S&P - Public Finance Criteria (2007). - The Global Clearinghouse

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Bond Insurancethe terms of the engagement, several meetings areheld where key topics are discussed in detail. Accessto the new insurer’s key executives is critical to thesuccessful completion of this phase of the process.Once all the necessary information has beenreceived and evaluated, a rating committee willdetermine the rating of the new insurer. The newinsurer has the right to refuse a rating it finds unacceptable.The process will usually take severalmonths from start to finish, although it hasstretched out to more than a year in extreme cases.Below is a description of the informationrequired from a prospective insurer:■ Assessment of market potential: Discussionsinclude what market(s) the new insurer is addressing,why that market needs additional capacity,and how the market dynamics would changeupon the new insurer’s entry into the market.■ Business plan—text and numbers: Text shouldinclude a discussion of how the company plansto compete and what its market share goals are,along with a list of key sources of business. Fiveyears of income, balance sheet, and cash flowstatements should be provided for both the insurancecompany and the holding company. Keybusiness statistics—par insured, par outstanding,principal and interest insured and outstanding,and premiums written—should be provided bycountry and by market sector (such as GO orhospital) on both a gross and net basis. Averagepremium rates by sector should also be provided.■ Underwriting guidelines: Detailed underwritingguidelines to be applied in assessing issues andissuers are to be submitted.■ Ownership: A list of owners and the name,address, and telephone number of a contact personat each owner must be provided. For otherthan Standard & Poor’s rated entities, a shortsummary of each owner’s business activities mustbe provided.■ Management: Resumes for each of the key managersmust be provided.■ Regulatory climate and applicable regulations:The country and state, if applicable, of domicile,along with licensing status in other jurisdictions,must be identified. Key regulations that affect theinsurance company and the insurancecompany/holding company relationship are to besubmitted for review.■ Risk management/controls: Significant risk-management/controlphilosophies and guidelines—including geographic dispersion, sector concentration,foreign currency exposure, and (if a reinsurer)■■■ceding company concentration—should be discussed.Single-risk guidelines should be included.Reinsurance: A discussion of the planned use ofreinsurance and the type(s) of coverage soughtshould be provided. A list of reinsurers where relationshipsalready exist and a representative list ofreinsurers that the new insurer expects to establishrelationships with should also be provided.Investment strategy: Investment strategy is discussedin terms of average credit quality, ratingdistribution, issuer/industry limitations, maturitydistribution, and duration matching. Thename(s) of investment managers to be engagedshould be provided.Capital adequacy model: At the appropriate time,a detailed list of assumptions will be provided tothe new insurer. The insurer will need to create acapital adequacy model and share with us theresults, based on our assumptions. At the sametime, the new insurer will be asked to fill out aworksheet, providing us with data to run ourown model.Monoline ReinsurersIn the mid-to-late 1980s, the dramatic volumegrowth of insured issues created a need forincreased reinsurance capacity at a time when multilinereinsurers were reluctant to make more capacityavailable and, in some cases, actually reducedavailable capacity. This shortage led to the creationof two monoline reinsurers dedicated solely to thefinancial guarantee industry. With the growth in theindustry and the primary insurers’ desire to diversifytheir reinsurance relationships, two additionalstart-up reinsurers joined the industry in the midto-late1990s, garnering a significant share of reinsurancepremiums ceded by the primary insurers.The nature of the relationship between the primaryinsurers and reinsurers began to change in thelate 1990s. The reinsurers’ role evolved from beingincremental capital providers to risk-managementtools for the primaries. In the process, the reinsurers’fundamental business weakened as they facedweaker growth, profitability, and market-shareprospects, and were challenged through their underwritingand risk-management functions to overcomethe adverse selection inherent in the reinsurancepractices of the primaries.As a result, in March 2002, Standard & Poor’srevised its rating outlook on the four companies thatthen comprised the monoline reinsurance industry tonegative, reflecting deterioration in their businesspositions relative to the primary companies fromwhich they assumed business. This business wasviewed as being less diversified, less profitable, and ofwww.standardandpoors.com303
Other CriteriaTable 6 U.S. Municipal And Corporate Rating Sensitive Capital Charges (%)* And Single-Risk Categories—Underlying rating Category—Single-riskSector CCC B BB BBB A AA AAA category§General ObligationStates 30 21 15 4 2 2 1 1Cities and counties 100 70 50 13 7 5 4 1Schools–elementary and secondary 40 28 20 5 3 2 2 1Special district 120 84 60 16 8 6 5 1Community college district 100 70 50 13 7 5 5 1Tax-Supported DebtSales, gas, excise, gas, and vehicle registrationLocal 150 105 75 20 11 8 6 2Statewide 80 56 40 10 6 4 3 1Guaranteed entitlements 100 70 50 13 7 5 5 1Special assessments, Mello Roos, tax increment financings 250 175 125 33 18 13 10 4Hotel/motel 250 175 125 33 18 13 10 4Personal incomeLess than 1.0 million population 150 105 75 20 11 8 6 2More than 1.0 million population 80 56 40 10 6 4 3 1Cigarette, liquor 250 175 125 33 18 13 10 4Health CareHospitals 350 245 175 46 25 18 14 6Hospital systems(three or more hospitals with geographic dispersion) 300 210 150 39 21 15 12 5Hospital equipment loan program 350 245 175 46 25 18 14 6Health maintenance organization 350 245 175 46 25 18 14 6Clinic practices closely affiliated with hospital 350 245 175 46 25 18 14 6Nursing home 350 245 175 46 25 18 14 6Nursing home system(three or more homes with geographic dispersion) 300 210 150 39 21 15 12 5Life-care center 350 245 175 46 25 18 14 6Life-care center system(three or more centers with geographic dispersion) 300 210 150 39 21 15 12 5Human service providers 200 140 100 26 14 10 8 3UtilitiesPublic power agency with special project risk (1) 400 280 200 52 28 20 16 6Public power agency with high dependence on nuclear (2) 300 210 150 39 21 15 12 5Public power agency with no specialproject risk and little nuclear dependence (3) 150 105 75 20 11 8 6 2Water, sewer, electric, and gas systems (revenue-secured) 120 84 60 16 8 6 5 1304 Standard & Poor’s Public Finance Criteria 2007
