outstanding

1241-402: Is the insurer's responsibility, not the investor's. The insurance may also improve market liquidity for the insured securities. The uninsured bonds of an individual issuer may trade infrequently, while bonds trading in the insurer's name are more likely to be actively traded on a daily basis. Investors in insured bonds are also protected from rating downgrades of issuers, so long as the insurer

1314-547: The 2009 mortgage crisis ) can strain state and local finances, potentially creating municipal defaults. Harrisburg, PA, when faced with falling revenues, skipped several bond payments on a municipal waste to energy incinerator. The prospect of municipal bankruptcy was raised by the Controller of Harrisburg, although it was opposed by Harrisburg's mayor. Default risk to the investor can be greatly reduced through municipal bond insurance, which promises to pay interest and principal if

1387-543: The Local Government Funding Agency (LGFA), is the second-biggest issuer of New Zealand-dollar debt behind the government. Local governments in China were not permitted to issue bonds in the open market until 2015, and historically these governments relied on local government financing vehicles as a major source of debt finance. By the end of 2022 a total of CN¥35.1 trillion of bonds were outstanding. In India,

1460-590: The 2000s leading up to the 2008 financial crisis. Bond insurers were also exposed to residential mortgage debt through collateralized loan obligations (CLOs) and collateralized debt obligations (CDOs) backed by subprime mortgage debt. The insurers had sold credit default swap (CDS) protection on specific tranches of CDOs. This business contributed to the monolines' growth in the early 2000s, with $ 3.3 trillion insured in 2006, with that contingent liability backed by approximately $ 47 billion of claims-paying resources. These exposures were all in compliance with Article 69 of

1533-442: The 2008 financial crisis, bond insurers suffered few material losses. Notable exceptions in the municipal sector include: As publicbonds.org points out, a 1994 BusinessWeek article called MBIA "an almost perfect money machine". The BusinessWeek story noted that, as of that time, MBIA had seen only one loss. By the late 1990s and early 2000s, about 50% of U.S. municipal bonds were insured. Although penetration of insurance in

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1606-1095: The Congress could tax interest income on municipal bonds if it so desired on the basis that tax exemption of municipal bonds is not protected by the Constitution. In this case, the Supreme Court stated that the contrary decision of the Court in Pollock had been "effectively overruled by subsequent case law". The Revenue Act of 1913 first codified exemption of interest on municipal bonds from federal income tax. The Tax Reform Act of 1986 greatly reduced private activities that may be financed with tax-exempt bond proceeds. The United Kingdom 's UK Municipal Bonds Agency (UK MBA) provides services for borrowing by municipalities. Canada has CIBC . Municipal bonds agencies also known as Bond banks or Local government funding agencies exist in other countries, such as Sweden and Finland. In New Zealand,

1679-635: The District of Columbia and U.S. territories and possessions (American Samoa, the Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands) can and do issue municipal bonds. Another important category of municipal bond issuers which includes authorities and special districts has also grown in number and variety in recent years. The two most prominent early authorities were

1752-789: The New York Insurance Law and other states' financial guaranty insurance statutes and with capital adequacy guidelines set by the rating agencies. As the housing bubble grew in the mid-2000s, bond insurers generally increased the collateral protection required for the RMBS they guaranteed. But when the housing market declined, defaults soared to record levels on subprime mortgage loans and new types of adjustable rate mortgage (ARM) loans—interest-only, option-ARM, stated-income, and so-called "no income no asset" (NINA) loans—that had been developed and issued in anticipation of continuing appreciation in housing prices. The subsequent real estate market decline

1825-566: The New York State Insurance Department (NYID) issued guidance regarding insurance of obligations under credit default swaps, which facilitated the participation by financial guaranty insurers in the CDS market. The NYID guidance was subsequently codified by amendments to Article 69 of the New York Insurance Law. In 2001, Radian Group Inc. acquired Enhance Reinsurance Company and its affiliate, Asset Guaranty Insurance Company, renaming

1898-524: The New York State Insurance Department, FGIC ceased paying claims in 2010 and is in run-off, now paying claims in part. Syncora Guarantee Inc. ("Syncora"), CIFG, Radian Asset and Ram Re remained solvent but have generally not written new business. Ram Re has been renamed American Overseas Reinsurance Company Ltd. and has redomesticated to Barbados. The company never filed for bankruptcy and is writing new lines of insurance while it runs off its financial guaranty book. In January 2012, Assured Guaranty acquired

