Contraction Contraction Contraction
Feb. 11 (Bloomberg) -- Bond insurance sold by MBIA Inc., Ambac Financial Group Inc. and Security Capital Assurance Ltd. is backfiring on counties, universities and hospitals across the U.S., more than doubling some borrowing costs.
Park Nicollet Health Services in Minneapolis may pay an extra $5 million to $6 million this year, about a quarter of its operating profit, because interest on $375 million in floating- rate debt doubled in the last six weeks, said Chief Financial Officer David Cooke. The rate on $98 million insured by Ambac climbed to 6 percent on Jan. 30 from 3.06 percent on Jan. 2.
``We'll have to reduce our capital expenditure program, which means less equipment, less modernization of facilities,'' Cooke said in an interview. The hospital paid Ambac to ``count on that AAA insurance for 30 years. Now it's going away on us.''
There are idiots out there saying everything is fine. Remember the captain of the Titanic, he confidently said his ship could never sink until he ran it into an iceberg.
As long as credit is contracting, the economy is contracting. And credit is contracting everywhere. Motgages, HomeEquity Loans, Credit Cards, Municipal Bond Offerings, Commercial RE loans, and now Student Loans as well:
Feb. 11 (Bloomberg) -- College Loan Corp., a San Diego- based lender, said some bonds it issued with rates determined through periodic auctions failed to attract enough bids.
The company wouldn't say which specific issues failed or identify the banks that managed the auctions.
Demand for bonds in the $360 billion auction-rate securities market is waning on investor concern that dealers who collect fees for managing the bidding on the bonds won't commit their own capital to prevent failures. Reduced appetite for auction-rate debt in the municipal market also reflects expectations that the credit strength of insurers backing the securities may deteriorate.
``It is unfortunate that certain auctions did not clear,'' said John Falb, chief financial officer at College Loan in an e- mailed statement Feb. 8. Falb said investors couldn't have been concerned about the quality of the College Loan Corp. bonds, which are backed by government-guaranteed student loans.
Auction bonds issued by Sallie Mae, the largest student loan lender, also failed to attract enough bidders last week, according to a report today by Keefe, Bruyette & Woods, a New York-based securities firm. The report said weak demand for auction securities may not extend to other debt backed by the same pool of student loans.
Are you a passenger on the Titanic?