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2007Public FinanceCriteria
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Published by Standard & Poor’s, a
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ContentsI. IntroductionIntroduction
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IntroductionIntroduction To Public
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Introduction To Public Finance Crit
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Cross Sector CriteriaShort-Term Deb
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Short-Term Debtissue in the event o
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Short-Term DebtCash Flow Note Pools
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Commercial Paper, VRDO, And Self-Li
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Bank Liquidity Facilitiesthat immed
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Municipal Swapsoccurrence of the au
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Municipal Swapspurchased a swaption
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Municipal Swapsrisk, but gives the
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Municipal Swapscharges. An issuer t
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Municipal Swapsmeasures the potenti
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Debt Derivative Profile ScoresDue t
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Debt Derivative Profile ScoresOf th
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Long-Term Municipal Poolsexposure,
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Long-Term Municipal Poolsthe progra
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Long-Term Municipal Poolsand assets
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Investment GuidelinesThe proceeds f
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Investment GuidelinesEligible Inves
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Investment Agreements For Municipal
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Joint Support To Investment Agreeme
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DefeasanceDefeasanceStandard & Poor
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Defeasanceexisting rating on the ob
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GO Debtkey role in economic develop
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GO Debtchanging. Increases in net a
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GO Debtthe Financial management Ass
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Debt Statement AnalysisWith this ag
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Debt Statement AnalysisHowever, swa
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Special Tax Bondsis dedicated only
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Special Tax BondsAdditional bonds t
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Non Ad Valorem BondsNon Ad Valorem
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Lottery Revenue BondsLottery Manage
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Special-Purpose DistrictsTax Increm
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Special-Purpose DistrictsQuestions
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Special-Purpose Districtsatical in
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Special-Purpose Districts■ Cash f
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State Credit Enhancement Programsce
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State Credit Enhancement Programsfi
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State Credit Enhancement ProgramsPu
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State Credit Enhancement Programsde
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State Credit Enhancement Programsth
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State Credit Enhancement ProgramsNe
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State Credit Enhancement Programsan
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State Credit Enhancement Programstr
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Appropriation-Backed Obligationscie
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Appropriation-Backed Obligationsand
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Federal LeasesFederal LeasesPrivate
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Federal Leasesis important to make
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Moral Obligation BondsMoral Obligat
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General Government UtilitiesWater A
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Water And Sewer RatingsLastly, Stan
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Water And Sewer Ratings■■also r
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Water And Sewer Ratingsdebt service
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Electric Utility Ratingstherefore c
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Electric Utility Ratingsits viabili
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Electric Utility Ratingsfor systems
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Solid Waste System Financingsyears.
