Fitch Ratings said today that despite infusions of capital, the“AAA” ratings of Armonk, N.Y.-based MBIA Inc. and the bondinsurer's financial guaranty subsidiaries were being placed onRating Watch Negative.

The firm said its rating action follows a decision to updatecertain modeling assumptions in its ongoing analysis of thefinancial guaranty industry.

Fitch's action came as Standard & Poor's, examining theeffects of the subprime market collapse, said that huge writedownsrecorded by Citigroup and other banks may have reduced exposures,but “potentials for additional write-downs cannot be ruled out,”especially if the situation for bond insurers continues todeteriorate.

Fitch said it believes it is possible that modeled losses forstructured finance collateralized debt obligations (SF CDOs) couldincrease materially as a result of these updated projections.

The need to update loss assumptions at this time, Fitch said,reflects the “highly dynamic nature of the real estate markets inthe U.S., and the speed with which adverse information onunderlying mortgage performance is becoming available.”

Fitch said it expects that both simulated capital model lossesand expected losses will increase materially for MBIA because ofthe company's significant SF CDO exposure within its insuredportfolio, which was $30.6 billion of net par outstanding as ofSept. 30, 2007.

The company added that it believes a sharp increase in expectedlosses would be especially problematic for the ratings of MBIA–evenmore problematic than previously discussed increases in “AAA”capital guidelines, which has been the primary focus of recentanalysis of the industry.

Expected losses reflect an estimate of future claims Fitch saidwould ultimately need to be paid by a guarantor. A materialincrease in claim payments would be inconsistent with “AAA” ratingsstandards for financial guarantors, and could potentially call intoquestion the appropriateness of “AAA” ratings for those affectedcompanies, regardless of their ultimate capital, the agencyadded.

Fitch noted that MBIA has already raised $1.5 billion of newcapital through surplus notes and a direct equity investment fromWarburg Pincus, with an additional $500 million equity investmentthrough a rights offering backstopped by Warburg Pincus to close bythe end of the first quarter of 2008.

However, Fitch currently believes that these additions tocapital might not be sufficient to address the necessary capitalneeded to maintain MBIA's “AAA” IFS rating. Fitch said it willupdate the Rating Watch Negative status on MBIA and its competitorsas its conclusions are reached.

The latest action comes amid continuing reports that banks andregulators are working to come up with financial support plans fortroubled bond insurers. So far, no final arrangements have beencompleted.

MBIA Inc. is a U.S. holding company whose primary operatingsubsidiary–MBIA Insurance Corp. and MBIA UK Insurance Ltd.–providefinancial guaranty insurance and other forms of credit enhancementthroughout the United States and internationally.

As of Sept. 30, 2007, MBIA Inc. reported consolidated assetsunder Generally Accepted Accounting Principles of $45.3 billion andshareholders' equity of approximately $6.5 billion. On anaggregated basis, net par outstanding for MBIA totaled $673 billionas of Sept. 30, 2007.