Risk Management

Commitment to Portfolio Surveillance and Remediation

Throughout our more than 40-year history of success in underwriting public finance obligations, we have been committed to proactive surveillance and vigorous remediation of our insured credits. These activities provide clear and timely assessment of our credit risk for management and stakeholders, prevent (or mitigate) credit deterioration and losses, and inform our risk appetite in new insurance writings.

At National, we maintain a full staff of experienced credit professionals dedicated to the review of our insured portfolio. Given the size of our portfolio and the influence of state and local laws on credit strength, our surveillance staff is organized into Eastern and Western Regions. These groups review the portfolio on a prioritized basis, respond to issuer requests for consent to document changes and covenant matters, and perform remediation of troubled credits.

For our most impaired, complex and problematic credits, our surveillance staff works with the Restructuring Group, which is staffed with professionals possessing workout and bankruptcy experience. The Restructuring Group maintains relationships with advisors and legal counsel who specialize in working with distressed credits.

These significant and successful portfolio surveillance and remediation capabilities are embedded in the value of an insurance policy from National.

The Value of Portfolio Surveillance

  • Ongoing monitoring of insured credits; early identification of potentially adverse credit trends

  • Early intervention to prevent or minimize credit deterioration; development of strategies to improve credit performance; enforcement of legal rights and remedies

  • Protection of bondholder rights in response to waiver/consent requests; administration of breached covenants includes plans to re-attain compliance or enhance bond security

  • Maintenance of protective covenants (e.g., leverage, liquidity, additional pledged security)

The Value of Remediation Capabilities

  • National's interests are typically aligned with those of bondholders, with the backing of National's balance sheet

  • Goal of remediation efforts is loss mitigation/avoidance

  • Active coordinator and participant in creditor committees

  • Distinct workout team, supplementing its efforts with outside advisors and legal counsel

Protecting the Portfolio, Enhancing Bondholder Value - Examples

  • City of Vallejo, California: bankruptcy and protection against attempts to diminish bond security by circumventing state intercept structure

  • University of Central Florida Student Housing: remediation and repair of housing units

  • JFK Terminal Four: oversight of additional debt issuance without dilution of bondholder rights

  • Military Housing Transactions: representation of bondholder interests during modifications of build-out scope, debt restructuring/deleveraging

  • Stockton California: enforcement of lessor rights upon event of default by city (lessee) with respect to leased assets, allowing for re-let and associated revenues to flow to bonds.

  • Troy, Michigan Downtown Development Authority: worked with the City to successfully refinance its tax increment district bonds with City-backed debt.

  • California Tax Allocation Bonds (TABs): aided issuers' compliance with bond documents and preserved bondholder rights following the dissolution of TABs in California. Facilitated meetings between County Auditor-Controllers and Successor Agencies to ensure appropriate distribution of funds; Petitioned the California Department of Finance to rectify incorrect withholding of funds.