Bonds

The amount of debt wrapped by bond insurance fell 23% in 2022, but industry bond insurance penetration remained at the 8% level, well above pre-pandemic levels.

All municipal bond insurers wrapped $28.884 billion in 2022, a decrease from the $37.524 billion insured in 2021, according to Refinitiv data.

The lower insurance volume resulted from the overall decrease in municipal bond issuance in 2022. Overall municipal bond volume was down 19.5% year-over-year.

The two main insurers, Assured Guaranty Municipal Corp. and Build America Mutual, accounted for $28.823 billion of deals in 2022 compared to $37.193 billion of in 2021.

The Refinitiv data considers other types of guarantees such as state-backed funds.

The industry par amount was achieved in 1,419 deals versus 2,198 deals in 2021.

Assured Guaranty accounted for a total of $16.976 billion in 647 deals, accounting for 58.9% of the market share, down from the $22.352 billion in 1,076 deals for a 60.1% market share in 2021, according to Refinitiv data.

Build America Mutual insured $11.848 billion in 772 deals, or 41.1% of the market share. That compares to $14.841 billion, or a 39.9% market share, in 1,122 deals in 2021, according to Refinitiv data.

Tax-exempt issues insured dipped 3.8% to $23.754 billion while taxables dropped 67.7% to $3.894 billion. New-money issuance with insurance rose to $22.920 billion, a 3.8% gain while refundings decreased to $3.610 billion, or 69.7%.

Both major insurers said 2022 was a banner year.

“Secondary market bond insurance activity surged for Assured Guaranty in 2022, as overall new issue volume and insured par volume decreased in tandem, indicating fundamental demand for our guaranty even in the absence of strong new issue supply,” said Robert Tucker, head of investor relations and communications at Assured.

2022 was a strong year for BAM, said Mike Stanton, head of strategy and communications at BAM.

“Volatility in the market and uncertainty about the economic outlook really underscored the value of bond insurance — for issuers who were seeking reliable access to the capital markets and investors who were prioritizing credit strength and liquidity in building their portfolios,” he said.

Assured covered 364 secondary market trades, which produced $3.3 billion of par insured, up 650% year-over-year and a level not seen in more than a decade, Tucker said.

In the primary market, for the third straight year, “industry bond insurance penetration remained at the 8% level, well above pre-pandemic levels,” he said.

“Finishing the year with a 70% share of primary market insured par sold in the fourth quarter, Assured Guaranty’s 2022 market share was close to 60%, based on $17.1 billion of new issue insured par from nearly 650 tax-exempt and taxable new issues, including $4.1 billion in the fourth quarter,” Tucker said.

The transactions represented a “broad spectrum of bond sectors, transaction sizes and deal structures, including public-private partnerships,” he said.

Additionally, the company guaranteed 31 transactions that each utilized over $100 million of Assured Guaranty insurance, including four where it insured more than $500 million. 

In aggregate for 2022, Assured said it insured $20.4 billion of primary and secondary market insured par, including $2.7 billion from 121 transactions with underlying ratings of AA by S&P Global Ratings and/or Aa by Moody’s Investors Service.

BAM continued to see more interest in insurance on larger and higher-rated transactions, a trend that has remained prominent since the start of the COVID-19 pandemic, Stanton noted.

BAM insured its largest transaction ever in May, a $667 million New York State Dormitory Authority bond sale for a pool of more than 60 school districts, and more than 28% of its 2022 insured par carried public underlying ratings in the double-A category or stronger, he said.

Higher rates and increased volatility impacted total volume across the market.

“In particular, BAM saw some of the smaller and medium-sized issuers who are frequent users of insurance time their transactions to avoid pricing during periods of elevated uncertainty around key economic indicators and Fed meetings,” Stanton said.

The major noteworthy trends “were the continued increased utilization of insurance on larger transactions and the growing interest by investors of insurance on higher-rated bonds, particularly in the AA-minus category,” he added.

BAM continues to serve its member issuers by providing independent, third-party verifications for their green bond sales, Stanton said.

The BAM GreenStar program has verified that “more than 300 transactions totaling more than $4.5 billion par align with the International Capital Market Association’s Green Bond Principles, funding a wide range of environmentally positive investments, from clean water and wastewater utilities to energy efficient public building construction and renovation,” he noted.

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