MBIA, Ambac, $1 Trillion of Debt, Downgraded
June 6th, 2008Via: Bloomberg:
MBIA Inc. and Ambac Financial Group Inc., the world’s largest bond insurers, had their AAA financial strength rankings cut by Standard & Poor’s, taking with them the ratings on more than $1 trillion of securities they guaranteed.
The ratings were lowered two levels to AA, New York-based S&P said in a statement today. S&P said it would keep the ratings under review pending “clarification of ultimate potential losses as well as future business prospects, the outcome of strategic business decisions, and potential regulatory developments.”
Ambac, which pioneered municipal bond insurance in 1971, and MBIA, which followed three years later, are succumbing to a loss of confidence after straying into backing securities linked to subprime mortgages and home-equity loans that are now defaulting at record rates. The companies, which have raised $4.1 billion combined in the past six months to cover potential losses, said yesterday they were unlikely to meet demands for more capital.
“The rating agencies have been plain that capital ratios are a moving target, and with economic and spread conditions getting worse, these downgrades shouldn’t be a surprise,” said Matt Fabian, a managing director at Concord, Massachusetts-based researcher Municipal Market Advisors. “It’s the end of an era.”
The downgrades affect most of the $668 billion of debt insured by MBIA and the $551 billion of debt guaranteed by Ambac at the end of March. Unless the debt had an underlying rating of AAA without insurance its ranking was also lowered, according to Mimi Barker, a spokeswoman, for S&P.
Research Credit: JL
