Concerns that residents of Brevard County, Fla., will vote to suspend annual lease payments on a $23.9 million certificates of participation issue sent the stock of MBIA Inc., the parent company of a municipal bond insurer backing the bonds, down 1 3/4 points Wednesday.
MBIA Inc. stock closed at 61 5/8 , a 2.8% decline. MBIA Inc. is the parent company of Municipal Bond Investors Assurance Corp., which insures the bonds.
Traders said volume was heavy at 495,800 shares, which was more than that for any of the three other publicly traded municipal bond insurers. During the afternoon, MBIA shares traded-as low as 58.
While MBIA saw the largest price declines of any of the publicly traded municipal insurers. Capital Re Corp., a municipal reinsurer. saw a 4.8% decline as its stock closed down one point at 20.
Also in response to the county's action. Standard & Poor's Corp. placed the BBB-plus rating on Brevard County's $670,000 outstanding recreational facilities bonds, Series 1976, on its CreditWatch survelliance list with negative implications, pending the outcome of a referendum on the Brevard County issue.
In taking its rating action, Standard & Poor's said that while the issue in question is insured, "non-payment by Brevard on the lease raises questions about the county's willingness to repay its other financing."
In municipal bond action, dealers reported that bonds insured by MBIA Corp. were unaffected by the stock declines.
"I believe it's a reaction to the Brevard County issue," said Joan Solotar, a research analyst with Donaldson Lufkin & Jenrette. "I think there's an overreaction based on the belief that this could be a widespread problem."
However, Solotar said she believes that the Brevard County issue is unique.
The COPs were issued in 1989 to fund a controversial government operations center in Viera. The issue is controversial because initially the government operations center had been located in another location. It was moved because land at the current site was donated, she said.
Relocation of the operations center angered some county residents because it meant a loss of jobs at the first location she said.
At a referendum slated for March 1993, voters will be asked whether the county should discontinue its annually renewable lease funding for the COPs and vacate the government center.
Voters will also be asked whether Brevard County should be authorized to sell general obligation bonds to refinance the COPs, if the first question is defeated.
The Brevard County issue is part of a portfolio of Bond Investors Guaranty Insurance Co. that MBIA received after it purchased the bond insurance company in 1989. Today, the bond issue would not meet MBIA's "essentiality" requirements for a lease financing, Solotar said.
"Although MBIA could not have foreseen the political situation, it's not an issue they would have insured," Solotar said.
In fact, the Brevard County deal is the only COP financing in MBIA's portfolio that is on the insurer's watch list, said Michael Ballinger, an MBIA spokesman.
The insurer has examined the rest of the COP financings it insures, which make up about 8% of its $105 billion insured portfolio and does not foresee any problems with the other issues, Solotar said.
Ballinger said, "Any potential losses would fall within our already established loss reserve and would have no impact on potential earnings."
The company currently has about $25 million set aside for losses in its portfolio. MBIA's net par value exposure to Brevard County is $17.8 million, Ballinger said. If Brevard County were to default on its bonds, the approximate $1.6 million net of average annual debt service the company would have to pay would not be a problem, he added.
In addition, an official with Standard & Poor's Corp. said the rating agency is not concerned about the credit quality of the insurer due to the Brevard County issue.
"There will not be a rating change," said Dick Smith, managing director of the bond insurance ratings department. "Even if the bonds were to default and prove worthless, it wouldn't be a reason to change MBIA's rating," Smith said. "For a more than $100 billion portfolio, $24 million is not particularly significant," he added.
Smith said the rating agency also was not concerned about the credit quality of other insurers because it remains to be seen whether anybody else will follow this path. There could be a negative fallout which could lead others to think twice." Each COP issue must be considered individually, he added.
MBIA's stock however, received some help from several analysts who saw the ebb in the bond insurer's stock as a chance to make a good "long-term" buy, one analyst said.
On Monday, for example, Margaret M. Alexandre, a stock analyst for Salomon Brothers Inc., wrote that the Brevard County issue "is as an isolated occurrence."
Alexandre was not available for comment yesterday.
However, some municipal dealers believe increasing economic pressure on issuers will heighten concern about credit quality in 1993 and insurance companies exposure to weakening credits.
"We will see a much deeper analysis of municipal insurers in 1993," said the head of a Wall-Street based trading desk. "We have assumed their triple-A backing is valid. If anything happens to the underlying strength of the insurers, we've got a world of trouble.
"The default rate has been so low they've been able to be fairly leveraged," he said. "As they market conducts more critical analysis of the insured market people will not be as happy with insurers as they once were."
"People will demand payment and spreads will widen if they find trouble," he added.
In addition, the stock of several of the major bond insurance companies fell yesterday. Some stock traders said these drops were related to the Brevard County vote.
The other municipal bond insurers, however, said any declines among their stocks Wednesday were not related to the Brevard County issue, expressed concerns about the referendum, and its implications
AMBAC Inc. fell 1/2 to 39 1/2, while Capital Re Corp., a holding company for a bond reinsurer, fell I to 20.
"COP financing is a tested financing technique used extensively by some states including Florida. The implications of a county deciding to not meet its financial obligations when it has the ability to do so has long-term repercussions. said Bob Genader, senior executive vice president of AMBAC.
"All COPs are not the same. Factors include the essentiality of the project being financed and the enforcement provisions," he said. "AMBAC has no exposure to Brevard County."
Referring to the county's vote, Wallace O. Sellers, president and chief executive officer of Enhance Financial Services Group, parent company of Enhance Re, a municipal reinsurer, said, " Obviously" I think it's a very foolish move on their part."
"If the vote is against payment and they do not pay, they will pay for it many times over with higher costs on other debt. It's short-sighted.
Alan Roseman, general counsel and senior vice president for Capital Re, would not comment on the firm's COP exposure, but added that he believes the stock's trading direction in recent days is related to the Brevard issue.