Markets & Finance

S&P: Bond Insurers Under Stress


The rating agency cut ACA Financial to CCC and lowered its outlooks on other industry players amid worsening performance of subprime debt

From Standard & Poor's RatingsDirectStandard & Poor's Ratings Services on Dec. 19 announced various ratings actions (see next page) on six financial guaranty insurance companies.

The rating actions were prompted by worsening expectations for the performance of insured nonprime residential mortgage backed securities and collateralized debt obligations (CDOs) of asset-backed securities. Based upon current stress test analysis, the affected companies may experience claims and/or capital consumptive negative rating transitions such that their capital resources may no longer be sufficient at their respective rating levels.

Another consideration in the analysis, if there is a capital shortfall, is the magnitude of the shortfall and the extent to which the company has raised or is planning to raise new capital, and the viability of that capital plan.

RATING OUTLOOKS AND CREDITWATCH

We are issued one downgrade on Dec. 19. The other actions are either changes in rating outlook or assignment to CreditWatch. Outlooks and CreditWatch are used in a changing credit situation when a rating change is not yet certain. Ratings may be placed on CreditWatch when an event or deviation from an expected trend has occurred or is expected, when this event or deviation increases the probability of a rating action, and when additional information is necessary to take a rating action. The greater the likelihood of a rating change, the more compelling the use of Creditwatch, with guidelines of at least a one in two likelihood of a ratings change occurring in the short term, typically within 90 days. From time to time, there may be events that present such significant uncertainty to an issuer's creditworthiness that a rating is placed on CreditWatch without the need to assess this threshold of potential change.

Similar to CreditWatch, an outlook assesses potential for change and the likely direction of the rating over the intermediate term. In contrast to CreditWatch, an outlook is assigned as an ongoing component of long-term ratings, where appropriate. Outlooks have a longer time horizon than CreditWatch listings and incorporate trends or risks with less certain implications for credit quality. The time frame for an outlook generally is up to two years. Although Standard & Poor's ratings are based on an opinion of the most likely scenario for an issuer's future performance, the outlook addresses what direction we believe the rating may take if our most likely scenario does not hold.

RATINGS ACTIONS

Rated company

To

From

ACA Financial Guaranty Corp.

Financial strength, financial enhancement and issuer credit

CCC/WatchDev

A/WatchNeg

Ambac Assurance Corp.

Ambac Assurance U.K.

Connie Lee Insurance Co.

Financial strength, financial enhancement and issuer credit

AAA/Negative

AAA/Stable

Ambac Financial Group

Senior unsecured and issuer credit

AA/Negative

AA/Stable

Subordinated hybrid security

A+/Negative

A+/Stable

Financial Guaranty Insurance Co.

Financial strength, financial enhancement and issuer credit

AAA/WatchNeg

AAA/Stable

FGIC U.K.

Financial strength, financial enhancement and issuer credit

AAA/WatchNeg

AAA/Stable

FGIC Corp.

Senior unsecured and issuer credit

AA/WatchNeg

AA/Stable

MBIA Insurance Corp.

Financial strength, financial enhancement and issuer credit

AAA/Negative

AAA/Stable

MBIA Insurance Corp. of Illinois

Financial strength, financial enhancement and issuer credit

AAA/Negative

AAA/Stable

MBIA Assurance

Financial strength, financial enhancement and issuer credit

AAA/Negative

AAA/Stable

MBIA

Senior unsecured and issuer credit

AA/Negative

AA/Stable

XL Capital Assurance

XL Financial Assurance

Financial strength, financial enhancement and issuer credit

AAA/Negative

AAA/Stable

XL Capital Assurance (U.K.)

Financial strength, financial enhancement and issuer credit

AAA/Negative

AAA/Stable

RATINGS AFFIRMED

Rated company

Rating/Outlook

Assured Guaranty Corp.

Financial strength, financial enhancementand issuer credit

AAA/Stable

Assured Guaranty (U.K.)

Financial strength, financial enhancement and issuer credit

AAA/Stable

CIFG Guaranty

CIFG Europe

CIFG Assurance North America

Financial strength, financial enhancement and issuer credit

AAA/Negative

Financial Security Assurance

Financial strength, financial enhancement and issuer credit

AAA/Stable

Financial Security Assurance (U.K.)

Financial strength, financial enhancement and issuer credit

AAA/Stable

Financial Security Assurance Holdings

Senior unsecured and issuer credit

AA/Stable

Junior subordinated hybrid security

A+/Stable

Radian Asset Assurance

Financial strength, financial enhancement and issuer credit

AA/Stable

PMI Guaranty Co.

Financial strength, financial enhancement and issuer credit

AA/Negative


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