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Build America Mutual Assurance Company Launches, Dedicated to Serving Municipal Markets

July 27, 2012

On July 23, Build America Mutual Assurance Company (BAM), announced its formation as the financial guaranty industry’s first mutual bond insurer dedicated to serving the U.S. municipal market.

 

BAM is owned by its policy holders, the municipal issuers, using BAM’s insurance to keep costs and risk lower than traditional bond insurance models. BAM is sponsored by the National League of Cities.

With $600 million in initial financing, BAM is rated AA/Stable by Standards & Poor’s Rating Agency. The company plans to insure investment grade general obligation bonds without using structured securities. BAM expects to begin issuing policies in September.

Each municipal issuer that purchases insurance from BAM will become a member. BAM policy premiums include a risk premium and a member surplus contribution to BAM, which will fund the growth of BAM’s claims-paying resources.

In addition to interest cost savings, BAM members are entitled to:

  1. Participate in future dividends on member surplus contributions, subject to regulatory approval;
  2. Pay only a 10-year risk premium up front at closing and annual premiums after 10 years if binds are not refunded; and
  3. Reutilize the member surplus contribution for the life of any refunding issue.

These features of BAM membership will lower the long-term cost of public borrowing.

BAM was cofounded by Robert P. Cochran and Seán McCarthy, who are both veterans of the bond insurance industry.

For more information about BAM, please see its press release.

 

 



 
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