As the nation's leading insurer of municipal securities for nearly two decades, Municipal Bond Investors Assurance Corp. is dedicated to the development of new product activities that are synergistic with the company's core business and are a logical extension of its credit enhancement skills.
In this light, MBIA has increasingly expanded its financial guarantee realm into the structured finance market. While municipal bond insurance will continue to be the cornerstone of MBIA'S business, the company has made a commitment to become a more significant factor in the structured finance market in 1992 and the years that follow.
MBIA has developed expertise in this market through the years, first guaranteeing municipal housing bonds and more recently insuring mortgagebacked securities. Since 1982, over $8 billion of such securities have carried the MBIA guarantee and its triple-A ratings.
Over time, MBIA has built a staffwith the special expertise to handle the complex structures of asset-backed transactions. This staff includes personnel for developing the transactions, a separate underwriting function to review the deal and finally, a surveillance staff dedicated solely to following the transaction from its closing to the final payment on the securities.
In the beginning of 1992, MBIA decided to place its structured finance department into a unit separate from its core municipal bond insurance business. The purpose was to assure that increased attention could be given to this business line without detracting from MBIA'S municipal bond insurance business.
The goal of this new unit was to assure that MBIA became a major player in the structured finance market while meeting the following objectives:
* To underwrite high quality issues to a "to loss" standard while providing MBIA with a maximum retum on the capital involved.
* To continue to serve MBIA'S existing structured finance clients with the highest level of service.
* To expand the MBIA client base in the segments of the structured finance market being served by MBIA.
* To selectively expand into new market sectors of the structured finance market.
* To enhance name recognition of MBIA in the structured finance marketplace and increase the value of MBIA'S guarantee.
Progress Toward Goal
So far this year, the company has made good progress in meeting its goal aixd objectives. For the first half of 1992, MBIA has insured over $1.4 billion of structured finance transactions. This represents a volume increase of more than two and a half times over last year's comparable period.
This increase in par insured came from transactions which each met the MBIA "no loss" standard. While many of its existing clients came to market as repeat issuers during the first half of 1992, MBIA also was successftil in attracting new issuers to the MBIA guarantee transaction list. This increase in both number of clients and insured par assured greater availability of Mbia-insured paper in the marketplace.
This year has also been marked with MBIA breaking new ground in the structured finance market. Of special note was the $519 million Household Finance Corp. home equity loan transaction.
The deal featured a supersurety wrap that guaranteed both A and B classes of the transaction. Capitalizing on the tremendous market acceptance of this structure, MBIA has been working with other potential issuers of home equity-line paper to utilize this enhanced security feature.
New Market Sectors
MBIA is also looking to expand into new market sectors. The company has always been comfortable with products which are consumer based, perform with predictability and have a strong historical track record. MBIA has already insured "small ticket" equipment leasing pools and insur-ance premium receivables transactions.
Other market sectors which might effectively utilize MBIA?S enhancement are manufactured housing, credit card and healthcare receivables, and auto loans. Through its French subsidiary, MBIA Assurance SA, the company is also exploring various mortgage-backed and asset-backed transactions in Europe.
In reviewing the types of transaction it stands ready to insure, MBIA has reiterated its past refusal to insure transactions based on commercial real estate properties.
MBIA'S selective expansion into structured finance transactions corresponds with the increasing need for credit enhancement in this market. A recent survey of structured finance investors conducted on behalf of MBIA confirmed that both the asset-backed securities market and its need for credit enhancement will grow significantly over the next few years.
Utilization of financial guarantee results in a more effective execution of a transaction in the marketplace. Particularly with complicated structures, credit enhancement simplifies the story for investors.
The demand for credit enhancement from MBIA and other monoline insurers should also increase because of the recent downgrading of many letter of credit providers.
MBIA's belief that it should play an increasingly significant role in the structured finance market was further bolstered by other survey conclusions. The structured finance survey identified which factors investors felt were most important in assessing the financial guarantee insurers of mortgage-backed and asset-backed securities.
The most important criteria cited by these institutional investors were relative losses of the insurer, rating agency evaluations, capabilities of the insurer's analysts, and the caliber of the insurer's surveillance activities. With its unparalieled underwriting record and financial strength, triple-A ratings from Moody's and Standard and Poor's, a highly professional staff, and the largest dedicated surveillance group in the industry, MBIA meets and exceeds the tests set by the survey participants and is well positioned to expand its presence in the structured finance market.
STEVEN A. CAMPO Vice President Municipal Sond investors Assurance Corp.
Steven A. Campo is a vice president and manager of MOIA'S structured finance department. Mr. Campo has served at these posts at Municipal Bond Investors Assurance Corp. since 1987.
He joined MBIA in 1984 as a senfor analyst in the housing finance department, was promoted to assistant vice president in 1985, and vice president the following year.
Before joining MBIA, Mr. Campo was with the New Jersey Mortgage Finance Agency, where he served most recently as difector of finance and administration. He began his career as a certiffed public accountant with Deloitte Haskins & Sells.
Mr. Campo holds a bachelor of science degree from Fairleigh Dickinson University. He is a member of both the Now Jersey Society of Certiffed Public Accountants and the American Institute of Certified Public Accountants.