James Ruth, who last year started a credit enhancement venture with fellow industry veteran Bernard Bober, said last week the firm expects to resolve capital and rating agency concerns in time for a fall opening.

American Municipal Credit and Liquidity Corp., known as AMCAL, is "moving along and hopefully will have a start up date within four to six months," Ruth said.

Judd S. Levy, former head of the housing finance department at Merrill Lynch & Co., recently joined the firm. Levy will head up AMCAL's marketing efforts, Ruth said.

AMCAL will provide lines and letters of credit for municipal bond issues and for synthetic products linked to municipals.

Besides competing directly with letter of credit banks, the firm hopes to provide liquidity facilities that could be combined with bond insurance to encourage issuance of insured short-term variable-rate debt. Financial Guaranty Insurance Co., through its Securities Purchase Inc. affiliate is now the only bond insurer that offers short-term liquidity.

"We are in the process of meeting with major public pension funds to provide us with liquidity," Ruth said. "And we have retained Merrill Lynch as our investment banker for both assisting us in developing liquidity and for an equity placement."

With the completion of a pending private placement, Ruth said AMCAL expects to have equity capital "in the neighborhood" of $125 million. Through agreements with pension funds, the firm hopes to have initial liquidity lines of about $5 billion, he said.

A key to AMCAL's success will be securing a triple-A rating from at least one major rating agency.

The firm is "well along in the rating process with Moody's [Investors Service]," and is also talking with Standard & Poor's Corp., Ruth said.

Market sources say AMCAL's services should be in high demand with the number of highly rated letter of credit banks in decline and bond insurers in need of liquidity providers.

"Things seem to be very promising," Ruth said. "The recent proposed changes in Rule 2a7 make the market for us even more attractive because of the various things that drive the money market funds to higher credit ratings and more diversification."

In December, the Securities and Exchange Commission proposed a tightening of Rule 2a7, which governs money market a limit on the amount of issues with second-tier ratings that money market funds can hold and stricter diversification requirements on letter of credit providers. The SEC is reviewing industry comments on the proposal.

Ruth was senior investment banker and manager in Merrill Lynch's public finance department. Before that, he was a manager of Citicorp Securities Markets Inc.

Bober was co-founder of Ehrlich Bober Financial Corp., and served as the firm's co-chief executive officer and chief credit officer.

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