Fitch Ratings yesterday downgraded XL Capital Assurance Inc. to CCC from BB one day after the bond insurer's parent, Security Capital Assurance Ltd., announced agreements with XL Capital Ltd. and Merrill Lynch & Co., that will enhance its solvency thanks to a capital infusion and the termination of credit default swaps and other policies. Fitch placed the rating on evolving watch.

Fitch based its decision on the announcement XLCA will report negative statutory capital as of June 30 and uncertainty about the execution of the agreements. Fitch said a separate set of "post-settlement" ratings of XLCA and XL Financial Assurance Inc. - the other SCA subsidiary which was also downgraded to CCC - could improve significantly once the deals are closed.

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