CIFG and its family of financial guaranty companies are no longer graded by any of the rating agencies, since Standard & Poor's withdrew its CC rating at the company's request on Tuesday.
Standard & Poor's said the junk rating and negative outlook on CIFG Guaranty, CIFG Europe, and CIFG Assurance NA reflected "significant declines in statutory surplus levels at these companies, which leaves them vulnerable to regulatory intervention."
At the end of last year's third quarter, the municipal bond insurance unit, CIFG Assurance, reported a policyholders surplus of $103.9 million to its regulator, the New York Insurance Department. The required minimum is $65 million, a level that had been breached at mid-year 2009 when it reported a policyholders deficit of $298.1 million.
The rebound into surplus territory was the result of a broad restructuring. In January 2009, CIFG Assurance cut a deal with its policyholders wherein it offered $1.3 billion in cash and a 90% stake in CIFG in exchange for the policyholders forfeiting the insurance on their collateralized debt obligations. At the same time, it entered into an agreement under which Assured Guaranty Corp. reinsured about $13 billion of CIFG's public finance portfolio.
The result was that at the end of the third quarter, the insurer's liabilities were just $123.2 million, versus the $2.92 billion of liabilities it recorded at the end of 2008. However, the insurer's total assets were just $368.7 million at the end of the third quarter.
Standard & Poor's said in Tuesday's report that the companies' insured exposure to various asset classes could cause further losses and weaken any surpluses.
Moody's Investors Service withdrew its Ca rating on Nov. 11, citing "increased loss estimates" on some of the firm's collateralized debt obligations, particularly those related to residential mortgage-backed securities. Fitch Ratings withdrew its CCC rating for CIFG in October 2008.
Calls to CIFG for additional comment were not returned.
