When you need to guarantee bonds issued by your company, bond insurance provides investors with the confidence needed to back your debt restructuring. To learn more about bond insurance, contact The Insurance House in Tucson, AZ. In the meantime, keep reading to learn what bond insurance is and whether it suits your business needs.
What Is Bond Insurance?
Bond insurance guarantees the repayment of the principal as well as interest to bondholders. It takes effect if the bond issuer, who purchases the insurance, defaults on the debt. Bond issuers buy insurance to improve their credit rating. This typically lowers the interest they have to pay on the debt. It also makes the bonds attractive to investors.
Asset-backed securities and municipal bonds often have bond insurance on them.
How Bond Insurance Works
The creditworthiness of the issuer affects the rating of bonds. Riskier issuers receive a lower credit rating. In order to get a better rating that results in lower interest rates, companies purchase bond insurance. This makes it easier to find investors. The insurance company assesses the risk of the company when it sets the premiums for the bond insurance.
Bond insurers tend to issue securities only to companies with invest-grade underlying ratings — with underlying credit ratings between BBB and AAA. If the bond issuer defaults, the investor shouldn’t experience a disruption. The role of the bond insurer is to make principal and interest payments owed to investors going forward.
To learn more about how to purchase bond insurance for your company or organization, contact The Insurance House. Set up an appointment to talk to your agent about whether bond insurance is a good investment for your business in Tucson, AZ.