Moody's Investors Service upgraded MBIA's National Public Finance Guarantee to A3, from Baa1, leaving the municipal bond insurer three notches below Standard & Poor's AA-minus rating, and five below Kroll Bond Ratings' AA-plus score.
National's rating, which is one notch below Assured Guaranty's A2 rating, in part reflects the agency's concern over the insurer's legacy portfolio of below investment grade bonds, including $4.1 billion of exposure to Puerto Rico, Moody's said.
"When you look at National itself, clearly there is strong capitalization and earnings," Stanislas Rouyer, associate managing director at Moody's, said in an interview. "But if you look beyond that, the fact is, it's part of an entity that is still weak and trying to reenter a bond insurance market that hasn't yet recovered from the crisis."
MBIA has been positioning itself to begin writing business since May 2013, when the company reached settlements with Bank of America and Societe Generale for more than $2 billion, National's chief executive officer, Bill Fallon, told The Bond Buyer last month.
"We're pleased that Moody's has recognized the improvement in National's credit profile,"
Fallon said in a press release Thursday. "The upgrade provides immediate benefits to holders of National-insured bonds and, together with recently announced ratings from Standard and Poor's and Kroll Ratings in the double-A range, puts National in a strong position to resume new business activities and serve the credit enhancement needs of the U.S. public finance market."
Fallon also said he believes the industry standard rating is now a AA-range score from Standard & Poor's, which the company received on March 18.
"Whereas in the old days it was a triple-A rating from two rating agencies, it appears nowadays that it's a double-A rating by S&P that's the requirement to do business," Fallon said.
Below investment grade credits comprise 2.7% of National's insured book and 220% of its qualified statutory capital, Moody's said in the research note, released late Wednesday.
The A3 rating, which came in tandem with an upgrade on MBIA to B2 from B3, reflects the insurer's improving prospects for generating new business, Moody's said.
"When you look in the context of our ratings on insurance companies, it's a pretty good rating," Rouyer said. "We see some improvements post-settlements."
Bond insurance penetration climbed to above 5% in the first quarter of this year, but the battle remains a steep one for new and returning insurers, Rouyer said.
"From what we've seen for the other players, it takes time to grow market participation," Rouyer said. "We've seen some improvements after two years at the bottom, but is that enough for an industry with three entities writing business?"
