New York, November 12, 2009 -- Moody's Investors Service has downgraded to Aa3, from Aa2,
the insurance financial strength rating of Assured Guaranty Corp.
(AGC) and downgraded to A1, from Aa3, the insurance financial
strength rating of Assured Guaranty Re (AG Re); both ratings remain
under review for possible downgrade. The rating agency confirmed
the Aa3 insurance financial strength rating of Assured Guaranty Municipal
Corp. (AG Muni -- formerly, Financial Security
Assurance Inc.), with a negative outlook. AGC,
AG Muni and AG Re (collectively, Assured) are all insurance operating
subsidiaries of Assured Guaranty, Ltd. These rating actions
follow, and in the case of AG Muni - conclude, reviews
initiated on May 20, 2009. Today's rating actions have implications
for the various transactions wrapped by AGC and AG Muni as discussed later
in this press release.
As outlined in prior statements, Moody's review of Assured's
ratings has centered on the performance of mortgage-backed securities
(RMBS) exposures. Over the past year Moody's has observed
substantial deterioration in the performance of underlying mortgage collateral
in virtually all the segments of the market, resulting in estimates
of pool losses for some transactions that would likely breach even the
relatively high attachment points of Assured's first lien exposures
(Alt A and subprime). Other exposures were also impacted by mortgage
related deterioration, specifically life insurance-linked
deals backed by collateral pools that included RMBS securities.
Moody's said that adverse trends in RMBS loss estimates have had
varying effects on Assured Guaranty Ltd.'s main insurance
ASSURED GUARANTY CORP
AGC has suffered the most significant deterioration in relation to its
$2.7 billion in reported claims paying resources as a result
of stress in its RMBS, and CDO (primarily TruPs) portfolios,
and its current statutory capital position is relatively weak in relation
to the possible mortgage-related losses, which Moody's
estimates to be approximately $600 million, before estimated
repurchases of loans that have breached contractual representations and
warranties (put-backs), as an expected case and reaching
about $1.7 billion in a severe stress scenario. However,
Moody's stated that capital strengthening initiatives under consideration
by the group could result in a conclusion of the rating review with a
confirmation at the Aa3 rating level, negative outlook, if
fully implemented. Absent such initiatives, Moody's
would expect to lower AGC's rating into the single-A range.
ASSSURED GUARANTY MUNI
AG Muni, with a reported $7.3 billion of claims paying
resources, remains adequately capitalized for its current rating
level, in Moody's view, despite some additional RMBS deterioration,
with losses (before put-backs) on those exposures estimated to
be about $1.9 billion in the expected case and rising close
to $3.2 billion in a severe stress scenario. The
negative outlook on AG Muni reflects still meaningful uncertainty,
over the next year or two, about the ultimate performance of the
firm's insured portfolio following a period of severe dislocation
in financial markets.
ASSURED GUARANTY RE
The downgrade of AG Re reflects its significantly constrained external
business opportunities, given the declining fortunes of its 3rd
party customers, and Moody's view that it could therefore become
more of an instrument of capital support for its affiliated primary financial
guaranty affiliates, AGC and AG Muni rather than a distinct operating
business. As with AGC, consummation of capital strengthening
initiatives under consideration could lead to a conclusion of the AG Re
rating review with a confirmation of the current A1 rating (negative outlook).
The rating agency confirmed the senior debt rating of FSA Holdings Inc.
at A3 (negative outlook), and downgraded the senior debt rating
of Assured Guaranty Holdings to A3 (review for possible downgrade) from
A2, reflecting their subordination to insurance obligations.
OTHER ANALYTICAL CONSIDERATIONS
A key focus of Moody's capital adequacy analysis is the evaluation
of the group's exposure to mortgage-related losses.
The Assured Group insures approximately $31.2 billion of
US RMBS, and reported total claims paying resources of $12.6
billion at the end of the second quarter. The rating agency expects
substantial additional claims from second lien exposures and sees more
stress coming from first lien (Alt. A and subprime) transactions.
Such losses are mitigated, in part, by the firm's ability
to "put back" to solvent lenders loans that are in breach of representations
and warranties, said the rating agency. Growing evidence
of the magnitude of such breaches, and Assured's early success
in putting back loans to lenders, suggests that recoveries on claims
paid could be substantial; however, significant uncertainty
remains as to the extent of the guarantor's ultimate success.
According to Moody's, the operational leverage inherent in
the business of Assured can make the credit profiles of the operating
subsidiaries rather sensitive to the performance of individual insured
sectors and even, in some cases, individual transactions.
This risk is mitigated -- but not eliminated -- by strong risk
management, which has contributed to Assured's much better
performance than peers during the financial crisis. This performance
has, in Moody's view, enabled Assured to attract new
capital over that past few years and remain an active underwriter of risk,
a positive credit consideration.
