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June 6, 2017

BAM Responds to S&P Global Ratings CreditWatch Action

S&P Global Ratings’ decision to place BAM’s rating on CreditWatch Negative represents a departure from their stated criteria and previous communications to the market. BAM’s managing directors said they intend to engage with S&P during the CreditWatch period to demonstrate that BAM’s financial strength and low-risk, low-volatility strategy of insuring only U.S. municipal bonds from essential public purpose issuers supports BAM’s current rating.

BAM Chairman Bob Cochran said:
“Maintaining durable ratings has been the most important consideration for every operating decision we’ve made in the five years since BAM’s launch, and we will continue to prioritize that during this CreditWatch period. We have provided additional information to S&P that we expect them to consider between now and the annual review of BAM’s rating, and we will take the time between now and then to educate the rating committee about the strength inherent in our capital base, municipal-only business model, and pristine insured portfolio. BAM has never incurred an insured loss in its lifetime, and does not anticipate any losses from its existing insured portfolio.”

BAM Chief Executive Officer Seán McCarthy said:
“BAM is fulfilling the mission we set out when the company was launched: Providing the market with the ability to choose a guarantor with robust and growing capital strength that is exposed only to municipal risk. Our portfolio strategy does not limit BAM’s competitive position: Only 3% or less of the U.S. insured municipal market is sold in sectors that BAM does not insure, and diversification outside the municipal market has historically exposed bond insurers to excessive risk of loss. According to municipal market default studies by Moody’s and S&P, 70% of the defaults by credits that were rated investment grade at issuance were from the sectors BAM has chosen not to insure. In contrast to the industry’s past, we will not change our risk tolerance in response to rating agency pressure.”

In its 2016 Annual Report, S&P set the following benchmarks for BAM’s performance, and BAM has achieved each one:

  • Capital adequacy ratio greater than 1.0 through 2017
    • BAM’s CAR stood at 2.09x at year-end 2016, and has been greater
      than 1.6x every year since inception
  • Municipal risk-adjusted pricing ratio greater than 4.0% by year-end 2017
    • BAM’s RAP stands at 4.4% through the first half of 2017
  • Combined ratio less than 100% by year-end 2017
    • BAM’s expense and combined ratio was 82% for 2016 and 64% for Q1
  • Operating return on equity of 3%-4% by year-end 2017
    • BAM’s annualized operating ROE was 4% in Q1 2017
      • Return on revenue above 10% by year-end 2017
    • BAM’s RoR was 12% for 2016; 34% for Q1 2017

In addition, since inception, S&P Global Ratings has repeatedly cited the value of BAM’s municipal-only underwriting strategy:

  • “We believe the company’s strategy of providing insurance only on essential public purpose municipal bonds could position the company to achieve very strong market acceptance.” – August 2012
  • “BAM has been successful in differentiating itself from its active competitor by virtue of its focused municipal risk exposure, which is resonating within the municipal market and investor base.” – August 2013
  • “Very strong competitive position as seen by significant market share of insured U.S. municipal market and low volatility of insured portfolio.” – July 2014
  • “Strong competitive position driven by proven investor acceptance of BAM financial guarantees and growing share of insured par.” – June 2015
  • “Strong competitive position arising from investor acceptance of the company’s financial guarantees and increasing par insured.” – July 2016

BAM Chairman Bob Cochran concluded:
“BAM has clearly satisfied S&P’s criteria and expectations and BAM’s financial performance has been gaining momentum through the past five quarters. In the current quarter, we are the market leader, guaranteeing 45% of the par insured and more than 50% of all insured transactions. We will continue to explain those facts to S&P during the CreditWatch period, and encourage everyone in the market who values a municipal-only guarantor to join us.”

About Build America Mutual

BAM is a mutual bond insurance company operated for the benefit of its members – the cities, states and other municipal entities that use BAM’s financial guaranty to lower their cost of borrowing. BAM is sponsored by the National League of Cities.
Through June 2, 2017, BAM has insured more than $39 billion of municipal securities for more than 2,400 municipal issuers nationwide. Learn more at

For more information, please contact:
Michael Stanton, Head of Corporate Strategy and Communications 212-235-2575;