Fitch Downgrades Assured Guaranty to AA; On Evolving Watch

20090504feiozl7z-1-050509insure.jpg

Fitch Ratings Monday night downgraded Assured Guaranty Corp. to AA, leaving the bond insurer with just one remaining triple-A rating. The rating is evolving.

Fitch attributed the downgrade in part to Assured’s structured finance exposures.

“Assured Guaranty Ltd. continues to face negative credit migration within the combined insured portfolio, primarily related to structured finance, outpacing the company’s ability to build capital resources through earnings retention,” Fitch said.

Fitch cited Assured’s $18.4 billion of net par in force of mortgage-related exposures as “a particular area of concern”. Assured Guaranty Corp. also has exposure to $7.3 billion of trust preferred securities collateralized debt obligations and other structured finance products that have been downgraded which has “created pressure upon the company’s capital position vis-à-vis its current ratings level.”

In a response, Assured noted that it has yet to pay any claims on two of the portfolios on which Fitch assumed increases of potential losses and that the impact on capital from any losses would be “far in the future, if at all.”

“While we appreciate that the ultimate performance of our U.S. RMBS and TruPs exposures is uncertain, we believe that more time is necessary to allow our collateral performance to develop and also to see the potential benefit of the federal programs that could affect the future performance of our insured transactions,” Assured Guaranty Ltd. president and chief executive officer president Dominic Frederico said in a statement.

Later adding: “We believe that investors and the financial markets would be better served by a more measured approach to analyzing our portfolio that is based on actual performance data and includes the effect of the new federal programs and the future stabilization of the economy rather than by Fitch’s rating action today.”

Fitch noted that if Assured’s acquisition of Financial Security Assurance Holdings Ltd. is properly structured, it will be viewed as positive. It also said the Assured Guaranty Ltd. is taking steps “where possible, to raise capital, de-risk the insured portfolio and reduce its exposure to ratings-based collateralization and termination triggers which could result in a further call on financial resources.”

“In resolving the evolving rating watch, Fitch will continue to monitor credit developments in the insured portfolio, any efforts undertaken by AGL to enhance its overall capital and risk position, as well as the progress of the company’s planned FSA acquisition and its implications with respect to franchise strength and capital,” Fitch said. “Fitch also notes that it continues to consider overall developments in the markets for financial guaranty insurance, which remains highly fluid.”

The rating action is not directly related to the FSA acquisition, Fitch said.

Assured had stood out among bond insurers because it largely avoided the collateralized debt obligations of asset-backed securities that have led to billions in losses at its competitors. It also stayed out of the guaranteed investment contracts business that has troubled some bond insurers.

Assured, rated Aa2 by Moody’s Investors Service and triple-A by Standard & Poor’s, used that position to dominate the market the bond insurance market. It wrapped 434 issues with a par value of $9.3 billion in the first quarter of 2009, according to Thomson Reuters.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER