Our Experts Comment the Times Series

See All the Comments

Can Monolines Weather The Storm?

04 October 2017 by lberuti

Puerto Rico “owe(s) a lot of money to your friends on Wall Street and we’re going to have to wipe that out. (…) You can say goodbye to that. (…) I don’t know if it’s Goldman Sachs, but whoever it is you can wave good-bye to that”. President Trump comment made in a Fox News interview yesterday suggesting that the government debt accumulated by bankrupt state would need to be wiped clean to help the island recover from the devastation caused by recent hurricanes did not go down well with monoline investors. Most of them have some kind of exposure to Puerto Rico’s debt, as they have insured part of the $74Bln owed due to bondholders. FSA (Assured Guaranty Municipal Corp) and National Public Finance Guarantee, a unit of MBIA, both insured more than $7Bln. Even if Mr Trump’s declaration should probably not be taken at face value and if none of these two companies will be liable for the full amount they covered, the sums involved are massive. The market reaction was brutal. FSA’s 5-year risk premium increased by 42.5bps to 225bps while MBIA’s increased 144bps to 657bps.