Assured Guaranty Fiercely Disputes Moody's Downgrade

Moody's Investors Service downgraded Assured Guaranty's insurance financial strength ratings due to continued struggles in the market in which the company operates.

The ratings actions include lowering Assured Guaranty Municipal Corp. to A2 from Aa3, Assured Guaranty Corp. to A3 from Aa3, and Assured Guaranty Re Ltd.(AGRe) to Baa1 from A1. 

“Today's rating action reflects Moody's downward reassessment of Assured's business franchise, expected future profitability, and financial flexibility,” Moody's says in a statement. “Assured operates in an industry that has not recovered from the financial crisis and, like its peers, will continue to struggle in the face of declining fundamentals, including a dramatic reduction in insurance usage, modest profitability and still-meaningful legacy risk.”

Assured Guaranty provides financial guaranty insurance, guaranteeing scheduled principal and interest payments when due on municipal, public infrastructure and structured financings.

Moody's notes that Assured's insured portfolio's credit quality and its capital adequacy “generally remain strong” though data from Sept. 30, 2012, but the ratings agency adds that the company's “positioning on key dimensions of financial strength,” such as franchise strength, profitability, and financial flexibility, have weakened due to changes in the financial guarantor industry and the broader economic environment.

Assured, meanwhile, issued a lengthy rebuttal to Moody's ratings action. “We strongly disagree with Moody's assignment of an A2 rating to AGM [Assured Guaranty Municipal Corp], especially given Moody's statements in its own release that AGM has capital adequacy 'corresponding to a high Aa score' and insured portfolio characteristics that are 'high investment grade,'” says Dominic Frederico, president and CEO. 

Criticizing the ratings agency's methodology, Frederico continues, “Moody's ratings now appear to be determined by unsupported qualitative factors and assumptions about future product demand, future profitability and future stock price that have little or no relevance to the company's actual ability to meet all of its financial obligations with the highest certainty. 

“When a company's financial strength and the quality of its insured portfolio are no longer the dominant factors in its 'financial strength rating,' there is a serious flaw in the rating process. A close reading of Moody's release also reveals contradictions and inconsistencies that essentially discredit it.”

Assured's statement points out numerous instances where it says Moody's analysis of the company 10 months ago contradicts the concerns stated in its latest action. 

The company also charges that Moody's did not conduct its rating process in accordance with transparency mandated under the Dodd-Frank Act. “Specifically, Moody's still has not shared material capital model results with us, despite our repeated requests throughout the process,” Frederico says. “As importantly, on the limited information provided, Moody's would not discuss underlying assumptions used to achieve these summary results nor assure us that all Moody's rated companies are stressed similarly.”

Frederico also accused Moody's of using subjective criteria meant to support a pre-determined conclusion.