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Project Alpha

Project Alpha. A proposal for syndication of municipal bond default risk. August 2009. Background. $550 b stimulus package + cash strapped state and local government = muni bond issuance Existing financial guarantors disabled by CDO’s, RMBS and credit default swaps

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Project Alpha

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  1. Project Alpha A proposal for syndication of municipal bond default risk August 2009

  2. Background • $550 b stimulus package + cash strapped state and local government = muni bond issuance • Existing financial guarantors disabled by CDO’s, RMBS and credit default swaps • Opportunity for a clean balance sheet • Rating agencies re-thinking their approach • Opportunity for a more capital-efficient approach

  3. Request for a Treasury-Funded Newco • Two plans are circulating in Washington, asking Treasury to back new monolines • $25 billion to build MBIA 2 • $10 billion to back a captive / mutual controlled by the National League of Cities • Sympathy for issuers, not support for Newco’s • Build America Bonds • Federal regulation discussed • Need to address structural issues

  4. Proposal: Put the “A” back in MBI • Formed in 1972, the original strength of the financial guarantee companies came from syndicating risk among well established multiline insurance companies. • The original target was small issuers not well-known to rating agencies, with premiums of half the yield savings. • Pushed by the rating agencies, from 1987 – 1997 the companies moved from syndicates, to small balance sheets with parental support agreements, to large balance sheets in public, monoline financial guarantee companies. • Feeding the capital base and raising the stock price drove expansion into ever riskier products, directly and through acquisition. • The original success formula is available for use…..

  5. How much capital would be required for a syndicate to have a “AA” rating? 5-11 participants, rated “AA” or higher Names shown are illustrative only ? ADIA USAA MGA Blackstone TRV ?

  6. Risk Profile • Insuring GO only, no Florida • Premium rate = market, aiming for a long term return to 50% of savings • Several liability for annual syndicate years • A syndicate member falling below “AA” has their interest auctioned among existing, then to new • MGA owned by the suppliers of capital • Small team of professionals, active board of owner representatives

  7. Contact Information The Project Alpha team is now in discussions with various industry participants, both developing a detailed product and profit model and confirming legal and rating agency treatment of the proposed organization. If you would like to receive updated information, please contact the following:

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