January 17, 2014 / 9:32 PM / 6 years ago

US municipal bond insurance's contraction slowed in 2013

WASHINGTON (Reuters) - The amount of insured U.S. municipal bonds fell last year to the lowest level since the financial crisis - $12.08 billion - but Thomson Reuters data released on Friday showed the freefall may be over.

Last year’s decline in bond insurance of 9 percent was the smallest in a decade, the data showed.

Some of the drop was related also to an overall fall in debt sales of 15.1 percent last year. Insured bonds took up a slightly larger share of new debt sales in 2013, representing 3.9 percent of all municipal bond issuance dollars compared to 3.6 percent in 2012.

Before the 2008 financial crisis, insured bonds made up about half of all new debt issuance. By buying insurance, municipalities could use the guaranteeing companies’ top ratings to push their borrowing costs down. When the companies’ ratings were cut on exposure to risky mortgage-related debt, use of municipal bond insurance plummeted. In 2008 the amount of insured debt fell 64 percent.

Only one company was left standing, Assured Guaranty (AGO.N), which remained the top municipal insurer in 2013 by backing $7.38 billion of debt in 466 deals. However, Assured’s market share shrank 20.8 percent as Build America Mutual insured $4.44 billion of municipal bonds in 536 deals.

Newcomer Municipal Assurance Corp insured $154.5 million bonds in 22 deals and Berkshire Hathaway Assurance, which did not guarantee any municipal debt in 2012, insured a single deal worth $106.9 million.

New letters of credit guaranteeing variable-rate bonds fell 29 percent as the variable-rate market dried up. Altogether only $4.29 billion of bonds relied on the letters. J.P. Morgan Chase (JPM.N) was the top provider, backing $2.11 billion bonds in eight deals, followed by Wells Fargo (WFC.N) at $618 million in 10 deals.

Friday’s data also showed that Orrick Herrington & Sutcliffe repeated its 2012 top bond lawyer ranking in 2013, acting as counsel on 310 deals totaling $31.54 billion. Hawkins Delafield & Wood followed with 298 deals totaling $18.38 billion.

Reporting by Lisa Lambert; Editing by Chizu Nomiyama

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