(Adds FGIC statement)
NEW YORK, March 28 Standard & Poor's on Friday
cut its ratings on FGIC Corp and its bond insurance arm to junk
status, saying the insurer has failed to come up with a plan to
remain viable and write new business.
"Our increased concerns over regulatory and managerial
issues have led to a downgrade to the speculative-grade level,"
S&P said in a statement.
S&P cut FGIC Corp by six notches to "B," five steps below
investment-grade, from "BBB." It downgraded FGIC's insurance
arm, Financial Guaranty Insurance Co, by six notches to "BB,"
two steps below investment grade, from "A."
The outlook is negative, indicating another rating
downgrade is likely over the next two years.
It was the second downgrade to junk status for FGIC Corp
this week. Fitch Ratings on Wednesday cut FGIC Corp to "BB"
from "A" and cut Financial Guaranty Insurance Co to "BBB," the
second-lowest investment grade, from "AA."
"While we are disappointed in S&P's decision, we intend to
move forward with plans to address their concerns and restore
FGIC's business franchise," a FGIC spokesman said in a
S&P had put FGIC on review for downgrade last week, citing
a decision by the bond insurer's principal owner, PMI Group
PMI.N, not to put more capital into FGIC.
FGIC has also violated New York state insurance department
risk limits, as noted in financial statements the company
released on March 26, which may further hamper capital-raising
efforts, S&P said on Friday.
In addition to PMI Group, FGIC is owned by private equity
firms Blackstone Group (BX.N), Cypress Group and CIVC Partners
FGIC and other bond insurance companies have been hobbled
by their expansion into guaranteeing risky collateralized debt
obligations (CDOs) and asset backed bonds, markets that have
been hammered by rising mortgage losses.
Bond insurers have spent months struggling to defend their
ratings, which are key to their ability to attract new
business. For details, see [ID:nN19307661].
Unlike market leaders MBIA Inc (MBI.N) and Ambac Financial
Group ABK.N, FGIC has not raised extra cash to support its
"New capital is a critical component," S&P analysts said in
a statement. "As time passes, the possibility of a run-off
situation for FGIC becomes greater."
A "run-off" situation means FGIC would tend to its existing
obligations to policy holders but cease writing new business.
(Reporting by Dena Aubin and Neil Shah; Editing by Diane
Craft, Gary Hill)