Analysts anticipate little fallout from Standard & Poor's downgrade of Assured Guaranty Ltd.
S&P downgraded the bond insurer to AA-minus from AA-plus Wednesday evening, the final step in a nearly year-long process of introducing, revising and then applying new criteria for rating municipal bond insurance.
Moody's Investors Service currently rates Assured an equivalent Aa3.
"The most important thing to focus on is that they're still a double-A," said Rob Haines, senior insurance analyst at CreditSights. "They will still be able to provide some value to lower-rated small municipalities."
In 2006, Assured could insure bonds from AA to low-BBB, Haines said. The downgrade will make it difficult for Assured to gain business insuring only A-plus credits.
Assured, however, will still be able to attract business insuring bonds rated from mid-A to low-BBB, Haines said.
"If they had fallen out of the double-A, that really would have been devastating to their business," Haines said.
"It's good for the market that now the market knows what the rating is," he continued. "I think because there was some uncertainty about the rating, they lost some business. But now that there's some certainty; that should help them."
Alan Schankel, managing director of fixed-income research at Janney Capital Markets, agreed. Earlier this year, some market participants said Standard & Poor's might downgrade Assured to a single-A rating, he said. In September, S&P placed Assured on negative CreditWatch. That move and the market chatter had a negative impact on Assured's business during 2011, according to Schankel.
"I don't think [Wednesday's downgrade] will have a significant impact beyond what has already happened," he said. "The creditworthiness and business capabilities of Assured Guaranty remain strong."
The downgrade was a result of a change in S&P's criteria and not a change in Assured's business, noted Mort Sullivan of Glickenhaus & Co. "I really don't think it will affect Assured's business at all," he said. The municipalities that have used it will continue to do so, and Assured should continue to get around 5% of the muni bond market, Sullivan added.
Assured declined to comment for this story. However, shortly after the downgrade it released a statement from its president, Dominic Frederico. "This rating action is solely based on S&P's new criteria for rating financial guaranty companies, as to which we have previously registered our concerns," he said. "Despite the higher capital standards, Assured Guaranty has maintained its ratings in the AA category by continuing to execute its capital enhancement strategies."
"Further, the stable outlook assigned to our ratings reflects S&P's recognition of the quality of our insured portfolio, our underwriting discipline, risk-management capabilities and strong competitive position. Our AA-minus stable ratings result in us maintaining some of the highest S&P ratings for a company in the financial sector."
Stock investors were possibly worried about a greater downgrade than occurred. Around 11 a.m., the stock was up about 16%. At close, Assured's stock had gone up 13.4% during Thursday's trading.
