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23 Dec 2008
Moody's assigns Ba2 rating to MBIA preferred stock, lowers MBIA Mexico to Aa1.mx
New York, December 23, 2008 -- Moody's Investors Service has assigned a Ba2 rating to the recently issued
perpetual preferred stock of MBIA Insurance Corporation (MBIA; Baa1
insurance financial strength; developing outlook) following the firm's
exercise of its option to put such preferred to its prefunded contingent
capital facilities, North Castle Custodial Trusts I-VIII.
The rating agency has also downgraded to Ba2, from Ba1, and
withdrawn its ratings on the above mentioned trusts following their liquidation
triggered by MBIA's exercise of its fixed rate option. The
Ba2 preferred stock rating reflects some near term uncertainty about dividend
capacity given the modest earned surplus and substantial risk of additional
mortgage-related losses. Moody's also downgraded MBIA
Mexico, S.A. de C.V.'s (MBIA Mexico)
local scale rating to Aa1.mx, from Aaa.mx, reflecting
the company's weakened credit profile (global scale rating at Baa1)
and uncertainty about MBIA's continued strategic focus on Mexico.
All ratings have a developing outlook.
Moody's noted that the transaction resulted in the issuance of $400
million in preferred stock to North Castle Custodial Trusts I-VIII,
with proceeds used to support the capital position of MBIA. The
trusts are being liquidiated as a result of MBIA's exercise of its
fixed rate dividend option and the holders of the (former) trust securities
will directly own the MBIA preferred stock. The preferred stock
is perpetual and will pay a fixed dividend. The preferred stock
issuance will increase MBIA's adjusted financial leverage moderately (to
about 27%, from 25%). Moody's has not accorded
equity credit to the preferred stock in measuring group leverage given
its seniority to MBIA Inc.'s senior debt in liquidation.
These securities rank junior to MBIA's $1 billion in surplus
notes, rated Baa3. The preferred stock is non-cumulative
unless MBIA Insurance Corp. pays dividends on its common stock
(limited to holding company debt service), at which time preferred
dividends would become cumulative.
The rating agency said that MBIA's ability to make dividend payments
on the preferred stock is subject to New York State insurance law,
which requires dividends to be paid out of earned surplus minus unrealized
losses and restricts dividends during any 12 month period to the lower
of the firm's investment income or 10% of policyholders'
surplus or available unassigned surplus. While the insurer currently
has adequate earned surplus, there is a risk that further material
loss reserving could erode this balance and inhibit the ability to make
preferred dividend payments. In light of remaining volatility within
the insured portfolio and Moody's own estimate of expected RMBS
losses to be incurred, the rating of operating company preferred
was set at a level that reflects wider notching from the benchmark IFSR
than is typical for that type of obligation.
Moody's estimates of ABS CDO losses are about $1.5
billion above the firm's recorded impairments, and preliminary
revised estimates of second liens losses suggests aggregate RMBS losses
meaningfully in excess of MBIA's recorded reserves at 9/30/2008.
Mitigating in part these concerns is the modest preferred stock dividend,
approximately 3.5% annually on $400 million of securities.
Moody's recently increased its loss expectations for MBIA's
second lien mortgage exposures, reflecting growing concerns about
their performance to date and the potential adverse effect of a weakening
economy. Such revised loss estimates have substantially reduced
the capital adequacy cushion that MBIA has at the current rating level.
Moody's said that, because contingent capital facilities are
included in its calculation of total capital, the conversion of
these facilities to preferred stock does not significantly impact its
view of MBIA's capital profile. The rating agency added,
however, that the preferred stock issuance improves MBIA's
liquidity position during a time of unprecedented stress.
The rating agency said that MBIA Mexico's dependence on the formal
and informal support from MBIA Insurance Corporation (through a 100%
quota share reinsurance agreement and a net worth maintenance agreement).
With growing uncertainty about the strategic relevance of the Mexican
market to MBIA, in light of the group's challenged credit
and franchise profile, and the recent downgrade of MBIA Mexico's
global scale rating to Baa1, Moody's 's downgraded the
national scale insurance financial strength rating of MBIA Mexico to Aa1.mx,
The last rating action on MBIA occurred on November 7, 2008 when
Moody's downgraded MBIA Insurance Corporation's insurance financial
strength rating to Baa1, with a developing outlook.
The principal methodology used in rating MBIA was Moody's Rating Methodology
for the Financial Guaranty Insurance Industry, which can be found
at www.moodys.com in the Credit Policy & Methodologies
directory, in the Ratings Methodologies subdirectory. Other
methodologies and factors that may have been considered in the process
of rating MBIA can also be found in the Credit Policy & Methodologies
LIST OF RATING ACTIONS
The following rating has been assigned:
MBIA Insurance Corporation -- preferred stock at Ba2.
The following ratings have been downgraded and withdrawn due to liquidation
of the contingent surplus note trust facilities:
North Castle Custodial Trusts I-VIII -- contingent
capital securities to Ba2, from Ba1.
The following rating has been downgraded:
MBIA Mexico, S.A. de C.V. -- national
scale insurance financial strength to Aa1.mx, from Aaa.mx.
The outlook is developing.
OVERVIEW OF MBIA
MBIA Inc. (NYSE: MBI) provides financial guarantees to issuers
in the municipal and structured finance markets in the United States,
as well as internationally. MBIA also offers various complementary
services, such as investment management and municipal investment
Financial Institutions Group
Moody's Investors Service
Senior Vice President
Financial Institutions Group
Moody's Investors Service
No Related Data.
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