New York, August 08, 2016 -- Moody's Investors Service, ("Moody's") has
affirmed the A2 insurance financial strength (IFS) rating of Assured Guaranty
Municipal Corp. (AGM) and the A3 IFS rating of Assured Guaranty
Corp. (AGC). In the same rating action, Moody's also
affirmed the Baa2 senior unsecured debt ratings of both Assured Guaranty
US Holdings Inc. (AGUS) and Assured Guaranty Municipal Holdings
Inc. (AGMH). The outlook for the ratings of AGM, AGUS
and AGMH remains stable, while the outlook for the rating of AGC
was changed to stable from negative. A full list of rating actions
on Assured Guaranty Ltd. (Assured) and its subsidiaries is provided
below.
RATINGS RATIONALE
According to Moody's, Assured's ratings reflect its strong overall
capital profile and core earnings power, its ability to underwrite
transactions in both the public finance and structured finance markets
worldwide through its multiple insurance operating subsidiaries,
the ongoing improvement in capital adequacy due to insured portfolio amortization,
as well as its leadership position in the financial guaranty insurance
sector. These strengths are tempered by the still depressed levels
of financial guaranty insurance utilization, which leaves the company
with a limited opportunity set within this niche sector. Other
challenges include the potential for volatility in earnings and capital
arising from large single risk exposures within its insured portfolio,
and the firm's elevated levels of below-investment grade
risk exposure, including substantial exposures to the Commonwealth
of Puerto Rico and its affiliated debt issuers.
On 7 July 2016, Assured reported that its subsidiaries made $205
million in gross debt service payments to holders of insured general obligation
(GO) and other bonds on which Puerto Rico and certain of its instrumentalities
defaulted on 1 July 2016, shortly after the 30 June 2016 enactment
of the Puerto Rico Oversight, Management, and Economic Stability
Act (PROMESA). As of 30 June 2016, Assured had approximately
$5.0 billion of consolidated net par exposure to various
Puerto Rico issuers.
Among other provisions, PROMESA establishes a financial oversight
board for the Commonwealth of Puerto Rico, places a stay on creditor
lawsuits and provides an orderly framework for debt restructuring.
We view the enactment of PROMESA to be credit positive for the financial
guarantors in that it puts a debt restructuring framework into place while
avoiding protracted bondholder litigation. Importantly for the
financial guarantors, the law requires that any plan for debt adjustment
be consistent with existing priorities of payment and lien structures,
indicating potentially better recoveries for legally stronger bonds,
such as the commonwealth's GO and guaranteed bonds (Caa3/developing)
which make up approximately 36% of Assured's consolidated
exposure to Puerto Rico at 30 June 2016.
As part of its analysis of Assured's Puerto Rico exposures,
Moody's contemplates a variety of loss given default (LGD) scenarios
largely based on the LGD-range implied by Moody's ratings
on various Puerto Rico issuers. Moody's most recent analysis
suggests that Assured's Puerto Rico related losses are likely to
be manageable within the context of its capital resources and core earnings
power.
As of 2Q2016, AGM and AGC had approximately $2.1 billion
and $1.7 billion, respectively, of total net
par exposure to Puerto Rico issuers, representing approximately
56% of AGM's qualified statutory capital (QSC) and 71%
of AGC's QSC. In our current base case Puerto Rico loss scenario,
AGM's claim losses are expected to be mostly an earnings event with
the potential for a modest impact on its capital given AGM's lower
sensitivity to Puerto Rico losses and its strong earnings profile.
While our stress scenarios indicate that AGC will experience higher levels
of losses as a percentage of its capital, the resulting deterioration
in capital is expected to remain consistent with AGC's current A3
rating level except in the most adverse scenarios.
RATING RATIONALE - Assured Guaranty Municipal Corp.
AGM's A2 IFS Rating (stable outlook) reflects its strong capital
profile, conservative underwriting of US municipal and international
infrastructure finance risks and leading market position in the financial
guaranty insurance sector. Moody's believes AGM is well-positioned
to withstand the pressures arising from large single risk exposures,
such as Puerto Rico. AGM's strong capital profile and its
ability to organically generate significant capital through premium and
investment earnings make its credit profile resilient to a broad range
of stress scenarios.
RATING RATIONALE - Assured Guaranty Corp.
