Capital Markets Assurance Corp. has agreed to insure the municipal investment agreements of the Mutual Group Financial Enhanced Products, in what some industry observers say is the first deal of its kind for the insurance concern.
Capital Markets has traditionally issued insurance on asset-backed securities and other structured transactions. Several market observers say this is the first time Capital Markets has insured an investment agreement, and they expect the company to complete additional deals in the future.
Despite issuing a news release announcing its agreement with the Mutual Group, officials at Capital Markets did not return telephone calls.
Data on the investment agreement market, and Capital Market's participation, could not be obtained by press time.
The Mutual Group Enhanced Products, a subsidiary of TMG Financial Products Inc., provides investment agreements to municipalities. The agreements are sold to municipal issuers looking to earn interest income on bond proceeds that have not been spent. Municipalities often use investment agreements when they sell bonds for construction projects that take years to finish, industry executives say.
Investment agreements are subject to rating agency review. The Mutual Group Financial Products has been rated AA by Standard & Poor's Corp. and AA3 by Moody's Investors Service.
The deal between the Mutual Group Enhanced Products and Capital Markets is important, the industry officials say, because state law generally limits some municipalities from buying investment agreements without an AAA rating.
Moody's and Standard & Poor's rate Capital Markets triple-A. As a result, the Mutual Group Enhanced Products agreements will receive a triple-A rating.
"This is important to the Mutual Group because it now broadens [our] market," said Steven Strauss, managing director of TMG Financial Products. "Rating, regulatory, and investment policy constraints had limited some municipalities from dealing with" us, he said.
The Mutual Group Financial Products also sells derivative products such as forward Treasury agreements, investment agreements, swaps, caps, floors, and options.