Fitch Comments on Impact of Ambac Downgrade on Insured Municipal Bonds

NEW YORK--(Business Wire)--On Jan. 18, 2008 Fitch Ratings downgraded the insurer financial
strength (IFS) ratings on Ambac Financial Group Inc.'s affiliated
insurance entities (Ambac) to 'AA' from 'AAA', and they remain on
Rating Watch Negative (RWN). The IFS rating downgrades resulted in
corresponding downgrades on approximately 137,000 Ambac-insured
municipal bonds.

Consistent with Fitch's previously stated policy, ratings on
Ambac-insured bonds with Fitch underlying ratings equal to or higher
than Ambac's current IFS rating will now be rated based on the level
of the underlying rating. Therefore, 261 bonds with underlying ratings
of 'AAA' remained at 'AAA'; 757 bonds with underlying ratings of 'AA+'
were downgraded to 'AA+' from 'AAA', and 4,234 bonds with underlying
ratings of 'AA' were downgraded to 'AA' from 'AAA'. The ratings on the
above noted insured bonds with underlying ratings from 'AAA' to 'AA'
are not on Rating Watch Negative, unless the underlying ratings
themselves are on Rating Watch Negative. Approximately 132,000
Ambac-insured bonds with Fitch underlying ratings lower than 'AA', or
which do not carry underlying ratings from Fitch, were downgraded to
'AA' from 'AAA', and are on Rating Watch Negative.

Fitch notes that insured municipal bonds are in fact
'double-barreled' securities. That is, debt service is paid to the
bond's paying agent by the issuer, and it is only if the issuer fails
to make timely payments that the financial guarantor is required to
make payments on its behalf. Fitch notes that underlying defaults on
insured municipal bonds are extremely rare. Financial guarantors such
as Ambac will generally not originate policies on municipal bonds with
underlying credit quality that they deem to be below investment grade.
Based on Fitch's municipal default studies, investment grade municipal
bonds in sectors that are typically insured have cumulative default
rates well under 1%, which is lower than similarly rated bonds in
non-municipal sectors. Financial guarantor loss ratios on insured
municipal bonds are also quite low and consistent with Fitch's
findings. Fitch notes further that the capital pressures experienced
by Ambac and some other financial guarantors have been due almost
entirely due to their exposures to downgraded insured structured
finance transactions, not municipal bonds.

Furthermore, Fitch notes that Ambac-insured municipal bonds still
benefit from Ambac's insurance policies, notwithstanding Fitch's
downgrade of Ambac's IFS rating and regardless of whether or not Ambac
remains an active financial guarantor. Fitch notes that in terms of
its universe of insurer financial strength ratings, 'AA' denotes very
strong capacity to meet policyholder and contract obligations on a
timely basis. Finally, a financial guarantor is obligated to pay
claims on defaulted bonds as the principal and interest come due and
with no forced acceleration. Therefore, ability to pay claims is
expected to be exceptionally strong over the short- to medium-term
time horizon.

Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality,
conflicts of interest, affiliate firewall, compliance and other
relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings
David Litvack, +1-212-908-0593
(for municipal bond ratings information)
Thomas Abruzzo, +1-212-908-0793 (New York)
(for information on Ambac and other financial guarantors)
Media Relations:
Kenneth Reed, +1-212-908-0540 (New York)
Cindy Stoller, +1-212-908-0526 (New York)

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