According to Moody's, the change in AGC's (IFS rating
A3) outlook status to stable from negative reflects AGC's strengthening
capital adequacy profile due to an increase in its capital resources resulting
from the recent acquisitions of run-off legacy financial guarantors
Radian Asset Assurance and CIFG North America. The resulting increase
in AGC's invested assets and future premium earnings also improves
the firm's prospective profitability. AGC's capital
adequacy profile has also experienced improvement from the continued amortization
of its insured portfolio and meaningful credit strengthening among several
of AGC's legacy structured finance exposure classes, including
TruPS CDOs. Despite these improvements, Moody's continues
to maintain a one notch rating differential between AGM and AGC to reflect
AGC's considerably higher level of below investment grade exposures
relative to capital and its more limited strategic role within the Assured
Guaranty group relative to AGM. Concurrent with AGC's change
in outlook status, Moody's has also aligned AGC's stand-alone
credit profile with its current A3 IFS rating.
Moody's has also changed the outlook of Assured Guaranty (UK) Ltd.
(AGUK - IFS rating A3) to stable, from negative. AGUK's
rating is based on a combination of formal and implicit support from AGC,
including a net worth maintenance agreement and quota share and excess
of loss reinsurance arrangements, which results in the alignment
of their ratings.
WHAT COULD CHANGE THE RATING UP OR DOWN
The main rating sensitivities for Assured and its subsidiaries relate
to the composition and performance of their respective insured portfolios,
capitalization levels and market support. The ratings could be
lowered if the quality of the various insured portfolios meaningfully
decreased or if capital was withdrawn without an associated reduction
of risk, or if profitability reduced materially. The credit
profiles of Assured's operating companies could improve if there
is a favorable resolution to the firm's Puerto Rico related exposures
during the upcoming restructuring process and there is a significant increase
in financial guaranty business origination at attractive pricing levels.
RATINGS LIST
The following ratings have been affirmed:
Assured Guaranty Ltd. -- issuer rating at Baa2,
provisional senior unsecured shelf at (P)Baa2, provisional subordinated
shelf at (P)Baa3, provisional preferred shelf at (P)Ba1;
Assured Guaranty US Holdings Inc. -- backed senior
unsecured debt at Baa2, backed junior subordinated debt at Baa3(hyb),
provisional backed senior unsecured shelf at (P)Baa2, provisional
backed subordinated shelf at (P)Baa3;
Assured Guaranty Municipal Holdings Inc. -- senior
unsecured debt at Baa2, junior subordinated debt at Baa3(hyb),
provisional backed senior unsecured shelf at (P)Baa2, provisional
backed subordinated shelf at (P)Baa3;
Assured Guaranty Municipal Corp. -- insurance financial
strength rating at A2;
Assured Guaranty (Europe) Ltd. -- insurance financial
strength rating at A2;
Sutton Capital Trusts I, II, III, and IV --
backed pref. stock non-cumulative debt at Baa2(hyb).
Assured Guaranty Corp. -- insurance financial strength
rating at A3;
Assured Guaranty (UK) Ltd. -- insurance financial
strength rating at A3;
Woodbourne Capital Trusts I, II, III, and IV --
backed pref. stock non-cumulative debt at Baa3(hyb).
Outlook actions:
Assured Guaranty Ltd - outlook remains stable;
Assured Guaranty US Holdings Inc. - outlook remains stable;
Assured Guaranty Municipal Holdings Inc. - outlook remains
stable;
Assured Guaranty Municipal Corp. - outlook remains stable;
Assured Guaranty (Europe) Ltd. - outlook remains stable;
Sutton Capital Trusts I, II, III, and IV - outlook
remains stable;
Assured Guaranty Corp. - outlook changed to stable from
negative;
Assured Guaranty (UK) Ltd. - outlook changed to stable from
negative;
Woodbourne Capital Trusts I, II, III, and IV -
outlook changed to stable from negative.
Assured Guaranty Municipal Corp. and Assured Guaranty Corp.
are financial guaranty insurance companies based in New York. They
are wholly owned by Assured Guaranty Ltd. [NYSE:AGO],
the ultimate holding company. As of 30 June 2016, Assured
Guaranty Ltd. had consolidated GAAP net par outstanding of approximately
$330 billion, qualified statutory capital of $7.0
billion, and total claims paying resources of $11.9
billion.
The principal methodology used in these ratings was Financial Guarantors
published in April 2016. Please see the Ratings Methodologies page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
James Eck
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Stanislas Rouyer
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