1971-512: The New York Stock Exchange due to low market price and negative net worth, although ACA retained its single-A rating. On December 19, 2007, the company was downgraded to triple-C by Standard & Poor's. Downgrades of major triple-A monolines began in December 2007, resulting in downgrades of thousands of municipal bonds and structured financings insured by the companies. In 2007 Warren Buffett's Berkshire Hathaway Assurance entered

2044-590: The Port of New York Authority, formed in 1921 and renamed Port Authority of New York and New Jersey in 1972, and the Triborough Bridge Authority (now the Triborough Bridge and Tunnel Authority), formed in 1933. The debt issues of these two authorities are exempt from federal, state and local governments taxes. The basic types of municipal bonds are: Depending on the jurisdiction and the basis for issuing

2117-423: The RMBS and were subject to repurchase by the RMBS sponsors. As provided under the insurance contracts, the insurers "put back" to the sponsors such loans, which breached applicable representations and warranties ("R&W") regarding what was in the securitizations, i.e., they demanded the sponsors buy the loans out of the pool, as required under the contracts. Such "putbacks" have remained subject to litigation into

2190-472: The United States and in certain other countries. Bond insurance has also been applied to infrastructure project financing, such as those for public-private partnerships, bonds issued by non-U.S. regulated utilities, and U.S. and non-U.S. asset-backed securities ("ABS"). Financial guaranty insurers withdrew from the residential mortgage-backed securities ("RMBS") market after the 2008 financial crisis. Investors purchasing or holding insured securities benefit from

2263-509: The additional payment source provided by the insurer if the issuer fails to pay principal or interest when due (which reduces the probability of a missed payment to the probability that not only the issuer but also the insurer defaults). The value proposition of bond insurance includes the insurers' credit selection, underwriting, and surveillance of the underlying transactions. Significantly, uninsured transactions are often not monitored by rating agencies following their initial rating issuance. In

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2336-449: The alternative minimum tax as an item of tax preference. Municipal bonds' coupon rates are generally lower than those of comparable corporate bonds, but higher than those of their FDIC-insured counterparts: CDs, savings accounts, money market accounts, and others. Historically, municipal bonds have been one of the least liquid assets on the market. One indicator of this is their infrequent trading. Municipal bonds are actively traded in

2409-511: The applicable state laws. Internal Revenue Code section 103(a) is the statutory provision that excludes interest on municipal bonds from federal income tax. As of 2004 , other rules, however, such as those pertaining to private activity bonds, are found in sections 141–150, 1394, 1400, 7871. The state and local exemption was the subject of litigation in Department of Revenue of Kentucky v. Davis . Bonds issued for certain purposes are subject to

2482-533: The asset-backed securities (ABS) sector before the 2008 financial crisis. In 1989, New York State enacted a new Article 69 of the New York State Insurance Law, which established "financial guaranty insurance" as a separate line of insurance. Article 69 excluded financial guaranty insurers from coverage under the property/casualty insurers security fund, which covered payments owed by insolvent insurers. It also established financial guaranty insurance as

2555-462: The bond insurers faced billions of dollars of claims on insured RMBS, with uncertain prospects for recoveries from the sponsors (creators) of those RMBS. Monoline insurers posted higher reserves for losses as these insured securities appeared headed for default. Following the crisis, the bond insurers became aware that many RMBS they had insured included large percentages of loans that were ineligible for securitization, i.e., they should not have been in

2628-444: The bond, voter approval may be required, especially if a property tax levy is involved. Some bonds, for minor projects or emergency situations, may be issued without voter pre-approval. But in all cases, public input (whether a vote, or the opportunity to speak for or against issuance at a public hearing) is required. Voter approval of the bond proposal does not automatically result in the bonds being issued. Frequently, bonds under

2701-511: The bonds in the sample traded at least once during a given month. A 2007 study concluded that the average investment grade tax exempt 1-10 year municipal bond traded 21 times over its 11-year sample and 5.65% of issues only traded once. Unlike corporate and Treasury bonds, which are more likely to be held by institutional investors, municipal bond owners are more diverse, and hence harder to locate, giving this market less liquidity. Compared to stocks, municipal bonds are much harder to maneuver. At

2774-487: The business of insuring asset-backed securities (ABS). These became known as the "big four" bond insurers. By 1980, about 2.5% of long-term municipal bonds were insured. In 1983, the Washington Public Power Supply System (WPPSS) defaulted on $ 2.25 billion of revenue bonds relating to troubled nuclear power projects. Most of the 30,000 bondholders lost 60-90 cents on the dollar. Ambac had insured

