And Now: The AAA Rated Bonds
January 19th, 2008Via: Bloomberg:
Ambac Financial Group Inc. scrapped a plan to raise equity capital after the bond insurer’s shares plunged 70 percent in the past two days, putting its AAA credit rating in jeopardy.
Without new money, New York-based Ambac risks losing the top ranking it depends on to sell bond insurance. Ambac, the second- largest financial guarantor, may have to stop writing insurance or sell itself, said Robert Haines, an analyst at CreditSights Inc., a bond research firm in New York.
“This is a stunning development,” Haines said. Ambac will probably be downgraded by Moody’s Investors Service and Fitch Ratings, Haines said.
Ambac blamed “market conditions” and scrutiny by ratings companies for its decision. The company said two days ago it would sell $1 billion of shares or convertible notes, a plan that provoked a boardroom dispute and led to the departure of Chief Executive Officer Robert Genader. A downgrade of Ambac would throw doubt on the ratings of $556 billion in municipal and structured finance debt guaranteed by the company.
The seven AAA rated bond insurers place their stamp on $2.4 trillion of debt. Losing those rankings may cost borrowers and investors as much as $200 billion, according to data compiled by Bloomberg.
Even the MSM is starting to show some panic regarding the bond insurance industry. Cramer on MSNBC predicted a 2000 point drop in the Dow within a few weeks if the government doesn’t take serious and immediate action:
http://www.msnbc.msn.com/id/21134540/vp/22734052#22734052