The value of letters of credit (L/Cs) used by US municipal bond issuers tripled last year.

The increase in L/Cs reflects the unwillingness of bond buyers to accept conventional bond insurance cover.

About turn

The value of L/Cs used by municipal bond issuers soared to US$54.2 billion in 2008 compared with US$17.9 billion in 2007.

The amount of debt backed by insurance in 2008 meanwhile plummeted 64 per cent from 2007 to just $72.1 billion.

Ratings cut

The reason the market shunned insurance in 2008 is because so many insurers in the market had their previously high credit ratings downgraded last year.

Last year's increase in L/Cs and decrease in insurance is recorded in data released this month by Thomson Reuters.

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