2847-481: The companies Radian Reinsurance Inc. and Radian Asset Assurance Inc. ("Radian Asset"), respectively. Both companies engaged in financial guaranty insurance and reinsurance. In June 2004, Radian Reinsurance and Radian Asset Assurance merged, with the surviving corporation being Radian Asset. Bond insurers had guaranteed the performance of residential mortgage-backed securities (RMBS) since the 1980s, but their guaranties of that asset class expanded at an accelerated pace in

2920-509: The emergence of new reinsurers , such as Ram Reinsurance Company Ltd. ("Ram Re") and AXA Re Finance. In 1999, ACE Ltd. acquired Capital Re, and renamed the company "ACE Capital Re." ACE Capital Re was spun off from ACE Ltd. in 2004 and renamed Assured Guaranty Corp. ("AGC"). AGC's parent holding company, Assured Guaranty Ltd. ("Assured Guaranty"), engaged through its subsidiaries in both financial guaranty insurance – through AGC—and reinsurance—through Assured Guaranty Re Ltd. ("AG Re"). In 1999,

2993-501: The event of default of such transactions, bond trustees often fail to take appropriate remedial actions absent direction and indemnity from the bondholders (which is typically not forthcoming). In contrast, bond insurers frequently have the ability to work directly with issuers either to avoid defaults in the first place or to restructure debts on a consensual basis, without the need to obtain agreement from hundreds of individual investors. Litigation to obtain recovery, should it be necessary,

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3066-529: The financial crisis and ensuing recession and recovery. The financial crisis precipitated many changes in the bond insurance industry, including rating agency downgrades, several companies ceasing to write new business, dramatic share value reductions, and consolidation among the insurers. The industry's primary regulators in New York also took action, as did their counterparts in Wisconsin. On November 7, 2007, ACA,

3139-414: The financial guaranty insurance completely. The slow reaction of the rating agencies in acknowledging this situation echoed their slow downgrading of subprime mortgage debt a year earlier. In 2008, the New York State Insurance Department (NYID) issued "Circular Letter No. 19", which described "best practices" for financial guaranty insurers, particularly relating to categories of securities that had damaged

3212-425: The first R&W trial to reach a judgment, Flagstar Bank was required to compensate Assured Guaranty in full for past and future claims. The amounts that Assured Guaranty caused R&W providers to pay or commit to pay through putbacks and settlements plus the amount of future projected losses that Assured Guaranty avoided through negotiated terminations totaled approximately $ 4.2 billion as of March 31, 2015. While

3285-402: The governmental unit, agency, or other issuer of the insured bonds or other securities is the result of the savings on interest costs, which reflects the difference between yield payable on an insured bond and yield payable on the same bond if it was uninsured—which is generally higher. Borrowing costs are generally reduced for issuers of insured bonds because investors are prepared to accept

3358-463: The increased value of the security realized by an owner who purchased bond insurance. Bond insurers are "monoline" by statute, which means that companies that write bond insurance do not participate in other lines of insurance such as life, health, or property and casualty. The term monoline does not mean that insurers operate only in one securities market, such as municipal bonds, as the term has sometimes been misconstrued. Although bond insurers are not

3431-567: The industry in the financial crisis. In 2009, Assured Guaranty acquired FSA and subsequently renamed it Assured Guaranty Municipal ("AGM"), combining under the same ownership the two most highly rated bond insurers at that time. Assured Guaranty became the only bond insurer to write insurance continuously from the pre-crisis period to the present. Also in 2009, MBIA separated its municipal bond insurance business from its other mostly asset-backed business, and formed National Public Finance Guarantee Corp. ("National") as an investment-grade insurer with

3504-410: The issuance of local debt. Several states wrote these restrictions into their constitutions. Railroad bonds and their legality were widely challenged, and this gave rise to the market-wide demand that an opinion of qualified bond counsel accompany each new issue. When the U.S. economy began to move forward once again, municipal debt continued its momentum, which was maintained well into the early part of

3577-478: The issuer does not do so. Projecting the yield to maturity on municipal bonds usually involves incorporating tax brackets. Comparing the yield on a municipal bond to that of a corporate or U.S. Treasury bond can be misleading, because of differing tax treatment of the income from the two types of securities. For that reason, investors use the concept of taxable equivalent yield to compare municipal and corporate or Treasury bonds. The taxable equivalent yield on

3650-450: The market more responsive to investors, more financially transparent and ultimately easier for issuers and buyers. The emergence of small denomination municipal bonds makes the muni market more accessible to middle-income buyers. It is believed that these initiatives will reduce lower debt issuance costs. Default risk is a measure of the possibility that the issuer will fail to make all interest and principal payments, on time and in full. It

