Municipal Bond Forum

 ACA continues to pay claims. The former "A"-rated bond insurer is under administration by the Maryland Department of Insurance. According to a study done by a consultant to the department, ACA should have sufficient claims paying ability to meet any anticipated claims until its last insured bonds mature. ACA posts its most current financials on its Web site, www.aca.com. ACA continues to monitor its outstanding policies and provide interventional measures when required. ACA has no plans to regain its rating or re-enter the bond insurance market.

Radian continues to be rated "BB-" by Standard & Poor's.  Radian's downgrades were in response to the sub-prime real estate exposure of its parent company and real estate affiliates. Radian's public finance book of business is performing in line with expectations and Radian continues to generate income for its parent. It is doubtful that Radian will regain its “AA” rating or resume writing new business.

In its most recent review of Arizona's GO rating, Standard & Poor's noted: "In accordance with the Arizona Constitution, the state cannot issue general obligation (GO) bonds. Therefore, the state has historically issued sales tax-, gas tax-, and appropriation-backed debt." Nevertheless, S&P has an “AA” rating with Negative Outlook on the state, reflecting a growing budget gap and lack of agreement on a solution.

School district bonds are generally secured solely by the districts. There is no doubt that most districts are experiencing financial pressures similar to the state itself. With that in mind, however, we still believe that bonds issued as general obligations will be paid before other obligations, as is indicated by the GO pledge.

It is rare to hear budgetary discussions include talk of not paying bonded debt. While this is always possible, we do not see school districts with ratings of “A” or above being in danger of missing debt service payments. “BBB” category general obligations are expected to meet debt service obligations as well, but tend to have thinner financial reserves, less financial flexibility to raise revenues and weaker economies.

You may want to consider diversifying your portfolio so that you are not overly reliant on any one municipal bond sector. In any case, we still rely on more than 100 years of history that has seen municipal bonds maintain one of the strongest records for repayment of any investment asset class. Although times are tough, we still believe bondholders of "essential" public service bonds can expect to receive the interest and principal payments that they are entitled to.

The North Carolina Housing Bonds that you asked about are rated in the “AA” category by both Moody's and Standard & Poor's. S&P indicates they believe North Carolina Housing's single family home ownership is conservatively run. A check on the latest disclosures regarding this bond shows only 12 loans out of a total of 653 to be delinquent for either 60 or 90 days. Additionally, only four loans were in foreclosure as of June 30, 2009, the date of the report. This appears to be a strong credit that has performed very well in the current economic crisis. That said, you might want to diversify your holdings so that you’re not too exposed in the housing sector to the exclusion of other municipal bond types.

All prices on our Web site are net to the investor. There are no additional fees or costs. Naturally, as with all bond purchases, there is interest to be paid that has accrued since the last semi-annual interest payment.