New York, July 02, 2014 -- Moody's Investors Service has affirmed the insurance financial strength
(IFS) rating of Assured Guaranty Municipal Corp. (AGM) at A2,
the IFS rating of Assured Guaranty Corp. (AGC) at A3, and
the IFS rating of Assured Guaranty Re Ltd. (AG Re) at Baa1.
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 negative from stable.
The outlook for AG Re remains negative. A full list of rating actions
on Assured Guaranty Ltd. (Assured) and its subsidiaries is provided
below.
SUMMARY RATIONALE
The rating action on Assured follows the enactment by the Commonwealth
of Puerto Rico of a law (the Puerto Rico Public Corporation Debt Enforcement
and Recovery Act) that will allow public corporations to defer or reduce
payments on outstanding bonds. By providing for defaults by certain
issuers that the central government has long supported, Puerto Rico's
new law marks the end of the commonwealth's long history of taking actions
needed to support its debt. It signals a depleted capacity for
revenue increases and austerity measures, and a new preference for
shifting fiscal pressures to creditors, which, in Moody's
view, has implications for all of Puerto Rico's debt, including
that of the central government. Application of the law may further
limit the commonwealth's market access, leaving it more vulnerable
to financial risk and unable to fund capital projects.
On July 1, 2014, Moody's lowered the ratings on the
general obligation bonds issued by the Commonwealth of Puerto Rico by
three notches (B2/negative). The ratings on debt issued by Puerto
Rico's public corporations were lowered by four to five notches,
including Puerto Rico Electric Power Authority (Caa2/review down),
Puerto Rico Highway and Transportation Authority (Caa1/review down) and
Puerto Rico Aqueduct and Sewer Authority (Caa1/review down), reflecting
the escalating risk that these entities could default voluntarily under
the new restructuring law.
As of March 31, 2014, Assured had consolidated net par exposure
of approximately $5.3 billion to Puerto Rico issuers,
all of which is rated below investment grade by Moody's, including
approximately $2.6 billion of net par exposure to various
public corporations that could use the new law to restructure their debts.
As part of its analysis of Assured's potential exposure to ongoing
stress among Puerto Rico obligors, Moody's contemplated a
variety of stress scenarios, including a default of, and losses
on some or all of, Assured's Puerto Rico exposures,
across a broad range of loss severity assumptions. Moody's
analysis suggests that a default of Puerto Rico with meaningful loss severity
could lead to a downgrade of some or all of Assured's ratings.
Given the meaningful downward credit migration among Puerto Rico issuers,
we view the probability of a potential Puerto Rico default as substantially
less remote than was the case several months ago, though there remains
significant uncertainty as to the potential loss severity among the various
Puerto Rico related issuers if a default (or defaults) were to occur.
As a result, the potential rating impact on Assured's various
entities from a Puerto Rico default will necessarily depend on a number
of variables unknown at this time, including the amount of defaulted
par exposure, the most likely range of losses given default,
the financial resources available to each operating company relative to
such potential claims and the actual and prospective capital adequacy
profiles at the time of loss given the ongoing portfolio amortization
and the group's capital management initiatives.
RATING RATIONALE - Assured Guaranty Municipal Corp.
Moody's views AGM (IFS rating A2/stable) as better positioned than
AGC or AG Re to withstand the combined pressures emanating from the legacy
structured finance and public finance portfolios, due to its strong
capital profile and its ability to organically generate capital through
the earn-out of unearned premiums, and investment income
on its large fixed income portfolio, as well as through premiums
written on a modest amount of new business. In Moody's opinion,
AGM's credit profile is expected to remain largely consistent with
the current A2 rating across a broad range of stress scenarios,
including those that include widespread defaults among Puerto Rico issuers
with meaningful loss severity. As of 1Q2014, AGM had approximately
$2.4 billion of total net par exposure to Puerto Rico issuers,
which represented approximately 66% of its qualified statutory
capital (QSC), including approximately $1 billion of net
par exposure to Puerto Rico's public corporations (28% of
QSC).
