New York, May 20, 2009 -- Moody's Investors Service has placed under review for possible downgrade
the Aa2 insurance financial strength rating of Assured Guaranty Corp.,
as well as the ratings of other entities within the Assured group.
Today's rating action reflects Moody's view that despite recent
improvements in the company's market position, the expected
performance of the insured portfolio -- particularly the mortgage-related
risks -- has substantially worsened.
Today's rating action has implications for the various transactions wrapped
by Assured as discussed later in this press release.
Moody's has taken a more negative view of Assured's mortgage-related
exposures -- and also its pooled corporate exposures -- in light
of worse-than-expected performance trends, and recognizing
the continued susceptibility of the insured portfolio to the weak economic
environment. This has a direct, negative impact on Moody's
assessment of the company's risk-adjusted capitalization.
The deterioration in Assured's insured portfolio is of further concern
because it could have negative implications for the financial guarantor's
franchise value, profitability and financial flexibility given the
likely sensitivity of those business attributes to its capital position.
Moody's also notes that the market dislocation caused by declining financial
strength of financial guaranty insurers may alter the competitive dynamics
of the industry by encouraging the entry of new participants or the growth
of alternative forms of execution.
Over the past two years, Assured has become a leading municipal
bond insurance underwriter. Although the overall use of financial
guaranty insurance among municipal issuers has substantially declined,
Assured was the leading bond insurer in the first quarter of 2009.
Moody's said that Assured's conservative underwriting strategy and expansion
into the municipal market have resulted in a generally high-quality
and diversified insured portfolio beyond the firm's mortgage-related
exposures. However, Assured's increased expected future
earnings stream from higher public finance volumes is not considered sufficient
to offset the deterioration in its insured portfolio resulting from the
weak economy. The company's exposure to structured finance transactions
and to single risk concentrations continue to be a concern as the economy
has deteriorated. Individually large structured finance exposures
could further pressure Assured's capital position if a few of these transactions
were to sustain meaningful losses.
COMMENTS ON THE PENDING ACQUISITION OF FSA
Recently, Assured announced that it has received all the required
regulatory approvals for the pending acquisition of FSA and that the transaction
is anticipated to close during 2Q2009. It is Moody's understanding
that the transaction is proceeding according to plan, including
the finalization of contractual arrangements which we expect to largely
insulate Assured from consequential risk of FSA's asset management platform
including the GIC and Global Funding businesses. Moody's believes
that an acquisition of FSA by Assured Guaranty would not, in and
of itself, have negative rating implications for Assured,
though actual rating implications would depend on the specifics of such
an integration and the combined business strategy of the group.
SCOPE OF THE REVIEW
Moody's said that the review of ratings will consider Assured's
weakened risk-adjusted capital adequacy position, the effect
of any capital remediation efforts, and the pending transaction
on the financial guarantor's business and financial profile. During
the review Moody's will be refining its assessment of the RMBS and
pooled corporate risks to reflect the impact of recent performance trends,
structural features, and loss mitigation activities on Assured's
expected and stress loss estimates in an uncertain economic environment.
Moody's will also consider Assured's evolving views on the
business strategy contemplated for the combined companies.
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 this review, the Moody's-rated securities
that are guaranteed or "wrapped" by Assured are also placed under review
for possible downgrade, except those with higher public underlying
ratings (and for structured securities, the published or unpublished
underlying rating). A list of these securities will be made available
under "Ratings Lists" at www.moodys.com/guarantors.
The following ratings have been placed on review for possible downgrade:
Assured Guaranty Corp. -- insurance financial strength
rating at Aa2;
Assured Guaranty (UK) Ltd. -- insurance financial
strength at Aa2;
Assured Guaranty Re Ltd. -- insurance financial strength
Assured Guaranty Re Overseas Ltd. -- insurance financial
strength at Aa3;
Assured Guaranty Mortgage Insurance Company -- insurance
financial strength at Aa3;
Assured Guaranty US Holdings Inc. -- senior unsecured
at A2, junior subordinated debt at A3, provisional senior
unsecured at (P)A2, provisional subordinated debt at (P)A3;
Assured Guaranty Ltd. (Bermuda) -- issuer rating
at A2, provisional senior unsecured at (P)A2, provisional
subordinated debt at (P)A3, provisional preferred at (P)Baa1;
Assured Guaranty Capital Trusts I and II -- provisional
preferred at (P)A3;
Woodbourne Capital Trusts I, II, III, and IV --
contingent capital securities at A1.
The last rating action was on November 21, 2008 when Moody's
downgraded the insurance financial strength rating of Assured Guaranty
Corp. to Aa2, from Aaa.
The principal methodology used in rating Assured Guaranty 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.
OVERVIEW OF ASSURED GUARANTY
Assured Guaranty Corp. is a financial guaranty insurance company
based in New York. At March 31, 2009, the company had
net par exposure of $120.4 billion and qualified statutory
capital of $1.1 billion. Assured Guaranty Corp.
is a wholly owned subsidiary of Assured Guaranty US Holdings Inc.
Assured Guaranty Re Ltd. is a Bermuda based financial guaranty
reinsurance company with net par exposure of $116.7 billion
as of March 31, 2009. Assured Guaranty Re and Assured Guaranty
US Holdings Inc. are wholly owned by Assured Guaranty Ltd.
[NYSE:AGO], a Bermuda-based holding company.
As of March 31, 2009, Assured Guaranty Ltd. had total
assets of $5.6 billion and $2.0 billion in
GAAP shareholder's equity.
Senior Vice President
Financial Institutions Group
Moody's Investors Service
Moody's reviews Assured Guaranty ratings for possible downgrade
Senior Vice President
Financial Institutions Group
Moody's Investors Service