CIFG Downgraded 11 Notches By Fitch

Fitch has downgraded the Insurer Financial Strength (IFS) ratings of bond insurer CIFG Guaranty and its affiliates by 11 notches, from 'A-' to 'CCC,' due a greater risk of the company falling below regulatory minimum capital requirements.

Fitch said it based its assessment in part on conversations with CIFG's management. The rating agency said CIFG indicated that it may be at greater risk of falling below minimum capital requirements.

The downgrade is based, in part, on recent conversations with CIFG's management, in which the company has indicated it could be at greater risk of falling below regulatory minimum capital requirements “if the company's loss provisions increase in future periods, which could trigger an insolvency proceeding by regulators.”

Fitch added that if this were to occur, CIFG's $57 billion credit default swap (CDS) portfolio would be subject to termination at current valuations.

CIFG issued a response to Moody's action, in which CIFG chief executive officer John Pizzarelli said, “While we are very disappointed by this action, we continue to work aggressively to protect our policyholders. We are currently in negotiations to develop strategic alternatives for problematic credits with the goal of CIFG emerging with a clean balance sheet and significantly improved capital position.”

Fitch's action comes days after Moody's decreased CIFG's insurance financial strength ratings from A1 to Ba2 for similar reasons. Moody's said, “A breach of minimum regulatory capital requirement may not, in itself, mean that the firm is insolvent and therefore trigger a market value termination of the CDS contracts, but it does expose the firm to possible regulatory actions and other risks that could trigger such termination given the lack of specificity as to what would qualify as insolvency under the terms of the contracts,” added the rating agency.