Assured Guaranty Ltd. requested that Moody's Investors Service withdraw the rating on its Assured Guaranty Corp. subsidiary, saying it doesn't reflect a strengthening in the unit's credit.
The largest municipal bond insurer also said in a press release Friday that AGC has arranged for S&P Global Ratings to assign AGC's AA (stable) rating to certain AGC-insured bonds not previously rated by S&P. AGC underwrites guaranties on both new-issue and secondary-market U.S. municipal bonds and infrastructure transactions. Additionally, AGC underwrites guaranties for structured financings, including asset-backed securities, in the U.S. and international capital markets. Moody's has an A3 rating on AGC.
The bonds being assigned the S&P rating relate to 312 credits with publicly traded bonds insured by AGC that the unit has identified as both not already having a public AGC-insured rating from S&P and having an uninsured (underlying) public rating below Aa from Moody's or having no public underlying Moody's rating.
"Moody's assigned AGC's current rating in January 2013, and since then, the rating has failed to keep pace with the substantial strengthening of AGC, including its improved leverage, reduced risk in its insured exposure, and strong financial results," said Dominic Frederico, Assured's president and chief executive officer. "Moody's monoline rating criteria focus excessively on subjective, qualitative factors that have little or no impact on a guarantor's ability to pay claims. From September 30, 2012 to September 30, 2016, AGC's qualified statutory capital increased by 54%, while its statutory net par outstanding decreased by 41%, its leverage ratio of debt service to claims-paying resources improved from 37:1 to 21:1, and its GAAP net income totaled $1.5 billion over that period. As a result, we believe Moody's A3 rating does not accurately describe AGC's current strong and growing financial strength."
Frederico also said that because some Moody's-rated AGC transactions had not also been publicly rated by S&P, we arranged for S&P to assign our AA public rating to those bonds rated below Aa by Moody's or having no underlying Moody's rating.
Mark Palmer, an analyst at BTIG LLC, said he is surprised that Assured waited this long to make this request.
"It has been clear for some time that Moody's, in contrast to Standard & Poor's and Kroll, has viewed the company and the municipal bond insurance industry through a particularly dark lens," said Palmer. "We think the Moody's rating is unlikely to have any impact on AGC's ability to write new business going forward – the market is likely to focus on the 'AA' ratings assigned to the unit by S&P and Kroll – so it is essentially irrelevant."
Assured Guaranty received financial strength rating affirmations from S&P, Kroll Bond Rating Agency and Moody's in the third and fourth quarters of 2016. S&P affirmed AGC, Assured Guaranty Municipal Corp. and Municipal Assurance Corp. at AA stable, KBRA affirmed AGM and MAC at AA+ stable and rated AGC AA stable, and Moody's affirmed AGM at A2 stable and AGC at A3, changing AGC's outlook to stable.
A list of bonds that have newly received AGC's AA S&P rating, and associated CUSIPs, may be found here.
Additionally, the release said AGC guarantees timely payment of principal and interest on securities it insures. Its unconditional and irrevocable guaranty remains in full force and effect on all bonds AGC insures, irrespective of any rating published or not published by any rating agency. AGC is a member of the Assured Guaranty group, which has $12 billion in claims-paying resources and an investment portfolio that generates approximately $400 million of annual investment income.
Assured stated that Issuers should consult with their legal and financial advisors regarding whether the assignment of the S&P rating constitutes a rating change that should be reported under any continuing disclosure undertakings.