MBIA and Ambac Financial Group Protest S&P Downgrade to AA

Both MBIA Inc. and Ambac Financial Group Inc. blamed what they believe to be changing ratings standards for Standard & Poor's downgrade last week to AA of the companies' bond insurance units.

Ambac cited Standard & Poor's March decision to remove insurance subsidiary Ambac Assurance Corp. from CreditWatch negative as part of the reason for its "frustration."

"We disagree with and are disappointed by the actions taken by S&P," Ambac Financial said in a statement.

In March, Standard & Poor's affirmed Ambac's triple-A rating, citing $1.5 billion in capital raised by the guarantor and a "six-month moratorium on new structured finance business production." But it still held a negative outlook because of worries about the residential mortgage market. Standard & Poor's took similar action on MBIA Insurance Corp.'s rating in February.

Ambac said Standard & Poor's previous decision conflicts with its recent downgrade of the insurers based on concerns about their financial flexibility, business prospects, and the residential mortgage market. Standard & Poor's action followed Moody's Investors Service move Wednesday to put both insurers on review for possible ratings downgrades for similar reasons.

"S&P stated ... that it is no longer basing our rating on our claims paying ability, but rather on the diminished flow of new public finance and structured finance business we are experiencing," Ambac said.

The turmoil has both Ambac and MBIA prepared to launch new insurance subsidiaries. MBIA may speed up its efforts to start a muni-only insurer with $900 million it holds in capital, its chairman and chief executive Jay Brown said Wednesday. Ambac is accelerating its own plan to start a triple-A rated financial guarantor using subsidiary Connie Lee, it said.

Both companies said they will work with Standard & Poor's and other ratings agencies as they consider their options.

"Despite the difficulty in managing to changing and uncertain rating agency standards, we remain confident of our capitalization, liquidity and future prospects," Brown said in a statement.

Said Ambac: "We are in the midst of the most challenging market environment in our 37-year history, and we are fully focused on stabilizing our business and regaining our market position."

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