NEW YORK - Moody’s Investors Service is warning that it may downgrade Assured Guaranty Corp., Assured Guaranty Municipal Corp. and all affiliated insurance operating companies, an action that might make it difficult for the bond insurer to attract new business.
Moody’s has had a negative outlook on its Aa3 ratings of AGM and AGC since December 2009. On Tuesday evening, Moody’s announced that it had placed the ratings on review for downgrade.
Negative outlooks indicate that the rating might be downgraded within 12 to 18 months. Moody’s usually resolves reviews for downgrades or upgrades within 90 days, according to a Moody’s source.
“Today’s rating action reflects Moody’s opinion that Assured Guaranty’s business and financial profiles may have meaningfully deteriorated due to the firm’s narrower opportunities and substantial exposure to sectors adversely affected by the financial crisis and current economic stress,” said Moody’s associate managing director Stanislas Rouyer.
Moody’s pointed to three factors as being key to its ratings review.
First, “constrained business opportunities reflecting lower origination volume and reduced demand for financial guaranty insurance across sectors.”
Second, “continued economic stress in the U.S. (e.g. mortgage and municipal finance) and in Europe resulting in an elevated portion of Assured Guaranty’s portfolio in risks assessed as below investment-grade.”
Third, “pressure on new business margins due to low interest rates and tight credit spreads.”
Moody’s also announced that its ratings on bonds wrapped by the firms are also being placed on review for possible downgrade, except those with equal or higher published underlying ratings.
Similarly, Moody’s has placed on review for downgrade various companies associated with those two firms, such as Assured Guaranty (UK) Ltd. and AGM Guaranty (Bermuda) Ltd.
On Nov. 30, Standard & Poor’s downgraded Assured Guaranty Ltd. to AA-minus from AA-plus. It has a stable outlook on this new rating.
Dominic Frederico, president of Assured Guaranty Ltd, responded to Moody’s action by writing in an announcement: “In light of our improved financial strength over the last two years, Moody’s action was unjustified and unwarranted. Assured Guaranty has not just, as Moody’s writes, 'survived’ the financial crisis but has demonstrated its resiliency, resourcefulness and financial strength…. Our claims-paying resources to protect policyholders have grown from $11.2 billion in 2007 to over $12.8 billion today.”
Some analysts have said that lowering Assured Guaranty below double-A would greatly damage its business of insuring municipal bonds. Any downgrade by Moody’s from the current Aa3 rating would push Assured Guaranty below the double-A level.
Assured Guaranty is the last muni bond insurer that is still actively offering new bond insurance. While insurers backed 57% of the new-issue municipal market in 2005, Assured, as the last remaining active insurer, guaranteed just 5.2% of the market in 2011.
