The amount of new US municipal bonds backed by a letter of credit (L/C) fell away during the first quarter of this year.

The decline in L/C backed municipal debt follows a year during which documentary credits proved very popular with issuers.

Cautious banks

The value of L/C backed municipal bonds fell to US$4.9 billion in the first quarter of 2009, compared with nearly US$5.7 billion during the first three months of 2008, according to Thomson Reuters.

Industry analysts say the drop reflects ongoing problems with banks that are increasingly cautious and have tightened credit standards.

Market leaders

The top L/C provider was US Bancorp with 22 deals totalling more than US$1 billion, followed by Bank of America/Merrill Lynch with 15 deals totalling US$893 million.

The value of L/Cs used by US municipal bond issuers tripled in 2008, reflecting the unwillingness of bond buyers to accept conventional bond insurance cover (DC World News, 22 January 2009).

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