For now, two major bond insurers appear more than able to handle credit deterioration of Puerto Rico’s public corporations and new legislation that will let some of the companies restructure their debt, Standard & Poor’s said in a new report.
“We believe that there are no negative ratings or solvency implications at this time, based on our capital adequacy analysis for Assured Guarantee Ltd. (Assured) and National Public Finance Guarantee Corp. (National),” S&P analysts David Veno and Marc Cohen wrote in their evaluation of the situation.
They said that the legacy bond insurers maintain a very strong and adequate money cushion to cover actual or theoretical losses from their insured exposures, despite “significant recent credit deterioration of their various Puerto Rico exposures,” plus problems with their Detroit exposures.
Assured has a capital cushion of between $1.45 billion and $1.55 billion, Standard & Poor’s said, and National’s is between $400 million and $500 million.
“These cushions are additional losses, actual or theoretical, beyond what we already assess in our analysis of each bond insurer’s exposure to insurers in Puerto Rico that Assured and National could incur and still retain the current ratings,” the report concluded.
All of that said, the Standard & Poor’s report notes that it is impossible to target “the precise loss-given default for the bond insurers’ exposure to issuers in Puerto Rico.”
S&P said that there are a number of variables at play, including recovery prospects and ultimate economic losses—numbers that become clear only after “a long period of bankruptcy litigation and negotiation.”