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Assured Guaranty Ltd. Message Board

  • cohsgrad cohsgrad Dec 21, 2012 11:26 AM Flag

    Municipal Bonds

    Sold. Panicking to a big extent. The possibility of limiting the tax exempt status of MUNI bonds scares me. Moody's has to rule someday too, no idea how that one will go.

    Like the company and will probably get back in when some clarity on the tax issues come out.

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    • Bought some shares but not a big position like I had previously. I still say Congress will ultimately limit tax exempt interest amount but Fong recommended it and I really like the way he finally is talking about how MBIA has a long road of litigation in front of them. The toughest thing in the world is to change one's world-view and he showed some willingness to do so.

    • If they limit the tax exempt status of Muni's, borrowing rates will go up for the issuer. Muncipalities and States use AGO's insurance to lower rates. So lets say that a new issue Muni become 100% taxable, therefore a bond that previously paid out 3.25% now has to pay 4.25% because it lost it's federal tax free status. The issuer can reduce the rate it pays by making the bond insured. So pre tax status change the insured bond now has to pay 3.00% rather than 3.25% and post tax status change 4% rather than 4.25%, if AGO steps in. These past few years states have not sought out AGO's insurance because rates are so low and muni's were in big demand. If the tax status of muni's change muni's will lose their appeal and these states will find their cost to borrow money sky rocket. They will be seeking out AGO's insurance to reduce their borrowing costs. That is my logic. On a side note changing the tax status of muni's would be the dumbest thing that Congress could do. It would do exactly the opposite of it's intended purpose to put the screws to those horrible rich people. States would have to layoff people, increase real estate taxes, cut down on servicesetc. etc. etc,. to absorb these addtional borrowing costs. The Middle Class will be the ones bearing the brunt of the pain. So in summary I think if the tax status of muni's change it could be a very good thing for AGO and a bad thing for the country.Disclousure: I am still vey long.

      Sentiment: Strong Buy

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