NY Gov working on fix for bond insurers

(Reuters) - New York Gov. Eliot Spitzer said on Tuesday he was working "extraordinarily hard" to aid troubled bond insurers, adding that he would do what is appropriate for the bond market, and the municipal market in particular.

U.S. states, counties and cities buy insurance from bond guarantors because it makes it easier for the tax-free issuers to sell their debt. The insurance companies guarantee that if there is a default, investors will be paid all the principal and interest they are owed.

But bond insurers' expansion into the now-melting subprime mortgage sector threatens the companies' top "AAA" ratings their business requires.

As a result, tax-free issuers around the nation are increasingly skipping insurance or having to pay unusually high interest rates on some types of short-term notes whose liquidity partly depended on insurance.

New York Insurance Superintendent Eric Dinallo has been trying to help the bond insurers raise capital to strengthen their balance sheets, but has warned this will take time.

The Democratic governor told reporters: "We are deeply immersed in this to do what we think is appropriate for the marketplace and for the bond market and ... for the municipal market in particular."

 

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