Municipal Bond Rating Changes—
A Notice to Municipal Bond Issuers and Other Market Participants

October 12, 2009

Since late 2007, the major rating agencies (Standard & Poor's, Moody's and Fitch) have been examining the ratings of bond insurance companies, particularly in light of those companies' exposure to subprime mortgage loans and investments. As a result, the rating agencies have placed nearly all of the insurers on "ratings watch" and/or downgraded their ratings. This has caused uncertainty in the market and has complicated the issuance of new bonds. In addition, the rating changes are important events for outstanding bonds, because they may trigger a contractual obligation of bond issuers (or in certain types of financings, borrowers or other "obligated persons" under the bonds) to file a "Material Event Notice" with national information repositories.

Most municipal bonds issued since 1996 are subject to Securities and Exchange Commission Rule 15c2-12, which requires the bond issuer to enter into a "continuing disclosure" undertaking or agreement at the time the bonds are issued. In this undertaking or agreement, the issuer (or other obligated person) agrees to provide regular updated financial information to the marketplace, as well as to file a "Material Event Notice" if certain listed events occur. One of these events is a change in the bond rating, including the insured rating. Note that some issuers or other obligated persons may have already retained a "dissemination agent" to assist in complying with the continuing disclosure undertaking.

We recommend that you review the continuing disclosure documents for any bonds that you may have outstanding (located in the transcript for each bond issue). The continuing disclosure document includes information on filing Material Event Notices. The issuer or other obligated person likely has a contractual obligation to file a Material Event Notice.

The following chart summarizes ratings changes since mid-December 2007 applicable to the nine major municipal bond insurers.  If a rating agency has withdrawn its insured ratings on bonds insured by certain insurers, the bonds generally will now be either non-rated bonds or, if such bonds had a separate underlying rating, such bonds will now carry only the underlying rating.

(1)    Note that the current ratings of the bond insurers do not necessarily reflect the current ratings on a particular bond issue insured by the bond insurer. If a particular bond issue has an underlying rating which is higher than the new rating of the bond insurer which insured those bonds, the higher underlying rating will now be the rating on the bonds. In addition, some bond issues are insured by more than one insurer, or are re-insured by a second insurer.  For this reason, all issuers should check the current ratings on their insured bonds before they file any Material Event Notice.

(2)   S&P downgraded ACA to "CCC" on December 19, 2007, and withdrew its insured ratings of ACA-insured bonds on January 11, 2008.

(3)   Fitch downgraded Ambac on January 18, 2008, to "AA", and withdrew its insured ratings of Ambac-insured bonds on June 26, 2008. S&P downgraded Ambac on June 5, 2008 to "AA", and further downgraded Ambac on November 19, 2008, to "A", further downgraded Ambac on June 24, 2009 to "BBB", and further downgraded Ambac on July 28, 2009 to "CC". Moody's downgraded Ambac on June 19, 2008 to "Aa3", further downgraded Ambac on November 5, 2008, to "Baa1", and further downgraded Ambac on April 13, 2009 to "Ba3", and further downgraded Ambac on July 29, 2009 to "Caa2".

(4)   Fitch downgraded XLCA on January 24, 2008, to "A", further downgraded XLCA on March 26, 2008, to "BB", further downgraded XLCA on July 29, 2008, to "CCC" and withdrew its rating of Syncora on September 5, 2008. Moody's downgraded XLCA on February 7, 2008, to "A3", further downgraded XLCA on June 20, 2008, to "B2", further downgraded Syncora on October 24, 2008, to "Caa1" and further downgraded Syncora on March 9, 2009 to "Ca". S&P downgraded XLCA on February 25, 2008, to “A-”, further downgraded XCLA on June 6, 2008, to “BBB-“, further downgraded Syncora on November 18, 2008, to "B", further downgraded Syncora on January 29, 2009, to "CC", withdrew its rating of Syncora on April 27, 2009, and then assigned Syncora an "R" rating on April 27, 2009 to indicate that Syncora is under regulatory supervision.

