Municipal Bond Forum
On Don’t Lose Sleep Over Bond Insurers Woes cont’d #4:
Q
In your article, you mention that rated bonds are relatively safe. My question is, why would FMSbonds choose to underwrite projects in which the bonds were unrated, such as the Anthem Park issue? Can a buyer of such a bond obtain insurance on his own to get some “peace of mind?
A
James A. Klotz responds:
Although we have traded the Anthem Park bonds you mentioned in your e-mail, this issue was not underwritten by FMSbonds, Inc. Our firm, however, is very careful when it comes to evaluating bonds we recommend to our clients, especially those with no credit rating.
In this case, Anthem Park is a new residential community under construction by D.R. Horton outside of Orlando, Florida. In addition to having a developer/builder that is one of America’s largest, Anthem Park’s bonds are secured by special assessment fees collected simultaneously with property taxes.
Anthem Park did not apply for a rating at the time of issuance because it was a new project. Rating agencies prefer to see a district mature with significant buildout before issuing investment grade ratings. Several districts in Florida, similar to Anthem Park, have obtained investment grade ratings once buildout has occurred.
At one time, individual portfolio insurance was made available by some of the bond insurers. To the best of our knowledge, they have discontinued this practice.
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