Municipal Bond Forum

Unlikely insured Puerto Rico munis would be called

I was glad to see your Bond Forum answer entitled, "Insured Puerto Rico Muni Bonds in Demand," which confirmed my belief that these were worth holding. My question is, if the interest on a Puerto Rico bond is being paid by, say, Assured Guaranty Municipal but the bond is callable, is there any way on earth that bond can be called? I would think not, which would in essence also bring "call protection" to these bonds.
M.M., Tennessee

James A. Klotz responds:

There is probably "someway on earth" these bonds could be called, but it certainly isn't likely. The insurance company is obligated to pay interest only until the principal becomes due at maturity.

Although AGM has the right to accelerate the maturities and redeem the bonds, it has no incentive to make a lump sum payment rather than simply adhere to the bond indenture.