Ratings Outlook Improves For Ambac

Three major rating agencies have retained Ambac's “triple-A” rating and removed the guarantee insurer from ratings watch after the mortgage insurer's announced plan to raise $1.5 billion.

Moody's Investors Service and Standard & Poor's affirmed Ambac's financial strength rating yesterday and Fitch did the same. All three said the outlook is negative reflecting the volatility of the bond markets.

Moody's rating is “Aaa” and S&P's is “triple-A.”

In a statement Michael Callen, chairman and chief executive officer of New York-based Ambac, said: “The successful completion of the capital raise was a very important component of the rating analysis. We want to thank all the rating agencies for their hard work in this process.”

The rating agencies threatened to downgrade the ratings of Ambac, MBIA and other guarantee insurers after they revealed significant exposure to mortgage securities affected by the subprime mortgage defaults.

Agencies feared the insurers did not have the reserves to cover losses. Insurers argued their reserves and long-term pay-out plans would cover the risk, but the threat of the rating's downgrade forced the carriers to raise capital to cover those potential losses.

Loss of the “triple-A” rating would jeopardize the writing of municipal bonds that require that rating from underwriters.