Standard & Poor’s Monday dropped MBIA Insurance Corp. to junk status, lowering the insurer’s credit rating to BB-plus from BBB. The outlook is negative.
The rating agency also lowered MBIA’s counterparty credit rating on MBIA Inc., the group holding company, to BB-minus from BB.
At the same time, Standard & Poor’s affirmed its A rating on National Public Finance Guarantee Corp., an affiliate of MBIA. National’s outlook is developing.
“We downgraded MBIA and the holding company because macroeconomic conditions continue to contribute to losses on the group’s structured finance products,” credit analyst Damien Magarelli said in a press release.
Standard & Poor’s affirmed National’s rating because it is not exposed to structured products. Standard & Poor’s said its rating on National reflects the agency’s view of National’s uncertain business and capital-raising prospects.
“Management’s stated goals are to raise additional capital to bolster National’s current resources and effectively ring-fence National from MBIA and its more volatile book of business,” according to Standard & Poor’s.
“The ring-fencing actions it has taken so far have had limited impact in that we view National as no more or less ring-fenced than any typical bond insurance subsidiary operating in a consolidated group,” the agency said. “In addition, the legal challenges the company faces as a result of its restructuring are, in our opinion, an impediment to both business prospects and capital-raising efforts.”
While the outlook on National is developing, Standard & Poor’s said it “could raise the rating if there is a favourable resolution of current litigation, which in turn could facilitate capital-raising efforts and lead to more tangible separation of National from MBIA and MBIA Inc.”
“Improving business acceptance could be an outgrowth of these developments, which could lead to a rating in the AA category,” the agency said. “Alternatively, an ongoing lack of market acceptance and continued weak financial flexibility could result in a downgrade to the BBB category.”