Moody's Investors Service yesterday downgraded to Caa3 from Caa1 Financial Guaranty Insurance Co. The outlook is negative.

The rating agency cited reasons such as the losses from the firm's "substantial" structured finance exposure for the downgrade.

"Today's rating action reflects Moody's expectation of higher mortgage-related losses arising from FGIC's insured portfolio, insufficient claims paying resources to cover Moody's estimate of expected loss, and the constrained liquidity and financial flexibility of the holding company," Moody's said.

At the same time, Moody's also yesterday withdrew its ratings on FGIC citing "business reasons." For non-structured securities, ratings on securities wrapped by FGIC will be maintained at the published underlying rating, if there is one, or withdrawn.

MBIA Insurance Corp. last year agreed to provide cut-through reinsurance on $166 million of FGIC's public finance book. The obligations are now part of the public finance book that MBIA Insurance Corp. of Illinois has taken over as part of MBIA's restructuring.

But Moody's in October said it would not assign MBIA's rating to FGIC credits that it had reinsured.

FGIC had once been one of the top three municipal bond insurers, but like many of its competitors, it has suffered from losses due to structured finance exposures.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.