NEW YORK - Standard & Poor’s Wednesday downgraded bond insurer Ambac Assurance Corp. to BBB from A, saying it believes the company is “effectively in runoff.” The rating is on negative watch.
Ambac last week announced it was postponing its efforts to start muni-only insurer Everspan Financial Guaranty Corp. The company cited difficulties raising the third-party capital it needed to achieve sufficient ratings to launch the insurer.
“The downgrade stems from our view that Ambac is effectively in runoff,” Standard & Poor’s said. “We also lowered the ratings because of our belief that the likelihood of the company continuing as an operating entity capable of writing new business has decreased significantly.”
A spokesman from Ambac said the company would not be commenting on the downgrade.
Ambac’s ratings will be no higher than BBB as a company in runoff, Standard & Poor’s said. The rating agency could make further downgrades if it determines the insurer’s capital position has weakaned after reviewing its insured portfolio.
Standard & Poor’s said Ambac’s portfolio “could become concentrated and lack sufficient sector diversity” as it runs off. It also has exposure to 2005 through 2007 vintage direct residential mortgage-backed securities and collateralized debt obligations of asset-backed securities that could “erode capital adequacy.”
Further, parent Ambac Financial Group Inc.’s debt service needs “might also place pressure on capital adequacy.”