MBIA Assurance S.A., the French subsidiary of Municipal Bond Investors Assurance Corp., has completed its maiden voyage.

The firm late last month backed a 100-million franc, or approximately $18.7 million, offering by France's Departement du Nord, marking the first time a bond insurer has guaranteed bonds issued by a French local government, according to MBIA officials.

Proceeds from the transaction will be used to finance general infrastructure improvements.

"MBIA Assurance is well positioned to capitalize on the future development of public finance in Europe," said Michael J. Maguire, general manager of MBIA Assurance, in a prepared statement. "We see increasing opportunities for the use of credit enhancement as more local governments finance capital improvements through the issuance of public debt."

"MBIA Assurance opened the Paris office in the fall of 1991.

Departement du Nord issued the bonds as variable-rate obligations, but it will pay a fixed rate of 7.6% as a result of an interest rate swap agreement with Societe Generale. The swap is not guaranteed by MBIA, however, and expires when the bonds mature in 2000.

The bonds are being privately placed until the Commission des Operations de Bourse, the French equivalent of the Securities and Exchange Commission, approves the transaction, according to a report from Moody's Investors Service.

The debt must be treated as an "obligatory expense" in Departement du Nord's budget, Moody's said, or the budget cannot be approved by the prefect, the French government official responsible for regulating and auditing departement budgets.

French departements are political subdivisions, similar to U.S. states.

Located in the Nord-Pas-de-Calais region in northern France, Departement du Nord is the most populous in France and provides infrastructure, social, and educational services to over 2.5 million people.

The departement's economy has declined in recent years, Moody's reports. Unemployment is at 13.9%, compared to the French national average of 10.3%. The tax base and tax receipts for the departement are increasing, however, and the overall tax rate is within the national average, the rating agency says.

The departement's economy is expected to receive a boost upon completion of the English Channel Tunnel, projected for later this year.

Aaron Task is a reporter for The Guarantor, The Bond Buyer's credit enhancement newsletter.

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