Standard & Poor's Wednesday lowered FGIC Corp.'s counterparty credit rating and senior unsecured notes to CCC with a negative outlook from B, while keeping the BB financial strength rating of Financial Guaranty Insurance Co. on negative watch.

FGIC Corp. has said it has enough cash to funds its obligations for the next year, but the insurance subsidiary can't pay dividends without the approval of the New York Insurance Department, Standard & Poor's said.

The insurance subsidiary faces a number of financial stresses and its "capital position is fragile," Standard & Poor's said. FGIC's capital position could worsen due to further losses on exposures to collateralized debt obligations on asset-backed securities and non-prime residential mortgage backed exposures.

Standard & Poor's also cited FGIC's $1.2 billion exposure to Jefferson County, Ala., sewer revenue bonds. FGIC, Syncora Guarantee Inc., and bond trustee Bank of New York Mellon Tuesday filed an emergency motion U.S. District Court asking the judge to appoint a receiver.

In addition, Standard & Poor's questioned the "economic benefit" of FGIC's recent deal to have MBIA Inc. reinsure $184 billion of its public finance portfolio, noting that management's "near-term objective is to bolster statutory surplus to avoid regulatory intervention." New York Insurance Department officials have said FGIC likely would have faced insolvency without the deal.

FGIC's insurer financial strength could fall further if the deal is not completed, Standard & Poor's said.

Management has said it planned to finish the deal by the end of the month, but documents FGIC submitted said the closing was contingent on an MBIA Insurance Co. insurer financial strength rating of A2 with a negative outlook or better from Moody's Investors Service and AA or better by Standard & Poor's. Moody's last week put the ratings of MBIA Insurance Co. and Ambac Assurance Corp. on review for downgrade.

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