S&P Lowers Ambac Rating, Cites Big Mortgage Losses

Standard & Poor's Ratings Services has lowered bond insurer Ambac Assurance Corp.'s financial strength rating three notches to "A" due to residential mortgage sector exposures that have caused losses greater than those of Ambac's competitors.

Standard & Poor's also lowered the senior debt and hybrid security of New York-based Ambac's holding company, Ambac Financial Group Inc., to "BBB" and "BB-plus" from "A" and "BBB-plus" respectively.

The outlook on the ratings is negative.

Dick Smith, Standard & Poor's credit analyst, said U.S. residential mortgage exposures, particularly related collateralized debt obligation structures, have been "a source of significant and comparatively greater-than-competitor losses," and have "slightly more than offset the benefits to the company of lower capital requirements that result from a declining book of business."

Ambac has also purchased assets from and made loans to affiliate Ambac Capital Funding Inc. to support the affiliate's funding needs, and Standard & Poor's said this has "lowered slightly the credit quality of Ambac's investment portfolio and increased the gap between the book value and fair market value of the assets in the portfolio."

Standard & Poor's said Ambac still exhibits sound claims-paying ability at its current rating and adequate liquidity levels.

The rating agency has also lowered its ratings on preferred stock issued by Anchorage Finance Sub-Trusts I, II, III, and IV; and Dutch Harbor Finance Sub-Trusts I, II, III, and IV - which are committed capital facilities supported by, and for the benefit of, Ambac - to "BBB" from "A".