National Public Finance Guarantee, the municipal bond insurer, was downgraded to BBB from A with a developing outlook. MBIA Insurance Corp. was downgraded to B from BB-plus, with a negative outlook.
Standard & Poor’s cited as its rational changes to its methodology for assessing structured finance products, including RMBS and collateralized debt obligations.
NPFG has no exposure to these products, but Standard & Poor’s said there is a risk the municipal bond portfolio will be merged with the structured finance portfolio if MBIA loses a legal case challenging the division of the two portfolios.
NPFG was created in February 2009 when the holding company initiated a major restructuring. The decision was approved by its regulator, the New York Insurance Department, but is being contested by certain policyholders.
“As long as that litigation is unresolved, we believe there is a risk that the two companies could be required to be recombined or that National would be required to bolster MBIA Insurance’s capital,” wrote Standard & Poor’s analyst Dick Smith.
A stand-alone assessment of NPFG would meet Standard & Poor’s A-plus standard, including a AA rating for capital adequacy, Smith wrote. But until litigation is resolved, the muni insurer’s rating will not be more than two notches above the MBIA Insurance rating.
MBIA Insurance, the structured-finance insurer, was downgraded because of new loss projections that are now higher than before because of a revised methodology.
“Stress-case loss projections do not reflect the losses we expect to occur but rather reflect our view of potential losses in a stressed environment,” Smith wrote.
Standard & Poor’s also slashed the holding company to B-minus from BB-minus with a negative outlook. The rating agency said the holding company’s liquidity is currently strong, but said its access to cash flow from subsidiaries is constrained.
A spokesman from MBIA released a note saying the company was confident its ratings will increase once it prevails in ongoing litigation.
“The rating action on National was driven by the rating of MBIA Insurance Corp. rather than any material negative change at National itself,” the statement said. “National’s current capitalization is consistent with a double-A rating, and we expect that strength to ultimately be reflected in its actual rating. We continue to believe — and S&P’s ratings confirm — that MBIA Insurance Corp. and MBIA Inc. have adequate resources to meet their respective financial commitments.”
