S&P cuts top ratings for MBIA, Ambac bond insurers

NEW YORK, June 5 Thu Jun 5, 2008 3:03pm EDT

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NEW YORK, June 5 (Reuters) - Standard & Poor's on Thursday cut top "AAA" ratings on bond insurance units of MBIA Inc (MBI.N) and Ambac Financial Group Inc ABK.N citing diminishedprospects for new business and declining financial flexibility.

Standard & Poor's cut the No. 1 and No. 2 companies in the business two notches to "AA" and said it may lower them further because they face potentially more losses from the deteriorating mortgage backed securities.

"The rating actions on the companies reflect our belief that these entities will face diminished public finance and structured finance new business flow and declining financial flexibility," the rating agency said.

The downgrade was expected after another major rating agency, Moody's Investors Service, on Wednesday warned it may cut the two largest bond insurers.

The loss of the top rating may cripple MBIA and Ambac's ability to write new insurance. MBIA, the world's largest bond insurer, had guaranteed $668 billion in debt as of the end of the first quarter of 2008, while Ambac, the second largest insurer, has an insurance portfolio of $511 billion.

S&P also downgraded holding company ratings. MBIA Inc was cut to "A-minus," the seventh highest investment grade level, from "AA-minus." Ambac Financial Group was lowered to "A" from "AA."

(Reporting by Anastasija Johnson, Editing by Chizu Nomiyama,)