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Rating Action:

Moody's upgrades CIFG to Ba3 following company's restructuring

22 Jan 2009

New York, January 22, 2009 -- Moody's Investors Service has upgraded the insurance financial strength ratings of CIFG Guaranty, CIFG Europe, and CIFG Assurance North America, Inc (collectively CIFG) to Ba3, from B3. Today's rating action reflects the strengthened capital adequacy profile of CIFG following its restructuring and the commutation of substantially all of its ABS CDO risks. The rating outlook is developing.

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 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at the investment grade level), or b) the published underlying rating (and for structured securities, the published or unpublished underlying rating). In accordance with rating agency policy, following Moody's May 20, 2008 rating action on CIFG which lowered its rating to below the investment grade level, Moody's withdrew ratings on CIFG wrapped securities for which there was no published underlying rating. Should the guarantor's rating subsequently move back into the investment grade range, or should the agency subsequently publish the associated underlying rating (for non-structured securities), Moody's would reinstate previously withdrawn ratings on those wrapped instruments. For wrapped structured finance securities, as announced on November 10, 2008, Moody's is in the process of reinstating previously withdrawn ratings by looking to the current underlying rating on the security, regardless of whether the underlying rating is published or not. For further information, please see 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".

The commutation agreement that closed today between CIFG, its shareholders, and its CDS counterparties resulted in the termination of substantially all of CIFG's ABS CDO exposures (totaling approximately $12 billion in notional principal,) in exchange for cash and an ownership stake in the CIFG group. The roughly $1.3 billion cash payment from CIFG to its CDS counterparties is considerably lower than CIFG's reserves on these exposures, freeing up claims paying resources, and restoring the firm's regulatory capital position above minimum levels.

In addition to the commutation agreement with its CDS counterparties, CIFG has ceded approximately $13 billion in municipal exposure (representing most of its US municipal book) to Aa2-rated Assured Guaranty Corp. Following these transactions, CIFG's remaining insured portfolio totals roughly $60 billion, and includes approximately $40 billion in CDO exposure and $3 billion in US RMBS risk. Moody's believes that CIFG now has claims paying resources that exceed expected losses in its retained portfolio.

The CDS counterparties' ownership stake in CIFG approximates 90% in aggregate, with Caisse Nationale des Caisses d'Epargne Prévoyance (rated Aa3/P-1/C+) and Banque Federale des Banques Populaires (rated Aa3/P-1/C+) retaining about 5% each.

According to Moody's, the terms of the CDO commutation may have some elements that are typically associated with a distressed exchange, though such a determination is ultimately a matter of judgment.

Moody's said that CIFG's Ba3 rating and developing outlook reflect a capital adequacy profile that is broadly consistent with a low investment grade score, recognizing, however, that the insurance portfolio remains exposed to substantial performance volatility in light of its concentrated exposure to structured assets and stressed mortgage risks, some of which are quite large relative to capital. There is also some uncertainty with respect to CIFG's operational plans over the medium term given the guarantor's limited strategic relevance to its new and diverse ownership group, added Moody's.

The last rating action was on October 28, 2008 when the ratings of CIFG were downgraded from Ba2 to B3 and placed under review with direction uncertain.

The principal methodology used in rating CIFG 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 process of rating CIFG can also be found in the Credit Policy & Methodologies directory.

LIST OF RATING ACTIONS

The following ratings have been upgraded with a developing outlook:

CIFG Guaranty -- insurance financial strength to Ba3, from B3;

CIFG Europe -- insurance financial strength to Ba3, from B3; and

CIFG Assurance North America, Inc. -- insurance financial strength to Ba3, from B3.

OVERVIEW OF CIFG

Established in 2001, CIFG provided financial guarantees to issuers in the municipal and structured finance markets in the US and Europe through CIFG Assurance North America, Inc. and CIFG Europe, though it ceased writing new business in 2008.

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

Moody's upgrades CIFG to Ba3 following company's restructuring
No Related Data.
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