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18 Sep 2008
Moody's places ratings of Ambac and MBIA on review for possible downgrade
New York, September 18, 2008 -- Moody's Investors Service has placed the Aa3 insurance financial
strength rating of Ambac Assurance Corporation (Ambac) and the A2 insurance
financial strength rating of MBIA Insurance Corporation (MBIA) on review
for possible downgrade. Today's rating action follows Moody's
announcement of an upward revision to cumulative loss projections for
subprime RMBS exposures (see Moody's Structured Finance Special
Report entitled "Subprime RMBS Loss Projection Update: September
2008"). Prior to today's rating action, the rating
outlook for both Ambac and MBIA was negative.
As a result of this review, the Moody's rated securities that
are "wrapped" or guaranteed by Ambac and MBIA are also placed
under review for possible downgrade, except those with higher public
underlying ratings. A list of these securities will be made available
under "Ratings Lists" at www.moodys.com/guarantors.
Moody's said that its reviews of the insurance financial strength
ratings of Ambac and MBIA will focus on the impact of increasing cumulative
loss rate projections on each guarantor's mortgage-related
exposures and risk-adjusted capital position. According
to Moody's, and as outlined in the Special Report referenced
above, lifetime cumulative losses on 2006 vintage subprime first-lien
pools are now projected to average 22%, considering pool
performance through the July 2008 remittance reports. Projected
losses increase progressively with the 2006 quarter of origination,
averaging 17% for Q1 2006 and rising to 26% for Q4 2006.
This compares to Moody's previous projections in January,
which estimated losses in a range between 14-18%.
Moody's updated estimate of 2006 subprime losses represents a significant
increase above the level previously projected, and now exceeds the
average stress case level that has been used in Moody's assessments
of financial guaranty insurers. Accordingly, Moody's
has also revised upward the associated 2006 subprime stress case assumption
substantially -- it now exceeds 30%. Expected and stress-case
loss assumptions for other RMBS collateral types and vintages have also
been increased as well based on observed deterioration across the range
of mortgage product types.
Broadly, expected and stress-case loss assumptions for 2007
vintage transactions are roughly one-third more severe than for
2006, and 2005 vintage transactions are roughly one-third
to one-half as severe as 2006 depending on the product type.
Moody's stated that because both Ambac and MBIA are meaningfully
exposed to the risk of US subprime mortgages and other residential mortgage
products, the revised assumptions are expected to have a significant
impact on the firms' capital positions and multi-notch downgrades
Moody's said that it will also evaluate the effect of changing loss-rate
projections on its insurance financial strength ratings of other financial
guarantors rated by Moody's including Syncora Guarantee Inc.
(B2 -- on review for possible upgrade), Financial
Guaranty Insurance Company (B1-- negative outlook),
and CIFG (Ba2 -- on review with direction uncertain). The
rating agency noted that its analysis will consider the impact of increasing
RMBS loss projections in the context of each of these companies'
The ongoing reviews for possible downgrade of Financial Security Assurance
and Assured Guaranty, both of which Moody's expects to conclude
shortly, will also incorporate the effect of rising RMBS loss projections.
The rating agency noted that both FSA and Assured are relatively less
exposed to mortgage-related risks versus the other primary financial
LIST OF RATING ACTIONS
The following ratings have been placed on review for possible downgrade:
Ambac Assurance Corporation -- insurance financial strength at Aa3;
Ambac Assurance UK Limited -- insurance financial strength at Aa3;
Ambac Financial Group, Inc. -- senior unsecured debt
at A3, junior subordinated debt at Baa1 and provisional rating on
preferred stock at (P)Baa2;
Anchorage Finance Sub-Trusts I-IV -- contingent capital
securities at A3; and
Dutch Harbor Finance Sub-Trusts I-IV -- contingent
capital securities at A3.
The following ratings have been placed on review for possible downgrade:
MBIA Insurance Corporation -- insurance financial strength at A2
and surplus notes at Baa1;
MBIA Insurance Corporation of Illinois -- insurance financial strength
Capital Markets Assurance Corporation -- insurance financial strength
MBIA UK Insurance Limited -- insurance financial strength at A2;
MBIA Assurance S.A. -- insurance financial strength
MBIA Mexico S.A. de C.V.'s -- insurance
financial strength at A2;
MBIA Inc. -- senior unsecured debt at Baa2, provisional
senior debt at (P) Baa2, provisional subordinated debt at (P) Baa3,
and provisional preferred stock at (P) Ba1;
North Castle Custodial Trusts I-VIII -- contingent capital
securities at Baa2.
Ambac Financial Group, Inc. (NYSE: ABK), headquartered
in New York City, is a holding company whose affiliates provide
financial guarantees and financial services to clients in both the public
and private sectors around the world.
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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