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Technology Stocks : Y2K (Year 2000) Stocks: An Investment Discussion
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To: IVAN1 who wrote (7492)11/3/1997 12:52:00 PM
From: Silk Stockings  Read Replies (1) of 13949
 
Munis & Insured Munis are a function of "credit quality."

There are two fundamental types of munis.

"General Obligation" bonds have pledged the taxing power of the municipaltiy to pay principal & interest when due. Credit is a function of the tax base. These are usually quite safe because the municipality is obligated to raise taxes if necessary to pay.

"Revenue" bonds (the most common) typically have certain revenue streams pledged to pay principal & interest when due. Credit is a function of the particular project. e.g., water & sewer bonds, toll roads or bridge bonds, etc. The quality of these bonds are entirely dependent on the particular revenues which are pledged.

"Insured" bonds have an insurance company pledged to pay principal & interest when due and in the event that the municipality does not pay. Credit is a function of the financial strength of the insurance company. The major bond insurers are very strong. (MBIA, AMBAC) Lesser insurers can be quite weak when there is a problem. (Mutual Benefit)

Overall, high quality bonds also backed by a quality insurance company are about as high a credit as you will find. The majors are very strong financially. They collect large premiums, invest them well and, at least so far, have historically had little to no defaults to cover.

Remember, their exposure is p/i when due. The terms of the bond are not accelerated.

Like all weak entities, y2k poses a threat. The high quality bonds will survive.
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