Funds may create a bond insurer

From Times Wire Services

California Treasurer Bill Lockyer is exploring the possibility of having the state’s giant pension funds create a bond insurer.

In the meantime, Lockyer has no immediate plans to use Berkshire Hathaway’s new bond insurance unit after the head of the unit defended using different rating scales for municipal and corporate issuers, Tom Dresslar, a spokesman for Lockyer, said Thursday.

The treasurer has been pressing rating firms to grade municipal bonds on the same scale used for corporate debt. That would make it easier for state and local governments to issue top-rated bonds, reducing or eliminating the need for bond insurance to attract investors.

The troubles of bond insurers in recent months -- tied to their move into insuring mortgage-backed securities -- have thrown the muni market into turmoil, pushing up yields.

Berkshire, run by billionaire investor Warren E. Buffett, entered the municipal bond insurance industry this year in a bid to take advantage of the incumbent insurers’ troubles.


A Berkshire spokesman declined to comment Thursday.

Also Thursday, California’s insurance commissioner, Steve Poizner, said he approved Berkshire’s new bond insurer in a swifter-than-usual fashion, citing a lack of such providers.

Dresslar said Lockyer had spoken with the California Public Employees’ Retirement System, the country’s biggest pension fund, about creating a bond insurer. He also intends to pursue the plan with the California State Teachers’ Retirement System.

Lockyer is a board member of both pension funds.

Standard & Poor’s has defended its method for rating munis. Moody’s Investors Service and Fitch Ratings have moved to address issuers’ complaints.