RATING RATIONALE - Assured Guaranty Corp.
According to Moody's, the change in AGC's (IFS rating
A3/negative) outlook status to negative reflects the higher sensitivity
of its overall credit profile to potential losses that could emerge,
due largely to its less robust core earnings stream and higher exposure
to stressed Puerto Rico issuers as a percentage of its capital resources.
As of 1Q2014, AGC had approximately $1.5 billion of
total net par exposure to Puerto Rico issuers, which represented
approximately 81% of its QSC, including approximately $890
million of net par exposure to Puerto Rico's public corporations
(48% of QSC). Moody's notes that while certain portions
of AGC's legacy structured finance portfolio are showing signs of
improvement, the firm's credit profile remains somewhat vulnerable
to adverse developments over the medium term.
RATING RATIONALE - Assured Guaranty Re
Moody's believes that AG Re (IFS rating Baa1/negative) is the most
weakly positioned of the three firms and faces heightened vulnerability
to adverse developments within its insured portfolio. The company
has significantly higher operating leverage relative to both AGM and AGC,
resulting in less robust performance under reasonable deterministic loss
scenarios on large single risks, such as Puerto Rico. As
of 1Q2014, AG Re had approximately $1.5 billion of
total net par exposure to Puerto Rico issuers, which represented
approximately 147% of its QSC, including approximately $773
million of net par exposure to Puerto Rico's public corporations
(75% of QSC). While AG Re has benefited from the same portfolio
amortization trends as its affiliates, the company's overall
credit profile remains highly sensitive to potential losses that could
emerge.
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
was upward credit rating migration among large below investment grade
exposures and a significant rebound in business origination at attractive
pricing levels occurred.
RATINGS LIST
The following ratings have been affirmed, with a stable outlook:
Assured Guaranty Municipal Corp. -- insurance financial
strength rating at A2;
Assured Guaranty (Europe) Ltd. -- insurance financial
strength rating at A2;
Assured Guaranty US Holdings Inc. -- senior unsecured
debt at Baa2, junior subordinated debt at Baa3(hyb), provisional
senior unsecured debt at (P)Baa2, provisional subordinated debt
at (P)Baa3;
Assured Guaranty Municipal Holdings Inc. -- senior
unsecured debt at Baa2, junior subordinated debt at Baa3(hyb),
provisional senior unsecured debt at (P)Baa2, provisional subordinated
debt at (P)Baa3;
Assured Guaranty Ltd. -- issuer rating at Baa2,
provisional senior unsecured debt at (P)Baa2, provisional subordinated
debt at (P)Baa3, provisional preferred stock at (P)Ba1;
Sutton Capital Trusts I, II, III, and IV --
contingent capital securities at Baa2(hyb).
The following ratings have been affirmed, with the outlook changed
to negative, from stable:
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 --
contingent capital securities at Baa3(hyb);
The following ratings have been affirmed with a negative outlook:
Assured Guaranty Re Ltd. -- insurance financial strength
rating at Baa1;
Assured Guaranty Re Overseas Ltd. -- insurance financial
strength rating at Baa1;
The principal methodology used in this rating was Moody's Rating Methodology
for the Financial Guaranty Insurance Industry published in September 2006.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
Assured Guaranty Municipal Corp. (previously Financial Security
Assurance Inc.) and Assured Guaranty Corp. are financial
guaranty insurance companies based in New York. Assured Guaranty
Re Ltd. is a Bermuda based financial guaranty reinsurance company.
They are wholly owned by Assured Guaranty Ltd. [NYSE:AGO],
the ultimate holding company. As of March 30, 2014,
Assured Guaranty Ltd. had consolidated net par outstanding of approximately
$451 billion, qualified statutory capital of $6.2
billion, and total claims paying resources of $12.2
billion.
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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
Moody's affirms Assured Guaranty's ratings; outlook remains stable for AGM; AGC's outlook changed to negative
