Standard & Poor's Ratings Services said it has raised its financial strength rating on National Public Finance Guarantee Corp. (National) to A from BBB and removed it from CreditWatch, where it was placed it with positive implications on May 8.
At the same time, S&P raised the counterparty credit rating on MBIA Inc. to BBB from B-minus and removed it from CreditWatch, where we placed it with positive implications on May 8. The outlook on both companies is stable.
"The rating on National reflects our view that MBIA Corp. no longer acts as an anchor on the National rating following the settlement with Société Générale that ends litigation challenging National's split from MBIA Corp. in 2009," said Standard & Poor's credit analyst David Veno. "It also reflects the company's stable and strong earnings and low potential for stressed losses given the risk profile of the insured portfolio. Minimal volatility in the insured portfolio reflects a history of strong underwriting. Prospectively, National compares favorably with competitors as a result of its distribution channels, customer relationships, and management's underwriting expertise. The company's current inactive state is an offsetting factor--since it's not writing new business. In addition, its liquidity is weakened by low cash-flow generation that depends predominantly on investment income."
The rating on MBIA Inc. reflects the view that National is its principal source of debt-servicing and holding company expense needs, and follows standard holding company notching criteria. S&P expects MBIA Inc.'s cash and short-term investments to cover these obligations through 2014--an important factor for the rating. The continued estimated tax escrow release in January 2014 and 2015 related to the tax-sharing agreement and National's expected ability to pay dividends also support MBIA Inc.'s liquidity.
The outlook on National is stable based on the expectation that the company could begin writing business, gain market acceptance, and show favorable competitive characteristics. S&P expects National's operating performance to remain a rating strength as it writes new business and historic underwriting standards are maintained. The agency expects the company to invest proceeds from the repayment of the intercompany loan in liquid assets, improving its investment portfolio diversification. If the company does not meet the expectations, the rater could lower the rating, or if it exhibits sustainable competitive advantages, it could raise the rating.
"The stable outlook on MBIA Inc. reflects our view that the company's liquidity is adequate to meet its debt-servicing and holding company expenses," Veno continued. "It also reflects our view that the company will continue to benefit from the estimated tax escrow releases in 2014 and 2015 related to the tax-sharing agreement. We also expect that National will be able to upstream dividends beginning in 2013."