CHICAGO - Standard & Poor's yesterday shifted its short-term ratings assigned to variable-rate demand bonds that carry insurance from Financial Guaranty Insurance Co. to NR - for not rated - to reflect the risks borrowers now face that their liquidity providers can withdraw coverage because of FGIC's junk-bond rating.

The rating agency on its Web site listed roughly 180 variable-rate issues impacted by its downgrade of FGIC last month. If borrowers have taken steps to restructure their original bond structures to amend the standby purchase agreement that is triggered as a result of a failed remarketing or optional tender, Standard & Poor's said it would leave the short-term ratings in place.

The restructuring options include amending or eliminating the events of default that allow a liquidity provider to terminate its policy or entering into a new agreement that sheds the FGIC coverage.

The clarification of the rating agency's policy follows its downgrade on March 28 of FGIC to the below-investment grade credit of BB. It is the only former triple-A monoline insurer Standard & Poor's has downgraded to below investment grade.

The majority of SBPAs attached to variable-rate bond issues include default provisions that allow the bank that provides the coverage to terminate its commitment often at any time and without further notice if the insurer on the issue falls to junk status.

"It's no longer a dependable source for liquidity," said Standard & Poor's analyst Jeffrey Previdi. The majority of the 180 have not yet moved to restructure their bonds to eliminate the risk to their liquidity facilities, Previdi said.

Many of the bonds are currently being held by the bank that provided the liquidity and repayment terms vary depending on the individual agreements, he added. The agency did not act sooner to shift to NR status as analysts were reviewing the individual deals to determine whether they had been restructured.

On bond issues that carry a long-term underlying credit rating, Standard & Poor's will rate the credit at which ever - the spur or the insurance backing - is higher. Issues that do not currently carry a long-term underlying rating will no longer carry either a long-term rating based on FGIC or a short-term rating.

FGIC's outlook remains negative. Fitch Ratings rates the company BBB with a negative outlook. Moody's Investors Service rates the company Baa3 on review for possible downgrade.

"In our opinion, FGIC has been slow to identify the unfavorable insured portfolio trends that have emerged and has failed to implement a strategic plan to re-establish itself as a viable operating entity capable of writing new business," Standard & Poor's wrote last month.

FGIC has stopped taking on new business due to limited liquidity. The insurer reported a net loss of $1.82 billion for 2007, driven by a $1.89 billion drop in the fourth quarter as a result of exposure to securities backed by subprime mortgage loans.

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