What is Plainfield impact of bond insurer's woes?

It's Saturday, do you know where your Plainfield bonds are?

You may want to.

Plainfield, like thousands of communities across the country, issues bonds to underwrite capital projects such as road improvements, facilities construction and capital equipment purchases. Plainfield recently issued bonds to finance road reconstruction and improvements.

News comes that yesterday Fitch Ratings downgraded bond insurer AMBAC from AAA to AA, rattling Wall Street.

How might this affect Plainfielders?

AMBAC insures bonds issued by local communities, reassuring investors who buy those bonds. In theory, if a municipality or other bond issuer defaults on the bonds, the insurer pays off. Many investors have restrictions stating that they may only buy bonds whose insurers have triple-A ratings.

Uh-oh.

Firms with those restrictions would have to unload bonds whose insurers were not triple-A rated, making the bonds less desirable and pricier. This will drive up the cost of future borrowing by municipalities, many struggling with lower cash receipts.

In the case of bonds already issued, the bond issuer -- for example, Plainfield -- already has the money, they are not currently impacted.

Unless they default on the bonds.

If the bond issuer defaults, normal practice would be that the bond insurer makes the investors whole by paying off the bonds. If the bond INSURER is unable to do so (and this is what has Wall Street rattled about AMBAC's situation), the bond ISSUER -- the municipality or other entity -- must pay off the bonds.

Now there is no suggestion that Plainfield is in any danger of defaulting on its bond obligations.

But that does not necessarily mean this situation has no foreseeable impact on Plainfield.

And that is where BUF comes in.

Still unanswered is the question of who is on the hook if BUF ever defaults on the $7 million on bonds recently issued by the Union County Improvement Authority (UCIA) for its planned construction of a new preschool facility.

As previously reported in Plainfield Today, county officials say the City may be on the hook (see more here and here).

So we may have an interest in knowing if AMBAC is the City's and/or the UCIA's bond insurer.

Perhaps the City or the UCIA can answer your questions about the impact of this matter.

But it's Saturday. And Monday is a holiday.

We'll have to wait...and wonder.

---

• NY Times: "Bond Insurers’ Distress Rattles Wall Street"
• Ledger: "Ratings cut may shake up bond world"
• Plainfield Today: "Mayor pledges support for $7M bond"
• Plainfield Today: "$7M BUF bond may leave Plainfield on the hook"
  

-- Dan Damon

View today's CLIPS here. Not getting your own CLIPS email daily? Click here to subscribe.

ARCHIVED POSTS OF PLAINFIELD TODAY FROM 11/03/2005 THROUGH 12/31/2006 ARE AT
http://plainfieldtoday.blogspot.com/