CIFG Holdings Ltd., the parent company for monoline bond insurer CIFG Assurance NA, late Monday asked Fitch Ratings to remove the insurer financial strength rating it holds for the financial guarantor.

In announcing the request, CIFG cited the fact that Fitch rates a minority of the transactions insured by the financial guarantor. Fitch does not formally rate any of the residential mortgage-backed securities or asset-backed security collateralized debt obligations that so worry the rating agency, and rates less than a third of the global public finance and infrastructure deals that CIFG sees as part of its strategy for growth, the bond insurer said in a statement.

The request came mere hours after Fitch downgraded the insurer to A-minus, with a negative outlook, though CIFG chief executive officer John Pizzarelli said in a statement the company had been considering the request for some time.

CIFG is now the third bond insurer to ask Fitch to withdraw its insurer financial strength rating. Earlier this year, MBIA Inc. asked the agency to remove the rating, following up on Radian Group Inc.'s request last year. To date, Fitch continues to rate both MBIA- and Radian-insured bonds.

"Fitch has been one of the more aggressive rating agencies in downgrading the bond insurers," said Evan Rourke, portfolio manager at MD Sass. "There may be a perception or the desire to foster the perception that Fitch's methodology is incorrect or they're being too aggressive."

At issue is Fitch's capital model, which often calculates capital shortfalls that are far in excess of those determined by the other rating agencies, or the bond insurer itself. On Monday, Fitch said it expects CIFG to see CDO losses of between $1.7 billion to $2.4 billion, leaving the bond insurer short of capital needed to keep a double-A rating by between $1.2 billion and $1.7 billion.

Fitch is known throughout the market for its reliance on capital levels in evaluating the ratings of the bond insurers, while both Moody's Investors Service and Standard & Poor's seem to include more subjective factors in their rating methods.

For example, Moody's said March 6 CIFG's ability to pay claims falls $500 million short of the target capital needed for a Aaa rating, while Standard & Poor's said on March 12 that CIFG had sufficient capital. On Feb. 25, Standard & Poor's said CIFG had about $2.3 billion in extra capital.

However, both rating agencies have downgraded the bond insurer, attributing it to CIFG's weakened franchise and the questionable commitment from the two French banks - Banque Populaire Group and Caisse d'Epargne Group - that serve as majority owner. Both rating agencies have also noted CIFG's above-average exposure to residential mortgage backed securities and ABS CDOs.

Moody's rates CIFG A1, with a stable outlook, and Standard & Poor's assigns a rating of A-plus, with a negative outlook.

"While the company continues to work with Moody's and S&P to address their concerns to upgrade its ratings as soon as possible, CIFG believes achieving higher ratings with Fitch would be impeded by the limitations of that agency's approach to rating financial guaranty companies," Pizzarelli's statement said.

Despite the view of many market participants that the Fitch model is in fact different, the company's rating continues to influence how investors look at bonds guaranteed by certain insurers.

"It does have an impact," Rourke said. "I think that's why the bond insurers are saying we disagree with your methodology."

A spokesman for Fitch declined to comment.

 

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