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Rating Action:

Moody's rates MBIA's surplus notes Aa2, downgrades hold co. to Aa3

09 Jan 2008
Moody's rates MBIA's surplus notes Aa2, downgrades hold co. to Aa3

New York, January 09, 2008 -- Moody's Investors Service has assigned a Aa2 rating to a planned $1 billion surplus note issuance by MBIA Insurance Corporation (Aaa insurance financial strength) and has downgraded the senior unsecured ratings of parent company MBIA Inc. by one notch (senior unsecured to Aa3, from Aa2). Today's rating actions follow MBIA's recent announcement regarding various financial developments and capital initiatives. The rating outlook remains negative.

Moody's said that its rating actions reflect MBIA's elevated pro forma financial leverage and the effective subordination of holding company debt and contingent preferreds of the insurer, following the introduction of operating company surplus notes into the capital structure. The rating actions, and the continuation of the negative outlook on the firm, also consider the case loss reserves, at $614 million, and credit impairment, at $200 million, in MBIA's RMBS and CDO portfolios. Moody's said that the $3.3 billion mark-to-market loss expected for the fourth quarter of the year, although significantly in excess of Moody's current estimate of expected losses for the CDS transactions of the firm, is nevertheless relevant as it affects the computation of a net worth covenant under MBIA's $500 million undrawn bank line. Moody's notes that, on January 8, MBIA amended its credit agreement to allow for surplus notes to be treated as equity rather than debt, and that it is seeking to obtain a further amendment that would exclude the effect of mark to market, net of impairments, for the purpose of the net worth covenant.

Moody's said that the combined effect of MBIA's disclosed capital plans, when fully implemented and absent further deterioration in the insured portfolio, would cover the shortfall in capital that Moody's had estimated at the time of its December 14th rating announcement on MBIA. Moody's assessment of MBIA's capital position following the execution of this plan will consider the company's updated capital adequacy, including the volatility associated with remaining mortgage exposures, in the context of the business model.

Moody's added that there are substantial business uncertainties facing the financial guarantors in light of significant losses recognized during the dislocation in credit markets in 2007 and continuing into 2008. There is the possibility of a change in demand for the service provided by these firms, not just in the structured finance area where transaction volumes will be depressed for some time to come, but also in the US municipal market. Although Moody's has reached no conclusions as to the extent of additional risk in the fundamental business model, an active review of these issues is underway and could affect the ratings of one or more financial guarantors.

The following ratings actions were taken:

MBIA Inc. -- senior unsecured debt downgraded to Aa3, from Aa2, provisional senior debt downgraded to (P) Aa3, from (P) Aa2, subordinated debt downgraded to (P) A1, from (P) Aa3, and provisional preferred stock downgraded to (P) A2, from (P) A1;

North Castle Custodial Trusts I-VIII -- contingent capital securities downgraded to Aa3, from Aa2;

MBIA Insurance Corporation -- surplus notes rating assigned at Aa2

The insurance financial strength ratings of MBIA Insurance Corporation, MBIA Insurance Corporation of Illinois, Capital Markets Assurance Corporation, MBIA UK Insurance Limited, and MBIA Assurance S.A., remain at Aaa. MBIA Mexico S.A. de C.V.'s insurance financial strength ratings remain at Aaa and Aaa.mx (national scale rating).

Established in 1974, MBIA 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 contracts.

New York
Jack Dorer
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Stanislas Rouyer
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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