The rating agency said that business opportunities available within the
structured finance market have fallen off significantly, but Assured
currently enjoys a very strong competitive position in the US municipal
market given the scarcity of competitors and alternative forms of credit
enhancement for municipal bonds. Moody's lead analyst Arlene Isaacs-Lowe
noted, "While the value proposition of financial guaranty insurance
has been eroded in some segments of the US municipal finance market,
Assured still enjoys very strong demand for its insurance product from
smaller and higher risk municipal issuers that would face higher funding
costs absent credit enhancement. However, the municipal market
remains somewhat dislocated and it is unclear how Assured's competitive
position will evolve once it normalizes."
TREATMENT OF WRAPPED TRANSACTIONS
Moody's ratings on securities that are guaranteed or "wrapped" by a financial
guarantor are generally maintained at a level equal to the higher of the
following: a) the rating of the guarantor (if rated at the investment
grade level); or b) the published underlying rating (and for structured
securities, the published or unpublished underlying rating).
Moody's approach to rating wrapped transactions is outlined in Moody's
special comment entitled "Assignment of Wrapped Ratings When Financial
Guarantor Falls Below Investment Grade" (May, 2008); and Moody's
November 10, 2008 announcement entitled "Moody's Modifies Approach
to Rating Structured Finance Securities Wrapped by Financial Guarantors".
As a result of today's action Moody's-rated securities that
are guaranteed or "wrapped" by Assured Guaranty Corp. are also
downgraded and placed under review for possible downgrade, except
those with higher published underlying ratings (and for structured finance
securities, except those with higher published or unpublished underlying
ratings); securities that are guaranteed or "wrapped" by AG Muni
(formerly FSA) are confirmed, except those with higher published
underlying ratings (and for structured finance securities, except
those with higher published or unpublished underlying ratings).
A list of these securities will be made available under "Ratings Lists"
The following ratings have been downgraded and placed on review for possible
Assured Guaranty Corp. -- insurance financial strength
rating to Aa3, from Aa2;
Assured Guaranty (UK) Ltd. -- insurance financial
strength rating to Aa3, from Aa2;
Assured Guaranty Re Ltd. -- insurance financial strength
rating to A1, from Aa3;
Assured Guaranty Re Overseas Ltd. -- insurance financial
strength rating to A1, from Aa3;
Assured Guaranty Mortgage Insurance Company -- insurance
financial strength rating to A1, from Aa3;
Assured Guaranty US Holdings Inc. -- senior unsecured
to A3, from A2, junior subordinated debt to Baa1, from
A3, provisional senior unsecured to (P)A3, from (P)A2,
provisional subordinated debt to (P)Baa1, from (P)A3;
Assured Guaranty Ltd. (Bermuda) -- issuer rating
to A3, from A2, provisional senior unsecured to (P)A3,
from (P)A2, provisional subordinated debt to (P)Baa1, from
(P)A3, provisional preferred to (P)Baa2, from (P)Baa1;
Assured Guaranty Capital Trusts I and II -- provisional
preferred to (P) Baa1, from (P)A3;
Woodbourne Capital Trusts I, II, III, and IV --
contingent capital securities to A3, from A1.
Moody's has assigned a rating of A3, review for possible downgrade,
to the $150 million equity linked senior unsecured debt of Assured
Guaranty US Holdings Inc.
The following ratings have been confirmed with a negative outlook:
Assured Guaranty Municipal Corp. -- insurance financial
strength at Aa3;
Financial Security Assurance (U.K.) Limited --
insurance financial strength at Aa3;
Financial Security Assurance Intl Ltd. -- insurance
financial strength at Aa3;
Financial Security Assurance Holdings Ltd. -- senior
unsecured debt at A3, junior subordinated debt at Baa1, provisional
senior debt at (P) A3, provisional subordinated debt at (P)Baa1,
and provisional preferred stock at (P)Baa2;
FSA Seguros Mexico S.A. de C.V. --
insurance financial strength at Aa3 (the firm's Aaa.mx national
scale rating was affirmed); and
Sutton Capital Trusts I, II, III and IV -- contingent
capital securities at A3.
The last rating action was on May 20, 2009 when Moody's placed the
insurance financial strength ratings of AG Muni and Assured Guaranty Corp.
under review for possible downgrade.
The principal methodology used in rating Assured Guaranty and AG Muni
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 rating
process can also be found in the Credit Policy & Methodologies directory.
Assured Guaranty Corp. is a financial guaranty insurance company
based in New York. Assured Guaranty Municipal Corp. (previously
called Financial Security Assurance, Inc.) is the main operating
company of Financial Security Assurance Holdings Ltd. Assured Guaranty
Corp. and Financial Security Assurance Holding Ltd. are
wholly owned subsidiaries of Assured Guaranty US Holdings Inc.
Assured Guaranty Re Ltd. is a Bermuda based financial guaranty
reinsurance company. Assured Guaranty Re and Assured Guaranty US
Holdings Inc. are wholly owned by Assured Guaranty Ltd.
Senior Vice President
Financial Institutions Group
Moody's Investors Service
Moody's downgrades Assured Guaranty Corp. to Aa3, confirms Assured Guaranty Municipal (FSA) at Aa3
Senior Vice President
Financial Institutions Group
Moody's Investors Service