Some Municipal Borrowers Facing Growing Credit Risk from Expiring Bank Facilities

Municipal borrowers rated "A" and below with a significant amount of outstanding variable-rate debt face a growing credit risk from expiring bank facilities in 2011 and 2012, according to Fitch Ratings report.

Bank facility expirations for issuers with variable-rate demand obligations (VRDOs) are a growing credit risk, as large levels of bank facilities expire in 2011 and 2012. This is a by product of the auction-rate securities (ARS)/bond insurance meltdown in 2008 and shift to VRDOs. Fitch Ratings is concerned that bank capacity for renewals will be constrained due to bank consolidation, a contraction of facility providers, and uncertainties regarding Basel III capital/liquidity requirements.