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20 May 2009
New York, May 20, 2009 -- Moody's Investors Service has placed the Aa3 insurance financial strength
ratings of Financial Security Assurance Inc. (FSA) and its affiliated
insurance operating companies on review for possible downgrade.
In the same rating action, Moody's also placed the senior unsecured
rating of parent company, Financial Security Assurance Holdings
Ltd. (A3-rated) on review for possible downgrade.
Today's rating action reflects Moody's growing concerns about FSA's business
and financial profile as a result of further deterioration in the firm's
US mortgage portfolio and the related adverse effect on its capital adequacy,
profitability, and market traction.
Today's rating action has implications for the various transactions wrapped
by FSA as discussed later in this press release.
Moody's has taken a more negative view of FSA's mortgage-related
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 FSA'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.
FSA has historically been one of the leading financial guarantors in both
municipal and structured finance markets, said Moody's.
FSA's conservative underwriting strategy has resulted in a generally
high quality and diversified insurance portfolio beyond its mortgage-related
exposures. Dexia's support of its financial guaranty subsidiary,
through capital infusions and backing of FSA's asset management
business, have helped FSA maintain a strong credit profile relative
to other guarantors, said Moody's. Most non-mortgage
exposures are still adequately performing and the firm has substantial
liquidity to pay claims, although the insured portfolio is exposed
to transaction or sector deterioration, especially in light of difficult
COMMENTS ON THE PENDING ACQUISITION BY ASSURED GUARANTY
The rating agency noted that Dexia recently announced that the sale of
its FSA subsidiary is on track and that it expects the transaction to
close by June 30, 2009. Dexia, with support from the
Belgian and French governments, is finalizing contractual arrangements
which Moody's expects will largely insulate FSA from consequential
risk of its historical asset management platform including the GIC and
Global Funding businesses.
SCOPE OF THE REVIEW
Moody's said that, as part of the review of the guarantor's
credit profile, it will refine its assessment of FSA's insured portfolio,
with an emphasis on factors that could affect the ultimate RMBS losses
to FSA, including recent performance trends, remaining economic
uncertainties, and loss mitigation activities. Moody's will
also evaluate the company's business and franchise sensitivity to weaker
capital adequacy and core profitability. In addition, the
review will consider any capital remediation plans that FSA might pursue
and the likely strategic direction of the firm given the changing dynamics
within the industry and the potential effects of its planned acquisition
by Assured Guaranty.
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 rating action, the Moody's-rated securities
that are guaranteed or "wrapped" by FSA are also placed under review for
possible downgrade, except those with equal or higher published
underlying ratings (and for structured finance securities, except
those with equal or higher published or unpublished underlying ratings).
A list of these securities will be made available under "Ratings Lists"
The following ratings have been placed under review for possible downgrade:
Financial Security Assurance Inc. -- 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 November 21, 2008 when Moody's downgraded
the insurance financial strength rating of Financial Security Assurance
Inc. to Aa3, from Aaa.
The principal methodology used in rating FSA is 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 the company can also be found in the Credit Policy & Methodologies
OVERVIEW OF FSA
Financial Security Assurance, Inc. is the main operating
company of Financial Security Assurance Holdings Ltd. and the parent
of other wholly-owned financial guaranty insurers in a stacked
structure. FSA Holdings is a currently a subsidiary of Dexia Credit
Local (senior debt at A1, BFSR at D+, negative outlook),
which is the largest operating company within the Dexia Banking Group.
Senior Vice President
Financial Institutions Group
Moody's Investors Service
Moody's reviews Financial Security Assurance ratings for possible downgrade
Senior Vice President
Financial Institutions Group
Moody's Investors Service
No Related Data.
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