Moody’s May Downgrade Ambac, MBIA
Due to increasing losses from subprime mortgage debt, Moody's Investors Service said on Thursday that it may downgrade by more than one notch the ratings of bond insurers Ambac Assurance Corporation and MBIA Insurance Corporation.
Analysts have long feared that downgrades to these insurers would lead to a cascade of downgrades to bonds they insure, triggering credit events and losses across the global financial system.
Moody's said it had revised up projections for likely losses from residential mortgage-backed securities issued from 2005 to 2007.
"Because both Ambac and MBIA are meaningfully exposed to the risk of U.S. subprime mortgages and other residential mortgage products, the revised assumptions are expected to have a significant impact on the firms' capital positions and multi-notch downgrades are possible," Moody's said in a statement.
Moody's added that, as a result of this review, the rated securities that are "wrapped" or guaranteed by Ambac and MBIA are were also under review for possible downgrade, except those with higher public underlying ratings.
Ambac Assurance has a current insurance financial strength rating of Aa3, while MBIA Insurance, the world's largest bond insurer, has a rating of A2.
Published on September 19, 2008
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