Sell Side

Fitch to Withdraw Radian Ratings

Fitch Ratings Friday said it would withdraw its ratings on Radian Group Inc., including those of the financial guarantor subsidiary, Radian Asset Assurance, in a response to Radian's request last September to have the ratings of the monoline bond insurer removed.

Fitch had rated Radian Asset A-plus, on revolving watch. Moody's Investors Service assigns a rating of Aa3, with a negative outlook, while Standard & Poor's assigns a rating of AA, on negative watch.

At the time of Radian's request, Fitch said it would continue with the rating, but in today's statement, the rating agency said it no longer had access to non-public information about Radian's portfolio, and as a result could no longer provide the ratings. This also means that Fitch will withdraw the ratings on Radian-insured bonds, and either move the rating to the underlying level or, for those without an underlying rating, leave it unrated.

"At the end of the day, without access to the information, we are no longer in a position to provide an informed opinion," said Fitch managing director Tom Abruzzo.

Fitch's capital models require a large amount of detailed information related to a bond insurer's portfolio, and without this the rating agency's abilities to analyze the company are seriously impaired, Fitch said. When Radian asked for the rating to be withdrawn last fall, the bond insurer stopped providing Fitch that information.

Fitch said it would withdraw the ratings regardless of investor interest, despite that fact that the rating firm has received many requests from investors to continue the rating, Abruzzo said.

However, the agency said it would monitor investors' reaction, and may consider changing its rating methodology if it could find a way to provide reliable ratings using only publicly available information. At the moment, there are no concrete plans, only an idea that there could be ways to cover the sector without knowledge of the bond insurers' proprietary portfolio.

"We're just looking at the feasibility of [rating bond insurers using public information]," Abruzzo said. "There are a lot of third parties that would like to see us continue to cover the sector."

Fitch's announcement has implications for the parent companies of the other two bond insurers - MBIA Insurance Corp. and CIFG Assurance NA - who in March asked Fitch to withdraw its ratings on their companies. If and when Fitch decides to withdraw its rating on those bond insurers remains to be seen.

"There would be no time frame set in stone," Abruzzo said.

Radian asked for the withdrawal of its rating roughly eight months ago. At the time, the company brought up concerns about Fitch's capital model, claiming the calculations it derives for the amount of capital required for certain ratings levels significantly diverges from that of the bond insurer or other rating agencies. Both MBIA and CIFG have brought up similar concerns.

"We feel that Fitch made the appropriate decision," said Radian Asset Assurance senior vice president and director of marketing, John DeLuca.

The last time Fitch withdrew rating on a bond insurer was in 2004, when ACA Financial Guaranty also asked for its rating to be removed.

In other bond insurance news, Security Capital Assurance Ltd., the parent of XL Capital Assurance Inc., Thursday named Adam Bergonzi as chief credit officer for the financial guarantor. Bergonzi has been at XLCA since 2006, before which he was at MBIA for about 15 years. He will replace Richard Heberton.

The company also announced that the head of origination for XL Capital Assurance, T. Wynne Morris, has left the company.

The personnel moves come at a time for XLCA when its ability to write new business or avoid going into runoff are in jeopardy. The company is rated A3 on review for possible downgrade by Moody's, A-minus on negative watch by Standard & Poor's, and BB with a negative outlook by Fitch.



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