Bloomberg writes "Bank-Supported Muni Market Faces 'Headwinds,' Moody's Says". The article says, "The market for bank-supported municipal debt, including variable-rate demand bonds, may face "headwinds" this year because of possible cuts in bank ratings, Moody's Investors Service said. Top short-term ratings for both Bank of America Corp. and Citigroup Inc. (C) are under review for a downgrade, according to the credit-rating company. Losing the top grade may cause interest rates on $34.7 billion of municipal bonds to spike as money-market funds redeem the debt and dealers can't resell it, Moody's said in an e-mailed statement." Moody's says, "Issuers whose remarketings fail or who are unable to arrange extensions or replacements for expiring support facilities may face severe cash-flow pressure as they confront higher interest cost and accelerated amortization." The Bloomberg piece explains, "Variable-rate demand bonds are long-term securities offering short-term interest rates because investors can demand their money on short notice and turn the bonds in for sale to another buyer. To assure investors there will be money available, governments hire banks to provide standby bond purchase agreements or letters of credit."
