S&P Affirms "Triple-A" Rating For MBIA, Ambac

Standard & Poor's yesterday affirmed the "triple-A" financial strength ratings of major bond insurers MBIA Insurance Corp and Ambac Assurance Corp., sending their stocks and the rest of the market on a surge.

The firm said the "triple-A" financial strength rating of Armonk, N.Y.-based MBIA was affirmed and removed from CreditWatch with the outlook now negative.

S&P said MBIA's success in accessing $2.6 billion of additional claims-paying resources is a strong statement of management's ability to address the concerns relating to the capital adequacy of the company and a strong statement by investors of their understanding of MBIA's franchise value and business practices.

The rating firm noted that MBIA management, to improve its claims-paying resources, is pursuing alternatives to reshaping the insured portfolio through reinsurance transactions.

S&P said it believes the MBIA management is likely to succeed in implementing its reinsurance strategy. "However, the reversion back to a negative outlook is warranted in light of the absolute size of stress scenario losses relative to the adjusted capital cushion, as well as the uncertainty surrounding a possible reconfiguration of the company.

MBIA is considering splitting off its less risky municipal bond insurance business and creating a second company where it would lodge its complex mortgage investments that have been impacted by the subprime market collapse.

The bond insurer Financial Guaranty Insurance Co. has already notified New York regulators that it plans to take such a step. S&P said yesterday that FGIC's "double-A" financial strength rating has now been lowered to "A" and remains on CreditWatch with developing implications.

Regarding a possible split at MBIA, S&P said it is giving further assessment to several factors including the viability of the resulting corporate structure, investor acceptance, the effect on the company's franchise value, and the potential for disadvantaging any group of policyholders with regard to the availability of claims-paying.

MBIA late yesterday said it would stop paying quarterly dividends in a move to preserve capital. According to the insurer the action will save the company about $174 million a year.

The bond insurer's action was instituted by Joseph W. Brown Jr. who returned Feb.15 as chief executive of the company.

Discussing New York-based Ambac, S&P said the firm's "triple-A"' financial strength rating is affirmed, but remains on CreditWatch with negative implications.

S&P said the action was based on "the scope of Ambac's capital-raising plans and the company's ability to implement those plans. It has been reported that Ambac plans to raise at least $2 billion in new capital through a rights offering to existing shareholders. Success of this offering would more than cover the approximate $400 million current shortfall of capital cushion versus projected losses."

The $400 million shortfall, the rating firm said, is a relatively modest number relative to the size of the company's capital position. Should Ambac not execute its current capital plan, other actions, such as reinsurance transactions, could eliminate the shortfall, at least in part, according to S&P.

In other actions, S&P said the "triple-A" financial strength ratings of CIFG Guaranty, CIFG Europe, and CIFG Assurance North America Inc. have been affirmed and continue to have negative outlooks.

The "triple-A" financial strength ratings of XL Capital Assurance Inc. and XL Financial Assurance Ltd. were lowered to "A-minus," and remain on CreditWatch with negative implications.