The Chapter 9 bankruptcy filing by Orange County, Calif., will have little impact on the ability of the major guaranty companies to pay the claims of municipal bonds they insured, according to a report by Van Kampen Merritt Advisory Corp., a Chicago-based mutual fund company.

The report, released late last week, looked at the impact Orange County's bankruptcy filing on five of the largest municipal bond insurers in the industry.

In the report, Van Kampen Merritt analysts examined the insurers' risk leverage and claims-paying resources as well as their exposure by sector and geography. They concluded that the insurers have sufficient capital reserves to pay any missed debt service payments.

The claims-paying ability of those insurers -- AMBAC Indemnity Corp., Capital Guaranty Insurance, Financial Guaranty Insurance, Financial Security Assurance, and Municipal Bond Investors Assurance -- is already rated Aaa by Moody's Investor Service and AAA by Standard & Poor's. Fitch Investor's Service also reaffirmed the claims-paying ability of FGIC and AMBAC, according to David Litvack, an industry analyst.

"Not only will these insurers continue to meet all potential claims related to Orange County, but their coveted ratings will remain in place," the report concluded.

The report also noted that if a municipal investor were to default, the bond insurers would be obligated to pay principal and interest only as it came due. The insurers note that even if an insured issuer missed a payment, they would eventually be able to recover those payments.

MBIA, AMBAC, and FGIC all issued press releases last week reiterating that point. Furthermore, the bankruptcy filing is likely to have little or no impact on the ability of the insured issures to meet their debt service payments. If any payments are missed, the insurers will step in.

Shares of the publicly traded insurers dropped after Orange County announced its intention to file for bankruptcy, but rebounded within the week, said Bob Froehlich, director of fixed-income research at Van Kampen Merritt.

"It was unlike the city of Philadelphia a few years back when they threatened bankruptcy," Froehlich said. "That sent the shares of MBIA down for a protracted period of time. Even insurers that didn't have exposure, such as AMBAC, went down. I think the market is more educated so we didn't see as much of an overreaction here."

According to most industry analysts, the fallout from the Orange County bankruptcy filing will remind issuers of the value of bond insurance.

In other bond insurance news, Capital Re Corp. Thursday declared a regular quarterly dividend of five cents a share, payable Dec. 28 to shareholders of record at the close of business Dec. 23. Capital Re is the holding company of Capital Reinsurance Co. and Capital Mortgage Reinsurance Co.

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