3723-422: The market. Also during this time, credit default swap markets quoted rates for monoline default protection that would have been typical for below-investment-grade credits. Structured credit issuance ceased, and many municipal bond issuers went to market without bond insurance. By January 2008, many insured municipal and institutional bonds were trading at prices as if they were uninsured, effectively discounting

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3796-726: The municipal bond insurance business that had previously resided in MBIA. Continuing the trend of reorganization in 2008, Ambac ceased writing business and in 2010 was split into (i) a "segregated account" (with liability for asset-backed and certain other troubled policies) subject to a rehabilitation overseen by the Wisconsin Office of the Commissioner of Insurance and (ii) a "general account" for municipal bond insurance and certain other non-troubled policies. On November 8, 2010, Ambac's holding company filed for Chapter 11 bankruptcy. By order of

3869-499: The municipal bond market is far lower today than when numerous triple-A insurers were active, the ability of Assured Guaranty to continue insuring municipal bonds that were issued during a prolonged period of low interest rates and narrow credit spreads is evidence that a market continues to exist for municipal bond insurance. 1971 saw the introduction of municipal bond insurance in the U.S. by American Municipal Bond Assurance Corp. (subsequently renamed AMBAC and later "Ambac"). Ambac

3942-507: The nineteenth century, and records of U.S. municipal bonds indicate use around the early 1800s. Officially the first recorded municipal bond was a general obligation bond issued by the City of New York for a canal in 1812. During the 1840s, many U.S. cities were in debt, and by 1843 cities had roughly $ 25 million in outstanding debt. In the ensuing decades, rapid urban development demonstrated a correspondingly explosive growth in municipal debt. The debt

4015-399: The only monoline insurers, they are sometimes colloquially called "the monolines". Bonds insured by these companies are sometimes said to be "wrapped" by the insurer. Bond insurers generally insure only securities that have underlying or "shadow" ratings in the investment grade category, with unenhanced ratings ranging from "triple-B" to "triple-A". The economic value of bond insurance to

4088-399: The only single-A rated insurer, reported a $ 1 billion loss, wiping out equity and resulting in negative net worth. On November 19, ACA noted in a 10-Q that if downgraded below single-A-minus, it would have to post collateral to comply with standard insurance agreements, and that—based on current fair values—the firm would be unable to do so. On December 13, 2007, ACA's stock was delisted from

4161-470: The rating agencies failed to anticipate the correlation of performance of the underlying securities. Specifically, these bond insurers and rating agencies relied on historical data that did not prove predictive of residential mortgage loan performance following the 2008 crisis, which witnessed the first-ever nationwide decline in housing prices. Notably, AGM and AGC did not insure such CDOs, which has allowed Assured Guaranty to continue writing business throughout

4234-524: The same time, the industry expanded into overseas markets in Europe, Asia, Australia, and Latin America. In the late 1990s and early 2000s, a new group of bond insurers emerged. These included ACA Financial Guaranty Corp. (1997); XL Capital Assurance Inc. ("XLCA") (2000), a subsidiary of XL Capital Ltd. that was spun off in 2006 and subsequently renamed "Syncora Guarantee Inc."; and CIFG (2001). This era also saw

4307-450: The same time, the largest bank of the country of the time, which was owned by the same investor as that of Northern Pacific, collapsed. Smaller firms followed suit as well as the stock market. The 1873 panic and years of depression that followed put an abrupt but temporary halt to the rapid growth of municipal debt. Responding to widespread defaults that jolted the municipal bond market of the day, new state statutes were passed that restricted

4380-411: The same time, the minimum investment amounts for stocks are typically <$ 500 and about $ 1000 for CDs and money markets; in comparison, municipal bonds typically have minimum denomination buy-ins of $ 5000 but smaller issuers may have buy-ins of $ 1000 to incentivize local or regional investors. An investor's overall principal cost may be lower than the $ 5000 minimum denomination by purchasing the bonds at

4453-529: The second decade following the financial crisis. One indication of the extent of loan quality misrepresentation was a 2011 settlement between Assured Guaranty and Bank of America, which had purchased mortgage originator Countrywide. Under the terms of the settlement, Bank of America made a $ 1.1 billion payment to Assured Guaranty and agreed to cover 80% of up to $ 6.6 billion of Assured Guaranty's future paid losses from breaches of representations and warranties on 21 insured RMBS transactions. Subsequently, in 2013, in

