Bond Insurance and Liquidity Provision: Impacts in the Municipal Variable Rate Debt Market, 2008-09

• DOI: 10.1177/1091142110368048
• Publication Date: 2010-06-23T02:54:10Z
• Authors: Christine R. Martell; Robert S. Kravchuk
• Keywords: Credit rating

This article explores the effects of credit enhancement, and downgrades to enhancement providers, on costs municipal issuers for holding variable rate debt during 2008—09 market crisis. Although were potentially subject pressure their issues due contraction, extent problem has not been well researched, especially regarding enhancement. study empirically investigates whether liquidity providers affect cost impact is affected by providers. Several important contributions are made. First, this research emphasizes role provision as a form Second, value examined in environment Third, tests capital efficiency using variable, opposed fixed debt, which allows identification risk default risk.