Bond insurance companies are being monitored by a number of investment firms to make sure they can sustain any loss brought about by collateralized debt obligations with high-risk mortgage-backed securities. Issuers and borrowers should examine bond transactions that are tax-exempt as a precautionary measure in case a downgrade occurs. It is also important in examining agreements entered into by issuers and in case there is a need in changing credit and liquidity support bonds secured by a letter of credit. Non-profit organizations that are classified as bond issuers or conduit borrowers should take note of this issue so that preventive measures may be taken if necessary.
The Knowledge Congress is assembling a panel of experts to discuss the important aspects of this issue. The panelists are scheduled to speak in a two-hour teleconference and webinar.
Michael Moriarty
Deputy Superintendent for Property and Capital Markets
Michael J. Schozer
President
Steven A. Chamberlin
Manager, Tax Exempt Bonds Compliance & Program Management
Margaret Purcell
Executive Director, National Tax Exempt Organization Group
Valerie Pearsall Roberts
Partner
Matt Fabian
Managing Director
Michael Moriarty, Deputy Superintendent for Property and Capital Markets, New York State Insurance Department
- NY Insurance Department’s Role in Regulating the Bond Insurance Market
- Problems Facing the Bond Insurance Market
- Impact on the Municipal Bond Market
- Adequacy of Existing Regulatory Tools
- Potential Changes to Regulation of Bond Insurers
- The Future of Bond Insurance
Michael J. Schozer, President, Assured Guaranty Corp.
- What caused the ABS CDO crisis? How did this happen to bond insurers who are highly regulated and monitored by both regulators and rating agencies?
- What changes could the regulators make and what impact would they have on bond insurers and bond insurance?
- Can the existing bond insurance market serve the needs of municipal issuers?
- How will the demand for bond insurance change in the future?
- What is the impact of corporate equivalent ratings?
- How are bond insurers adjusting/coping with the current market environment?
Steven A. Chamberlin, Manager, Tax Exempt Bonds Compliance & Program Management, Internal Revenue Service (IRS)
- What is a reissuance under the Internal Revenue Code and corresponding Treasury Regulations? What type of modifications to a debt instrument trigger a reissuance?
- What are the tax consequences of a reissuance? How does this impact tax-exempt bonds?
- What special reissuance standards apply to tax-exempt bonds? What are the differences between IRS Notices 88-130, 2008-27 and 2008-41?
- What other options are there to voluntarily correct adverse tax consequences resulting from a reissuance?
- What happens if the Service determines that a reissuance occurred during an examination of tax-exempt bonds?
Margaret Purcell, Executive Director, National Tax Exempt Organization Group, Ernst & Young LLP
Credit Crisis: What Should an Issuer Do?
- What do the issue documents dictate?
• Trust Indenture,
• Insurance Agreement,
• Swap Agreement,
• Auction Rate Agreement,
• Tax Certificate
- Review all of your investments and your investment policies with a focus on risk to your organization.
Develop a summary of your choices, both during and after the current IRS period of benevolence.
• Summarize the need for a reissuance or refunding under the documents from your closing
transcript, comparing the requirements before and after July 1, 2008.
- Document your private business use, and all other post-issuance requirements.
• Perform the due diligence necessary for re-entry into the tax-exempt marketplace, assuming that
your institution will not be able to complete a transaction prior to July 1, 2008.
- Talk to your financial advisors about choices they perceive are available to you.
• Based on your credit without insurance, rating agency guidance and alternatives available to you
identify structuring choices that are possible for your issue:
» Taxable Refunding
» Fixed Rate Refunding
» Buying your own bonds
» Commercial Paper
» Bank Letter of Credit Arrangement
» Insurance or no insurance
» Other alternatives your financing team can suggest
- Do your homework regarding the potential impact on your financial statements of the choices
offered by your financial advisor, including the FASB and GASB requirements.
• Discuss the financial statement impact of the alternatives so that you know in advance of a
transaction what the accounting treatment differences would be, and determine what potential
Board Action might be required as a result of such impact.
Valerie Pearsall Roberts, Partner, Jones Day
- Taxably Refunding the ARS (current refunding using taxable debt)
- Removing the Bond Insurance (financial guarantee)
- Non-reissuance conversions
- Reissuance
- Interest rate mode on the bonds is to be modified
• The bonds are generally required to be tendered to the issuer/borrower or agent, and any
modifications of the documents are approved after the bonds are tendered.
- Issuers and Borrowers should be aware of the many results of a reissuance and of a reoffering
even where there is no reissuance of the bonds.
- Bond Insurers
- Bond Counsels
- Nonprofit organization Financial Executives
- Comptrollers
- Treasurers
- Fixed-Income Officers
- Wealth/Capital Market Officers
- Public Finance/Municipal Law Attorneys and Municipal Bond Executives
This is a must attend event to everyone to understand the scenario behind the bond issuers downgrade.
- New guidance explained by the most qualified key leaders & experts
- Hear directly from key regulators & thought leaders
- Interact directly with panel during Q&A