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4526-491: The secondary market, insured bonds have generally exhibited significant price stability relative to comparable uninsured bonds of distressed issuers. Additionally, investors were spared the burdens of negotiating or litigating to defend their rights. Although the financial crisis caused most bond insurers to cease issuing insurance policies, the insurance has continued to remain available from highly rated providers, including legacy insurers and new industry participants. Prior to

4599-588: The state of Michigan would pay for the demolition of Joe Louis Arena , currently home to the Detroit Red Wings of the NHL . The arena site is planned to be available for transfer in 2017 when the Red Wings move into Little Caesars Arena . FGIC would then receive the arena site and an adjacent parking lot, giving the company nearly 9 acres (3.6 ha) that it would then redevelop. This article on an insurance company

4672-512: The taxes. Investors in higher tax brackets may arbitrage municipal bonds against corporate bonds using a strategy called municipal bond arbitrage . The U.S. Supreme Court held in Pollock v. Farmers' Loan & Trust Co. (1895) that the federal government had no power under the U.S. Constitution to tax interest on municipal bonds, but in South Carolina v. Baker (1988), the Supreme Court held

4745-439: The twentieth century. The Great Depression of the 1930s halted growth, although defaults were not as severe as in the 1870s. Leading up to World War II, many American resources were devoted to the military, and prewar municipal debt burst into a new period of rapid growth for an ever-increasing variety of uses. Today, in addition to the 50 states and their local governments (including cities, counties, villages and school districts),

4818-503: The value and worked out a plan with philanthropic groups in Michigan to preserve one of the nation's best art collections. Six months later, on October 16, lawyers for FGIC and Detroit disclosed in court that they had reached a settlement of FGIC's claims against the city. Under the deal, which must still be approved by the court along with other issues in the Detroit bankruptcy , the city and

4891-492: The widespread misrepresentations caused bond insurers to experience considerable losses on insured securities backed by residential mortgage loans (including first lien loans, second lien loans, and home equity lines of credit), the most severe losses were experienced by those that insured CDOs backed by mezzanine RMBS. Although the bond insurers generally insured such CDOs at very high attachment points or collateral levels (with underlying ratings of triple-A), those bond insurers and

4964-604: Was $ 4 trillion as of the first quarter of 2021, compared to nearly $ 15 trillion in the corporate and foreign markets. But conversely, the number of municipal bond issuers (state and local governments and other affiliated entities) far exceeds the number of corporate bond issuers. Local authorities in many other countries in the world issue similar bonds, sometimes called local authority bonds or other names. Municipal debt predates corporate debt by several centuries—the early Renaissance Italian city-states borrowed money from major banking families. Borrowing by American cities dates to

5037-651: Was released that the New York Insurance Department ordered FGIC to suspend payment on all claims due. On June 11, 2012, the company was placed under rehabilitation by the Department. On April 9, 2014, the Detroit News reported that FGIC without any City of Detroit or court involvement had solicited bids for the Detroit Institute of Arts collection. The city had previously hired Christie's to estimate

5110-447: Was subsequently acquired by FSA; and College Construction Loan Insurance Corporation ("Connie Lee") (1987), which was subsequently acquired by Ambac. The 1980s also saw the birth of monoline financial guaranty reinsurance companies, including Enhance Reinsurance Company ("Enhance Re") (1986) and Capital Reinsurance Company (1988). FSA insured the first collateralized debt obligation ("CDO") in 1988, and experienced only minor losses in

5183-442: Was the first separately capitalized insurance company formed for the purpose of insuring bonds. In 1973 Municipal Bond Insurance Association (subsequently renamed "MBIA") formed, followed by Financial Guaranty Insurance Company ("FGIC") in 1983. Financial Security Assurance Inc. ("FSA", now known as Assured Guaranty Municipal) formed in 1985. FSA was the first bond insurer organized to insure non-municipal bonds, and it established

5256-406: Was unprecedented in its severity and geographic distribution across the U.S., and was not anticipated by the bond insurers or the rating agencies that evaluated their creditworthiness. Unlike many other types of insurance, bond insurance generally provides an unconditional and irrevocable guaranty—although the insurers reserve the right to pursue contractual and other available remedies. As a result,

5329-551: Was used to finance both urban improvements and a growing system of public education. Years after the American Civil War, significant local debt was issued to build railroads. Railroads were private corporations, and these bonds were very similar to today's industrial revenue bonds . Construction costs in 1873 for one of the largest transcontinental railroads, the Northern Pacific , closed down access to new capital. Around

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