Municipal Bond Investors Assurance Corp. is open for business in France.
The largest bond insurer yesterday announced it had obtained an insurance license in France and opened a separate subsidiary in Paris, the first such office in continental Europe. David H. Elliott, president and chief operating officer of MBIA, devulged the new office in a presentation to members of the lle-de-France Regional Council.
The new office is headed by Michael J. MaGuire, a vice president with the firm and a member of MBIA's underwriting committee. Mr. Elliott said no insurance or securitization transactions are in the works, but he did expect MBIA eventually will be enhancing borrowings for the larger projects in France.
"At first, we will do securitization of Credit Local de France's loans to villages," Mr. Elliott said. "Then we'll get into larger infrastructure projects -- not the chunnel, but very large projects.
"We'll take the opportunities as they come along," he continued. "It might take a week, a month, or a year, but we're there for the indefinite future."
In his comments to the council, Mr. Elliott said MBIA has insured 23,000 issues from 6,000 municipalities for a total of $170 billion enhanced.
The Ile-de-France Council is a group of 197 elected officials from municipalities in the Paris area. The delegation was invited to New York by Credit Local de France, a provider of municipal letters of credit partially and indirectly owned by the French federal government. Credit Local owns a 4.9% stake MBIA.
The municipal system of financing in France is relatively young, having only loosened the reins of federal control in 1982. Ile-de-France finance officials said the overwhelming majority of debt in the country has "no risk," so there is very little current need for outright bond insurance, but they do envision a more American-styled financing system down the road.
"There is a small move" toward making municipalities financially independent of the federal government, and thereby creating a need for bond insurance, said Robert Trimbach, chief budget and accounting officer for the commission, "but we still are in a very centralized market -- not like you have in the United States."
Most debt, he explained, is privately placed with domestic banks. Yet the liberalization begun in 1982 and the passing of the Multiple Option Financing Facility in 1988, which allows a greater variety of borrowings, is rapidly changing the market, he said. For example, municipalities have far greater elbow room to invest daily cash balances in sophisticated cash management techniques than imaginable prior to 1988.
At this point, however, French sub-sovereign debt carries a legal mechanism that allows the federal state to step in and correct budgetary imbalances. Henri Paul, director of finance for the Ile-de-France Region, said the system is not parallel to an implied federal guarantee -- given that a state official may choose not to pursue the legal remedies -- but it does result in riskless bonds.
"There's time involved, but no risk," Mr. Paul said.
Mr. Paul said the special legal system required regional budgets to be certified by a group of independent magistrates, one of whom is a state representative, or prefet. If the budget is out of balance and a deficit results, then the prefet may deem it illegal and begin legal proceedings. If the courts agree, the prefet may require higher taxes or whatever is necessary to cure the problem.
In Ile-de-France's case, on the other hand, the scenario is almost unthinkable. The Region is the country's largest with one-fourth of the population, it has tremendous revenue streams, and it borrows very little -- about 500 million francs annually, or $87 million, Mr. Paul said.
"Ile-de-France is the most important region," he added. "We have no problems raising money. All the bankers are knocking at my door. We do not need a rating."
Credit Local de France, meanwhile, is stepping up its participation in the municipal letter-of-credit market, thanks in part to its cooperative agreement with MBIA. Anne Hird, vice president of public finance at Credit Local, cites a recent example of borrowings by Samaritan Health Services in Arizona. MBIA earlier this year insured a $200 million deal, and Credit Local officials benefited from access to the insurer's records on the deal in choosing to enhance a variable-rate borrowing.
The firm also has been active in participations and just received permission from its Paris credit committee to do a standby bond purchase agreement for $25 million of a $124 million Metropolitan Nashville Airport Authority deal next month, Ms. Hird said.
Within the letter-of-credit market, Credit Local is bucking the trend of shorter enhancements. Over the past five years, most providers have shortened the duration of their commitments generally from seven to about five years.
"We'll be looking to go out to 15 and 20 years," she said. The Nashville Airport bonds will carry a 10-year enhancement.
