Standard & Poor's Ratings Services will publish the underlying ratings (SPURs) on all insured debt of publicly rated U.S. corporate issuers that have a public issuer credit rating and are issued directly or indirectly via a tax-exempt conduit.
A SPUR represents our current opinion of the stand-alone creditworthiness of a debt issue. Specifically, the SPUR indicates the capacity and willingness of an issuer to satisfy the obligations of a debt instrument on a timely basis and in accordance with the terms of the debt. A SPUR excludes consideration of any applicable credit support from a third party.
Since October 2007, Standard & Poor's has taken rating actions on a number of financial guaranty insurance companies, or bond insurers (table 1 shows their current ratings). These actions have generated a number of questions related to how such rating changes affect the ratings of obligations of a corporate entity that also benefits from bond insurance.
Many issuers and their advisers are considering whether purchasing bond insurance for new debt issues continues to makes economic sense in today's turbulent market. Some that in the past had used bond insurance have already issued debt on an uninsured basis. For existing insured bonds, we believe the SPURs' incremental information provides increased transparency to the markets.
The publication of SPURs, which can be found at http://www.spviews.com, is one of several steps that Standard & Poor's is taking to provide greater transparency about our ratings, as well as to augment understanding about the credit rating process. Information about additional actions being taken by Standard & Poor's to further strengthen its ratings process, increase transparency, and enhance governance can be found at http://www.spnewactions.com/.
Frequently Asked Questions
What is bond insurance?
Bond insurance is a commitment by a bond insurer to make the scheduled principal and interest payments on a bond if the obligor of the bond fails to make a payment. Typically, issuers or sponsors request bond insurance on new issues, with the expectation that the resulting lower interest rate on the insured bonds will more than offset the cost of the policy.
What types of corporate issuers use bond insurance?
Many industries use bond insurance, but regulated utilities have issued the vast majority of the insured corporate debt. Most prominent among the applications of insured debt are the financing of pollution-control equipment for electric power generating stations, and to a lesser degree solid-waste management. Depending on the jurisdiction, insured debt is also issued to fund the development of electric, gas, and water distribution systems.
What is an issue rating?
A Standard & Poor's issue rating is a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program. The rating considers the creditworthiness of guarantors, insurers, security, or other forms of credit enhancement on the obligation, and may be equal to, above, or below the corporate credit rating.
What is the interdependence between a bond insurer's rating and a SPUR?
Under our criteria, the issue rating on an insured bond issue is the higher of the bond insurer's rating and the SPUR, as demonstrated in the table 2.
Table 2
Insured Bond Examples
Example
Bond insurer?s rating
SPUR
Issue rating
1
?AAA?
?AA?
?AAA?
2
?A?
?AA?
?AA?
We will rate the issue in example 2 above 'AA' based on the underlying creditworthiness of the issuer (SPUR) so long as the bond insurer's rating is lower than 'AA'. Subsequent surveillance will be tied to the SPUR so long as the SPUR is higher than the rating on the bond insurer.
What if an issue with bond insurance doesn't have a SPUR?
If we don't rate the underlying obligation, we base the issue rating solely on the bond insurer's current rating. However, we have suspended the ratings for bonds without SPURs that ACA Financial Guaranty Corp. (CCC/Watch Dev/--) insured.
Predominantly Investment-Grade SPUR Ratings
Chart 1 displays the distribution of SPURs by category for U.S. Corporate insured issues. The data shows that 42% of the issues have a SPUR rating of 'A' or higher and less than 5% of the issues have a speculative-grade SPUR.
Chart 1
Significant Concentration Of Insurers
Chart 2 shows the distribution of SPURs by bond insurer for the issues displayed in chart 1. The four largest insurers provide policies to 96% of the U.S. Corporates insured debt--Ambac Assurance Corp. (45%), MBIA Insurance Corp. (26%), Financial Guaranty Insurance Co. (17%), and XL Capital Assurance Inc. (8%).
Chart 2
Contact Information On Obtaining A SPUR Rating
For additional information on obtaining a SPUR from Standard & Poor's, please contact George Slavin at (1) 212-438-2629 or george_slavin@standardandpoors.com.
Analytical Contact Information
Name
Sector
Phone number
E-mail
Richard W. Cortright Jr., Managing Director
Utilities & Infrastructure
212-438-7665
richard_cortright@standardandpoors.com
Steven J. Dreyer, Managing Director
Utilities & Infrastructure
212-438-7187
steven_dreyer@standardandpoors.com
Michael Messer, Director
Utilities & Infrastructure
212-438-1618
michael_messer@standardandpoors.com
Arthur Simonson, Managing Director
Utilities & Infrastructure
212-438-2094
arthur_simonson@standardandpoors.com
John Whitlock, Managing Director
Utilities & Infrastructure
212-438-7678
john_whitlock@standardandpoors.com
Catherine Cosentino, Director
Telecommunications & Cable
212-438-7828
catherine_cosentino@standardandpoors.com
John J. Bilardello, Managing Director
Utilities & Infrastructure
212-438-7664
john_bilardello@standardandpoors.com
Related Research
This article supplements recent articles on bond insurance published by Standard & Poor's Public Finance and Structured Finance departments.
"Standard & Poor?s Underlying Ratings In Most Bond-Insured Transactions Are Strong And Stable", published March 11, 2008.
"Credit FAQ: The Interaction Of Bond Insurance And Credit Ratings – Structured Finance Update," published Feb. 26, 2008.
"Detailed Results Of Subprime Stress Test Of Financial Guarantors," published Feb. 25, 2008.
"Standard & Poor?s Takes Additional Bond Insurer Rating Actions," published Feb. 25, 2008.
"Credit FAQ: Future Ratings Actions On U.S. Prepaid Gas Transactions Could Depend On Bond Insurers," published Feb. 19, 2008.
"Downgrades Of Bond Insurers Can Add To Subprime Woes For Banks," published Feb. 5, 2008.
"Credit FAQ: The Interaction Of Bond Insurance And Credit Ratings," (Public Finance) published Dec. 19, 2007.
Analytic services provided by Standard & Poor's Ratings Services (Ratings Services) are the result of separate activities designed to preserve the independence and objectivity of ratings opinions. The credit ratings and observations contained herein are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. Accordingly, any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision. Ratings are based on information received by Ratings Services. Other divisions of Standard & Poor's may have information that is not available to Ratings Services. Standard & Poor's has established policies and procedures to maintain the confidentiality of non-public information received during the ratings process.
Ratings Services receives compensation for its ratings. Such compensation is normally paid either by the issuers of such securities or third parties participating in marketing the securities. While Standard & Poor's reserves the right to disseminate the rating, it receives no payment for doing so, except for subscriptions to its publications. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
