Skip to comments.Fitch cuts financial strength rating of bond insurer MBIA to "AA" from "AAA"
Posted on 04/10/2008 2:40:26 AM PDT by TigerLikesRooster
Fitch cuts financial strength rating of bond insurer MBIA to "AA" from "AAA"
Fri Apr 4, 4:33 PM
By Stephen Bernard, The Associated Press
NEW YORK - Credit rating agency Fitch Ratings said Friday it cut the critical financial strength rating of MBIA Inc. because the bond insurer does not have enough spare capital to warrant a top-notch rating.
Fitch cut the rating to "AA" from "AAA." The downgrade could make it difficult for MBIA to book new business, as bond insurers typically need the top-tier rating to attract customers. MBIA's rating was placed on negative outlook, which is a long-term view of the company.
MBIA's reserves are between US$3.4 billion and $3.8 billion short of what is needed for Fitch to consider the bond insurer worthy of being rated "AAA," the ratings agency said in a statement.
MBIA responded to the downgrade within minutes.
"We respectfully disagree with Fitch's conclusions," Edward Chaplin, MBIA's chief financial officer, said in a statement.
In March, MBIA requested Fitch withdraw its financial strength rating on the bond insurer entirely. MBIA said it made the request because Fitch changes ratings rapidly and unexpectedly, not because of fears of a downgrade.
Fitch denied the request of the Armonk, N.Y.-based insurer, saying withdrawing the rating would disrupt already struggling credit markets by forcing some investors to sell MBIA-insured bonds. Some investors are required to hold only rated or highly rated bonds in their investment portfolios.
Rising defaults among mortgages has ratings agencies worried there will be a spike in claims payments in the coming months, as bonds backed by those mortgages are likely to default. The rise in claims would severely cut into cash reserves for some bond insurers and potentially put others out of business.
Since December, MBIA has raised about $2.6 billion to help ensure it has enough money to pay out a potential spike in claims, while still maintaining enough excess capital to warrant its current "AAA" ratings. MBIA insures almost $680 billion in bonds.
Fitch said it took into account the recent capital raising efforts when cutting the rating.
Both Moody's Investors Service and Standard & Poor's still have MBIA's financial strength rating at "AAA."
Fitch cut the financial strength rating of nearly all bond insurers in recent months, including some of MBIA's largest competitors like Ambac Financial Group Inc. and Financial Guaranty Insurance Co.
Shares of MBIA fell 59 cents, or 4.1 per cent, to $13.70 in afternoon trading.