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Solid Waste System Financingsmitiga
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TransportationAirport Revenue Bonds
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Airport Revenue Bondsports can be v
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Airport Revenue BondsDemand informa
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Stand-Alone Passenger Facility Char
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Airport Multi-Tenant Special Facili
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Airport Multi-Tenant Special Facili
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Port Facilities Revenue Bondsincrea
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Toll Road And Bridge Revenue BondsT
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Toll Road And Bridge Revenue BondsN
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Mass Transit Bonds Secured By Fareb
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Parking Revenue BondsParking Revenu
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Health CareNot-For-Profit Health Ca
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Not-For-Profit Health Careconcerns.
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Not-For-Profit Health Caregroup, St
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Not-For-Profit Health CareLegal Rev
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Not-For-Profit Health CareStandard
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Senior Livingsystem’s credit stan
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Senior LivingLegal CriteriaStandard
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Senior Livinging” criteria may ap
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Physician Groups And Faculty Practi
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Physician Groups And Faculty Practi
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Human Service Providerswhich can di
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Education And Non-Traditional Not-F
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Higher EducationProgram offerings.
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Higher EducationRisk managementStan
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Higher Educationa general obligatio
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Higher EducationSelected Public Col
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Higher EducationThe revenue pledgeT
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Higher Educationtial demand for hou
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Higher Education■■The project i
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Private Elementary And Secondary Sc
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Private Elementary And Secondary Sc
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Charter Schoolsan impartial legal f
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Charter Schoolsstates are not alway
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Charter Schoolsauthorizer have guid
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Non-Traditional Not-For-Profitsconv
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Non-Traditional Not-For-ProfitsCult
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Non-Traditional Not-For-Profitspara
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Municipal Structured FinanceIntrodu
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Introduction To Structured Financea
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Introduction To Structured FinanceC
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Introduction To Structured Financei
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Introduction To Structured FinanceL
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Municipal Applications For Joint Su
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Forward Purchase Contracts And ‘A
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Secondary Market Derivative Product
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Single-Family Whole Loan Programsth
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Single-Family Whole Loan ProgramsTh
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Single-Family Whole Loan Programspo
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Single-Family Whole Loan ProgramsA3
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Single-Family Whole Loan ProgramsTa
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Single-Family Whole Loan ProgramsRe
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Single-Family Second Mortgage Loans
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Single-Family Mortgage-Backed Secur
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Property Improvement LoansCertain o
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Property Improvement Loansunder a s
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FHA Insured Multifamily MortgagesMo
Page 254 and 255: FHA Insured Multifamily Mortgagesth
Page 256 and 257: FHA Insured Multifamily Mortgagesda
Page 258 and 259: FHA Insured Multifamily MortgagesHF
Page 260 and 261: Ginnie Mae, Fannie Mae, And Freddie
Page 262 and 263: Ginnie Mae, Fannie Mae, And Freddie
Page 264 and 265: Unenhanced Affordable Housing Proje
Page 272 and 273: Affordable Multifamily Housing Pool
Page 278 and 279: Military Housing Privatizations■
Page 280 and 281: Military Housing Privatizationsimpa
Page 282 and 283: Federally Subsidized Housing Progra
Page 284 and 285: Federally Subsidized Housing Progra
Page 286 and 287: Public Housing Authority Debtinvest
Page 288 and 289: Public Housing Authority Debtthe PH
Page 290 and 291: Public Housing Authority Debtto pay
Page 292 and 293: Housing Finance AgenciesKey financi
Page 294 and 295: Housing Finance AgenciesIn many ins
Page 296 and 297: Bond Insurancenet losses will occur
Page 298 and 299: Bond Insuranceing; the durability o
Page 300 and 301: Bond Insurancereinsurance as descri
Page 302 and 303: Bond Insurancepaying resources. The
Page 306 and 307: Bond InsuranceTable 6 U.S. Municipa
Page 308 and 309: Bond Insuranceinvolves a formal bus
Page 310 and 311: Bond Insuranceyears of the modeling
Page 312 and 313: Bond Insurancemargin of safety meas
Page 314 and 315: Government Investment Pool(NAV) to
Page 316 and 317: Government Investment Poolon an ove
Page 318 and 319: Government Investment Pooland $1.00
Page 320 and 321: Government Investment Poolsevere in
Page 322 and 323: Government Investment PoolVariable
Page 324 and 325: Assessing Construction RiskInterest
Page 326 and 327: Assessing Construction Riskelect to
Page 328 and 329: Pension Fund Credit Enhancement And
Page 330 and 331: Public Pension FundsPublic Pension
Page 332 and 333: Public Pension Funds■■Operating
Page 334 and 335: Public Pension Fundscompensation ag
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