WEB EXCLUSIVE: Fitch Puts FGIC's Financial Strength Rating on Negative Watch

Fitch Ratings put the AAA insurer financial strength rating of Financial Guaranty Insurance Corp. on negative watch today after wrapping up its review of the insurer’s exposure to the impending mortgage-market downturn. FGIC needs to raise $1 billion to keep its AAA rating, following downgrades to credits in its $12.8 billion of collateralized debt obligation exposure and $19.1 billion of second-lien mortgage securitizations, Fitch said. The agency said it will likely downgrade FGIC “one or two notches” if the company is not able to get “firm capital commitments” during the next four to six weeks.“FGIC and its investor group have presented plans to Fitch about bolstering FGIC’s capital position to support an AAA IFS rating,” Fitch wrote in its rating action. “While the basics of the plan would appear to be sufficient to restore FGIC’s AAA rating and stable outlook, execution of the plan could be challenged by individual requirement at each of FGIC’s primary investors.”The PMI Group Inc., a California-based mortgage insurer and financial guarantor, is FGIC’s largest equity investor, holding a 42% stake in the company it helped split off from General Electric. The Blackstone Group, the Cypress Group, and CIVC Partners bought about 23%, 23%, and 7% of the equity, respectively. GE retains a small stake.Fitch wants to see how FGIC’s plan to raise capital plays out during the next month or so because of financial stresses at PMI and the “different interest and motivations” of FGIC’s private-equity owners, said Fitch managing director Tom Abruzzo.“One reason that we took action today, even though we know the company has a plan it is working toward, is that nothing has been finalized,” he said.Fitch’s analysis, unlike the review published Friday by Moody’s Investors Service, does not include a stress test, Abruzzo said.“There is no stress test here,” he said. “This is our view and assessment of what the ratings on the underlying deals are and what that translates to in terms of the amount of capital that they would need.”A FGIC spokesman did not immediately return a call for comment.