S&P Lowers MBIA Rating

NU Online News Service, Sept. 29, 3:20 p.m. EDT

Standard & Poor's rating service lowered the financial strength rating of guarantee insurer MBIA Insurance Corp. over concern that it is still experiencing adverse loss development.

With increased worries over loss development from exposure to collateralized debt obligations (CDO) and residential mortgage-backed securities (RMBS) of asset-backed securities, S&P lowered MBIA's financial strength, counterparty credit and financial enhancement ratings to "double-B-plus" from "triple-B."

S&P also lowered its counterparty credit rating on MBIA Inc., the group holding company to "double-B-minus" from "double-B." The outlook on MBIA and the holding company is negative, S&P said.

S&P affirmed the "A" financial strength rating on the company's affiliate, National Public Finance Guarantee Corp. The outlook on National remains developing, S&P said.

National Public was set up earlier this year by MBIA to separate its municipal bond business from the rest of the company.

"We downgraded MBIA and the holding company because macroeconomic conditions continue to contribute to losses on the group's structured finance products," explained S&P's credit analyst Damien Magarelli in a statement.

He expressed the view that while National's rating was affirmed, it remains developing because of uncertain business and capital raising prospects. There is also concern that the company's attempts to separate National from the rest of MBIA's exposures have not been sufficient to date.

"The negative outlook on MBIA and the holding company reflects our view that adverse loss development on the structured finance book could continue," Mr. Magarelli continued. "In the next few years, liquidity will likely be adequate to meet debt-service and holding-company obligations (including operating expenses). However, increased losses and earnings volatility could still occur.

"We expect that the company will maintain a sufficient number of experienced staff members to support surveillance and remediation efforts within the various business segments, with a focus on liquidity risk management," he continued.

"Considering the runoff nature of the franchise, it is unlikely that we would raise the rating. Alternatively, if there were increased losses within the investment portfolio, potential reserve charges, or diminished liquidity, we could take a negative rating action," Mr. Magarelli said.

The outlook for National could be improved if there is a favorable resolution to ongoing litigation, S&P said.

MBIA, along with other guarantee insurers, has been the target of numerous shareholder suits resulting from losses the company has suffered in the wake of the subprime loan crisis.

S&P said if there was a successful court outcome for the company it would help capital-raising efforts and create a more tangible separation between National and MBIA. The separation could lead to a "double-A" rating for National, but if conditions continue as they currently are the result could be a downgrade to the "triple-B" category, said S&P.