Sell Side

S&P Lowers CIFG Financial Strength to B

Standard & Poor's Friday downgraded its financial strength rating on CIFG Assurance NA to B from A-minus, citing "delays" in the company's restructuring plan and "slow progress" in the insurer's attempts to settle with the counterparties on its structured finance exposures.

Standard & Poor's also moved the rating to CreditWatch developing from CreditWatch negative. The rating revision also applied to CIFG Guaranty and CIFG Europe.

"If management is not successful in its negotiations to develop strategic alternatives for problematic credits in its insured portfolio, we believe the impaired financial position of the company could lead to regulatory intervention, in which case the rating could be further lowered," Standard & Poor's said in a statement. "If management is successful in its negotiations and presents a viable business strategy for the company, the rating could be revised upward."

CIFG was one of the bond insurers hit hardest by its structured finance exposure. New York insurance commissioner Eric Dinallo said last month the company, along with Financial Guaranty Insurance Co., is in a binary situation - it must either settle with counterparties on collateralized debt obligation exposures or face regulatory takeover. The New York State Insurance Department last Thursday said it is still working with CIFG and its counterparties to come to these agreements.

CIFG is rated Ba2 by Moody's Investors Service and triple-C by Fitch Ratings. As a result of its downgrades, CIFG has written just seven deals with a par value of $38.1 million this year.

Other insurers have already made deals to commute their structured finance exposures. Syncora Holdings Ltd. recently paid Merrill Lynch & Co. $500 million to terminate eight credit-default swaps. Ambac Financial Group Inc. recently paid Citi $850 million to settle on a $1.4 billion CDO-squared transaction.

In addition, ACA Financial Guaranty Corp. earlier this month entered into a global agreement with 29 counterparties to terminate credit protection on $65 billion worth of exposure for $209 million and almost $1 billion of surplus notes.


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