Despite the bonds being insured by Assured Guaranty, a AA-rated firm, MainStay gives the underlying debt a BBB rating because of the city's economic weakness. But its research unearthed another compelling feature: the bonds are a binding general obligation of Newark, which means the city can levy taxes to ensure the debt is sufficiently serviced.
Because of the coupon's high yield, DiMella also believes these bonds stand a good chance of getting pre refunded, which would basically assure all interest payments and redemption of the bonds at par upon the first call date. "If that happens," says DiMella, "it would likely send the bonds soaring from their present price of $111 to more than $120."