Municipal Auction Rate Securities (also referred to as MARS, municipal ARCS, or municipal auction rate certificates) were issued to fund specific projects such as bridges, buildings or sewers, or to provide general financing for counties, school districts, or other municipalities. They are often backed by monoline insurers to improve their credit ratings.
Generally, municipalities were the least well protected among the issuers from the consequences of auction failures. Many MARS issuers do not have favorable rate-caps or look-back provisions to limit their interest exposure, beyond those provided by state usury laws or similar provisions. As a result, once auctions began failing across the ARS market, MARS issuers were hit with very high penalty rates. Consequently, this segment has seen much lower failure rates than the overall ARS market and a more significant move than other issuers toward refinancing and redemptions.