Standard & Poor's Monday said that Assured Guaranty Ltd.'s proposed acquisition of Financial Security Assurance Holdings Ltd. "appears to pose limited rating risk" for both companies' related entities.

The proposed $722 million transaction, which excludes FSA's financial product unit, requires that all three rating agencies confirm it will not have a negative effect on the companies' ratings.

Fitch Ratings said last week the transaction would not likely affect the ratings of either group, while Moody's Investors Service said the potential impact would be considered in the context of its ongoing ratings of both companies, which are expected to conclude in the "near term."

Bond insurer Assured Guaranty Corp. has stable AAA ratings from Standard & Poor's and Fitch, while its Aaa Moody's rating is on review for downgrade. Financial Security Assurance Inc. has a Aaa rating on review for downgrade from Moody's, and AAA ratings on negative watch from Standard & Poor's and Fitch.

Both Assured and FSA largely avoided the exposures to collateralized debt obligations of asset-backed securities that have led to large losses at other bond insurers. Both have capital cushions considered adequate for Standard & Poor's criteria for triple-A rated guarantors, the rating agency said.

Standard & Poor's said it expects synergies and economies of scale from the merger, but that it is still unclear "how these will unfold at the operating company level."

In a presentation on its Web site, Assured estimated synergies of 25% of FSA's expenses.

The combined company could cut from overlapping functions in systems, administration, accounting, and technology, Assured president and chief executive officer Dominic Frederico said last week in a conference call with investors.

The deal will combine this year's two most active insurers of municipal debt under one roof. The company plans for both to keep their operating licenses and continue to write new business, Frederico said last week.

"The transaction marks a continued reshaping of the bond insurance industry," Standard & Poor's credit analyst Robert Green said in a statement.

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