(5)   Fitch downgraded FGIC on January 30, 2008, to "AA", further downgraded FGIC on March 27, 2008, to "BBB", further downgraded FGIC on July 31, 2008, to "CCC", and withdrew its rating of FGIC on December 23, 2008.  S&P downgraded FGIC on January 31, 2008, to "AA", further downgraded FGIC on February 25, 2008, to "A", further downgraded FGIC on March 28, 2008, to "BB", and further downgraded FGIC on December 23, 2008, to "CCC", further downgraded FGIC on April 22, 2009 to "CC" and subsequently withdrew its rating of FGIC.  Moody's downgraded FGIC on February 14, 2008, to "A3", further downgraded FGIC on March 31, 2008, to "Baa3", further downgraded FGIC on June 20, 2008, to "B1", further downgraded FGIC on December 23, 2008, to "Caa1" and further downgraded FGIC on March 24, 2009 to "Caa3" and announced on March 24, 2009, that it willwithdraw its rating of FGIC.

(6)  Moody's downgraded CIFG on  March 6, 2008, to "A1", further downgraded CIFG on May 20, 2008, to "Ba2", further downgraded CIFG on October 28, 2008 to "B3", upgraded CIFG on January 22, 2009, to "Ba3", and then downgraded CIFG on August 20, 2009 to "Caa2".  Fitch downgraded CIFG on March 7, 2008, to "A-", further downgraded GIFG on May 30, 2008, to "CCC" and withdrew its rating of CIFG on October 21, 2008. S&P downgraded CIFG on March 12, 2008, to "A+", further downgraded CIFG on June 6, 2008, to "A-", further downgraded CIFG on August 22, 2008, to "B", upgraded CIFG on January 22, 2009, to "BB", and then downgraded CIFG on June 15, 2009 to "CC".

(7)  Fitch downgraded MBIA on April 4, 2008 to "AA", and withdrew its insure ratings of MBIA-insured bonds on June 26, 2008. S&P downgraded MBIA on June 5, 2008 to "AA".  On February 18, 2009, MBIA's insurance business was transferred to MBIA Insurance Corp. of Illinois, which had a S&P rating of "AA-" at that time.  On June 5, 2009, S&P downdraded NPEGC (see Note 12) from "AA" to "A".  Moody's downgraded MBIA on June 19, 2008 to "A2", and further downgraded MBIA on November 7, 2008 to "Baa1".  On February 18, 2009, MBIA's insurance business was transferred to MBIA Insurance Corp. of Illinois, which has a Moody's rating of "Baa1".

(8)  Standard & Poor's downgraded Radian on June 16, 2008 to "A", further downgraded Radian on August 26,2008 to "BBB+" and further downgraded Radian on March 12, 2009 to "BBB-". Fitch withdrew its rating of Radian on May 2, 2008. Moody's downgraded Radian on June 25, 2008.

(9)  XL Capital Assurance Inc., or XLCA, is now known as Syncora Guarantee Inc. effective August 4, 2008.

(10)  Moody's downgraded Assured Guaranty on November 21, 2008.  Fitch downgraded Assured Guaranty on May 4, 2009 to "AA", and further downgraded Assured Guaranty on October 12, 2009 to "AA-".

(11)  Moody's downgraded FSA on November 21, 2008.  Fitch downgraded FSA on May 11, 2009 to "AA+", and further downgraded FSA on Octber 12, 2009 to "AA".

(12)  On February 18, 2009, MBIA Insurance Corp. transferred its public finance insurance business to MBIA Insurance Corp. of Illinois, which subsequently changed its name to National Public Financial Guarantee Corp "NPFGC".  Accordingly, as of February 18, 2009, bonds rated by MBIA reflect the ratings of National Public Finance Guarantee Corp.

The changes described above continue to occur at a rapid pace. Some of the insurers have been placed on "ratings watch" or "negative outlook," indicating that additional rating changes could occur in the near future. If you have any questions regarding these recent events, the ratings on your bonds or this Client Advisory, do not hesitate to contact your dissemination agent (if applicable), general counsel, investment banker, financial advisor or Sherman & Howard.

Public Finance Department
303-299-8403
publicfinance@shermanhoward.com

Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the Firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation.

© 2009 Sherman & Howard L.L.C.                                             October 12, 2009                                                                                                                                              v.30