Three rating agencies said they intend to monitor the new reinsurance arrangement to protect the municipal bond portfolio of Financial Guaranty Insurance Company, but made no immediate rating changes.

Both Fitch Ratings and Moody's Investors Service issued statements yesterday saying they plan to wait until after the reinsurance deal between FGIC and Armonk, N.Y.-based MBIA Inc. is approved by the New York State Department of Insurance before taking any rating actions.

However, Standard & Poor's offered pessimistic comments about the prospects for FGIC, saying the company faces major obstacles that will challenge its future solvency.

Under the deal, announced late Wednesday, MBIA would provide New York-based FGIC reinsurance for $184 billion in municipal bonds in return for unearned upfront ceded premium of $741 million, net of ceding commission paid to FGIC. The deal includes a cut-through agreement that would allow policyholders to bypass FGIC for payment of the claims and go directly to MBIA.

At the same time, FGIC concluded a commutation agreement with French bank Calyon over a financial guaranty policy of up to $1.88 billion issued by FGIC UK. Both parties gave up their rights to pursue any monetary claims under the policy in return for a payment to Calyon of $200 million.

Fitch said no action would be taken on FGIC's "triple-C" insurance strength rating and it would remain on rating watch.

The rating agency cited the company's exposure to residential mortgage backed securities and collateralized debt obligations that could amount to well over its statutory surplus.

Fitch said the reinsurance arrangement increased the statutory surplus by $900 million. However, continued deterioration on these fronts "is a real possibility," putting more pressure on the company.

Moody's, which gives FGIC an insurance financial strength rating of "B1 (negative outlook)" said there remains "continued uncertainty regarding FGIC's potential restructuring efforts."

S&P credit analyst Robert Green said in a statement that the deal is a "mix of positives and negatives." While the rating agency said the reinsurance and commutation deal were positives, its other risk obligations were more dicey and could force regulatory action to be taken.

The rating agency also said it is concerned about the company's ability to raise additional capital.

It noted that the potential bankruptcy of Jefferson County, Ala., could expose FGIC to $1.2 billion of Jefferson County Sewer Revenue bonds it insures. The company has statutory reserves of $2.2 billion as of the second quarter of this year and policyholder surplus of $286 million.

S&P said it would make rating changes over the next several weeks as it deems appropriate.

New York State Superintendent of Insurance Eric R. Dinallo was adamant Wednesday in saying that FGIC is solvent, but he also said the company could benefit from rehabilitation at some point. He did not indicate that such action was imminent.

Mr. Dinallo said the hope is that rating agencies would help elevate the municipal bond ratings on FGIC from junk bond status to equal MBIA's current "double-A" rating.

In its own statement on the deal, FGIC said it has capital and surplus of $286 million, contingency reserves of $446 million and total claims paying resources of $5.2 billion as of June 30 reporting.