New York Insurance Superintendent Eric Dinallo's office, while revealing today that troubled bond insurer Financial Guaranty Insurance Corp. has applied to split into two companies, was short on specifics.

The loose outlines of the arrangement, which Mr. Dinallo discussed on CNBC, would see FGIC, the third-biggest bond insurer, divide into two companies with one firm holding FGIC's more secure municipal bond insurance, and the other acting as a structured finance insurance company holding FGIC's riskier business involving repackaged mortgages and other debt linked to the subprime market--a so-called good bank/bad bank plan.

But as Mr. Dinallo's spokesperson David Neustadt said, FGIC at this point "hasn't actually filed a plan and there are various ways to do it."

The scheme has been broadly discussed, but "the devil's in the details," he acknowledged.

To accomplish the split, he said, FGIC would file an application for a new company. The big question concerning the structured finance operation, he said would be "how are they capitalized and what kind of rating could you get?"

At this point, with details vague, an answer from a rating company was not forthcoming.

Moody's, which put FGIC in a crisis mode yesterday when it removed the firm's "triple-A" rating, had no immediate comment. Without a "triple-A" rating, a bond insurer is essentially eliminated from the municipal bond market, since some pension funds have rules against holding paper with less than a "triple-A" rating.

Standard & Poor's Ratings Services said it has been told that a newly licensed FGIC "entity could facilitate the insurance of new public finance business and may also be the recipient of previously insured public finance business from FGIC.

"In our view, it is possible that this process may result in the allocation of capital or other corporate resources in such a manner that other classes of policyholders may be disadvantaged. Standard & Poor's will monitor developments as this process unfolds and update its ratings accordingly," the firm said in a statement today.

Mr. Dinallo has been focused on maintaining a market for municipal bond insurance, and towards that end he recently convinced Warren Buffett to have his firm Berkshire Hathaway start up a municipal bond insurer.

In speaking with MSNBC, Mr. Dinallo noted the difference between a firm's actual ability to pay off losses and its ability to obtain the needed ratings. As to the bond companies' solvency, he said "There's been no dispute that they could in the long term pay claims."

He said his department can act quickly, noting that it brought Berkshire Hathaway into the industry in six weeks and mentioning that if an insurer was in real trouble, it could move swiftly to get an order of rehabilitation.

Although FGIC has moved to split, Mr. Dinallo suggested in his CNBC interview that there could still be another outcome. "We're not done on FGIC. Someone could inject capital," he said.

Yesterday Moody's lowered FGIC's rating to "A3" from "Aaa," and also lowered FGIC Corporation's senior debt rating to "Ba1" from "Aa2."

Moody's said the downgrades were based on its "assessment of FGIC's meaningfully weakened capitalization and business profile resulting, in part, from its exposures to the U.S. residential mortgage market."

The ratings remain on review for possible downgrade, Moody's noted.

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FGIC Split: The Devil Is In The Details

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