40% of Public Debt Issuers Failed to File in 2009

[JEast]

This story is a little dated, but found it interesting.  Interesting in the fact that 40% of public debt issuers (mainly municipalities) failed to file financial reports in 2009.  This is of concern for holders of the debt, but if you have a BRK policy against default like some holders - you can sleep well.

 

http://online.wsj.com/article/SB10001424052748704013604576104490177188326.html

 

 

Cheers

JEast

 

[biaggio]

JEAST, can us BRK holders sleep?

[benhacker]

JEAST, can us BRK holders sleep?

 

Berkshire only has put $1.6 in capital into BHAC, so I think it's hard to imagine the muni issue really doing much damage there.  BHAC is not backstopped by BRK, so it's a non-recourse arrangement for those BHAC insured munis.

 

Ben

[biaggio]

Benjacker do you think FFH and other muni bond holders who buy bonds "guaranteed" by BRK have anything to worry about? i.e. if there muni bonds don t pay will there be $$$ from BHAC? or is there just a small amount of muni bonds that are backed by BRK

[benhacker]

Benjacker do you think FFH and other muni bond holders who buy bonds "guaranteed" by BRK have anything to worry about? i.e. if there muni bonds don t pay will there be $$$ from BHAC? or is there just a small amount of muni bonds that are backed by BRK

 

Biaggio,

 

I think the bonds are probably good, but if there are mass defaults, that $1.6B won't go far... however, they didn't ensure a whole ton of bonds, so the backing is actually pretty solid.  If you are buying the nearer maturity BHAC bonds, you are totally covered.  Further out stuff is still likely good.

 

You get two benefits with BHAC backing:

1) Actually backing with insurance funds set aside

2) Due diligence done by Ajit / Team on underlying munis that presumably led them to believe they were zero loss bonds from an insurance standpoint.