Relates to limitations on insurers that may provide certain surety bonds by changing the claims-paying ability rating needed for eligibility.
Ayes (7): Martins, Ball, Little, McDonald, Ritchie, Stewart-Cousins, Klein
Excused (1): Oppenheimer
Ayes (58): Adams, Addabbo, Alesi, Avella, Ball, Bonacic, Breslin, Carlucci, DeFrancisco, Diaz, Dilan, Duane, Espaillat, Farley, Flanagan, Fuschillo, Gallivan, Gianaris, Golden, Griffo, Grisanti, Hannon, Huntley, Johnson, Kennedy, Klein, Lanza, Larkin, LaValle, Libous, Little, Marcellino, Martins, Maziarz, McDonald, Montgomery, Nozzolio, O'Mara, Parker, Peralta, Perkins, Ranzenhofer, Ritchie, Rivera, Robach, Saland, Sampson, Savino, Serrano, Seward, Skelos, Smith, Squadron, Stavisky, Stewart-Cousin, Valesky, Young, Zeldin
Nays (1): Krueger
Excused (2): Hassell-Thomps, Oppenheimer
TITLE OF BILL: An act to amend the local finance law, in relation to limitations on insurers that may provide certain surety bonds
PURPOSE: The purpose of the bill is to amend the local finance law to allow highly rated insurers to provide surety bonds in support of municipal bond underwriting bids.
SUMMARY OF PROVISIONS: This bill would amend paragraph three of subsection (c) of section 58 of the local finance law to expand the range of ratings of insurers authorized to provide surety bonds to entities bidding to underwrite municipal bonds from those rated triple-A to those with a rating in the single-A category or higher.
JUSTIFICATION: The bill would expand the range of insurers that may provide an "eligible surety bond" in support of underwriter bids on new municipal bond issues.
Currently, Section 58 of the Local Finance Law authorizes an entity bidding to underwrite new municipal bond issues to provide an "eligible surety bond" in lieu of a certified or cashier's check, cash, or letter of credit that would otherwise be required as a "good faith" deposit in connection with its bid.
Such surety bonds save prospective municipal bond underwriters time and money in the bidding process, and can increase the number of bids on any given municipal bond issue - particularly issuances from smaller municipalities that might otherwise be neglected by some underwriters. Increased competition in underwriting bids should generate borrowing cost savings for municipal issuers and local taxpayers and increase their access to the capital markets.
Section 58, in its present form, requires that "eligible surety bonds" be executed by an insurance company licensed to do business in New York with a claims-paying ability "in the highest rating category by at least two nationally recognized statistical rating organizations."
In view of Standard & Poor's downgrade of the United States' long-term sovereign credit rating to AA+ from AAA, Section 58's requirement that a surety bond provider be rated "in the highest rating category" (AAA or triple-A) is overly restrictive. Financial guaranty insurers, which are also authorized to write surety bonds under Article 69 of the Insurance Law, have historically offered this product in New
York, but are presently unable to do so because none are rated triple-A.
This bill would allow for a highly rated insurer with a rating in the single-A category or higher to provide an "eligible surety bond."
An expansion of the ratings range for insurers providing surety bonds in support of municipal bond underwriting bids is appropriate because:
o it would reflect the changed credit ratings landscape in today's financial markets; and
o it would facilitate the return of an important product to municipal bond underwriting - a product that can save New York State's municipal issuers and taxpayers money through increased competition in the bond issuance process.
LEGISLATIVE HISTORY: None.
FISCAL IMPLICATIONS: Borrowing cost reduction for issuers of municipal bonds in New York State.
EFFECTIVE DATE: This act will take effect immediately.
STATE OF NEW YORK ________________________________________________________________________ 6483 IN SENATE February 15, 2012 ___________Introduced by Sen. MARTINS -- read twice and ordered printed, and when printed to be committed to the Committee on Local Government AN ACT to amend the local finance law, in relation to limitations on insurers that may provide certain surety bonds THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Subdivision 3 of paragraph c of section 58.00 of the local finance law, as amended by chapter 386 of the laws of 2010, is amended to read as follows: 3. A requirement that as a condition precedent to the consideration of his or her bid, each bidder shall deposit with such official as the agency in charge of the sale may designate, a certified or cashier's check drawn upon an incorporated bank or trust company to the order of the municipality, school district or district corporation or such offi- cial, for the amount specified in the notice, but in no event less than one-half of one per centum of the amount of bonds to be bid for. Such notice may also provide that, in lieu of a certified or cashier's check, bidders may furnish as security cash in such amount remitted by wire transfer to an account specified in the notice or an eligible sure- ty bond or an eligible letter of credit, approved by such official as to form, sufficiency, and manner of execution. For purposes of this section, "eligible surety bond" shall mean a bond executed by an insur- ance company authorized to do business in this state, the claims-paying ability of which is rated in ONE OF the THREE highest rating
[category]CATEGORIES by at least [two]ONE nationally recognized statistical rating [organizations]ORGANIZATION; and "eligible letter of credit" shall mean an irrevocable letter of credit issued in favor of the muni- cipality, school district or district corporation, for a term not to exceed ninety days by a bank, as that term is defined in section two of the banking law, whose commercial paper and other unsecured short-term debt obligations (or, in the case of a bank which is the principal subsidiary of a holding company, whose holding company's commercial paper and other unsecured short-term debt obligations) are rated in one of the three highest rating categories (based on the credit of such bankEXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD14664-01-2 S. 6483 2
or holding company) by at least one nationally recognized statistical rating organization or by a bank that is in compliance with applicable federal minimum risk-based capital requirements. S 2. This act shall take effect immediately.