Bond Insurance Turns Toxic for Cities, Hospitals as Muni Debt Costs Soar

[Purveyor]

Feb. 11 (Bloomberg) -- Bond insurance sold by MBIA Inc., Ambac Financial Group Inc. and Security Capital Assurance Ltd. is backfiring on counties, universities and hospitals across the U.S., more than doubling some borrowing costs.

Park Nicollet Health Services in Minneapolis may pay an extra $5 million to $6 million this year, about a quarter of its operating profit, because interest on $375 million in floating- rate debt doubled in the last six weeks, said Chief Financial Officer David Cooke. The rate on $98 million insured by Ambac climbed to 6 percent on Jan. 30 from 3.06 percent on Jan. 2.

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`State of Turmoil'

Park Nicollet is among tax-exempt borrowers seeking to restructure their debt to supplement or strip out the insurance that was supposed to reassure investors and lower their costs. The Bay Area Toll Authority in Oakland, California, and the Billings Clinic in Billings, Montana, shelved plans to borrow.

``The market's in a state of turmoil,'' said Bryan Mayhew, chief financial officer for the toll authority, which manages the San Francisco Bay Bridge and six other state-owned toll bridges.

Tax-exempt money-market funds can't hold debt rated lower than AA-, and downgrades to insurers are enough in some instances to make the bonds it backs ineligible.

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http://www.bloomberg.com/apps/news?pid=20601109&sid=aM2Sgl3f3Gf0&refer=exclusive

[Karenina]

1. Please do cross post this in LBN

on the daily ***Stock Market Watch*** thread. Readers there will understand the import of what you've posted.