Boosting investor yields through bond insurance
The market for utility securities generally tends to be fairly static. Innovative financing techniques are rarely used because of the marketability of utility securities stemming from the companies' generally strong financial credit and the monopoly markets most utilities serve. To many people, utility securities are considered the pillars of the financial world, and innovation is not needed. Further, plain vanilla utility issues are easily understood by investors, as well as by regulators and customers. Over the past several years, however, a new utility bond product has crept into the world of utility securities - insured secondary utility bonds. These insured bonds may possibly be used as an alternative financing technique for newly issued debt. Individual investors often tend to rely on insurance as a tool for reducing credit risk and are willing to take the lower yields as a tradeoff. Insured utility bonds are created by brokerage firms through the acqusition of a portion of an outstanding utility bond issue and subsequent solicitation of the insurance companies for bids. The insurance company then agrees to insure that portion of the issue until maturity for a fee, and the brokerage firm sells those bonds to their customers as a AAA-insured bond. Issuers are encouraged to explore the retail market as a financing alternative. They may find a most cost-effective means of raising capital.
- OSTI ID:
- 6641186
- Journal Information:
- Public Utilities Fortnightly; (United States), Vol. 131:3; ISSN 0033-3808
- Country of Publication:
- United States
- Language:
- English
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