Issuers of US municipal bonds used half the value of letters of credit (L/Cs) in 2012 compared with 2011, according to recently released data from Thomson Reuters.

The use of L/Cs to back municipal bonds gained favour after the auction-rate securities market collapsed during the credit crash and issuers moved into variable rate bonds.

Latest data

Thomson Reuters reported a 49.4 per cent fall in L/C usage last year compared with 2011.

The data applies only to L/Cs issued during 2012 and does not include those renewed during the year.

Many L/Cs expired during 2012, and it seems as if issuers are now looking to other ways to bolster confidence in bond issues.

Bank activity

Thomson Reuters data showed that US Bancorp, which last year backed US$918.3 million of municipal bonds, was the leading L/C provider in 2012.

JP Morgan Chase & Co, which provided the most L/C backing during 2011, is now the sixth largest provider in the market and backed just US$340.8 million of bonds last year.

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