A day after Moody's said it would consider downgrading two major bond insurers, Standard & Poor's announced it would lower their insurance financial strength ratings from "triple-A" to "double-A."

The New York-based rating service lowered these ratings for Ambac Assurance Corp. and MBIA Inc. In addition, both companies were placed on rating watch with negative implications.

The holding companies of Ambac and MBIA were also lowered one notch from "double-A" and "double-A-negative" to "single-A" and "single-A-negative," respectively.

S&P said the actions reflect its belief that the companies face "diminished public finance and structured finance new business flow and declining financial flexibility."

The rating agency also pointed to the deterioration of the subprime mortgage market crisis, where both companies insured a significant amount of collateralized debt obligations. It said there will be increased pressure on each company's ability to pay obligations. The revised ratings support the companies' claims-paying ability and liquidity levels, S&P said.

S&P said it would resolve the negative credit watch once it understands what the potential losses will be, "the outcome of strategic business decisions, and potential regulatory developments."

Yesterday, when Moody's said it might downgrade the two companies, executives were critical of the New York rating agency, criticizing them for being too dependent on models and not truly understanding the underwriters' claims paying adequacy.

MBIA Chairman and Chief Executive Officer Jay Brown released a statement yesterday saying, "We disagree with Moody's decision today."

"There is no question about our ability to cover all policyholder claims, from a regulatory or any other standpoint," he said.

He further blamed Moody's for creating "instability" around its ratings, which has contributed to its difficulty in writing new business.

"We believe the actions we have taken to date make a review of our ratings unnecessary at this time," said Mr. Brown, adding that the company would still continue to cooperate with the rating agency.

During an investor's conference yesterday in New York, Doug Renfield-Miller, executive vice president for Ambac said, "We have strong liquidity and capabilities."

He said that from a capital standpoint, the company is $500 million above loss targets set by Moody's and $700 million above Standard & Poor's. The problem lies with the reliance on models that optimize stress losses used by the rating firms.

"We believe from a capital liquidity standpoint we are 'triple-A,'" Mr. Renfield-Miller said.

He said the company made mistakes, taking on risks in collateralized debt obligations it should not have, and has learned from that. He added that most of the CDOs were sold off.

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S&P Lowers Ambac & MBIA To 'Double-A'

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