UPDATE 1-Moody's cuts MBIA senior debt deeper into junk

(Adds MBIA statement)

NEW YORK, June 25 (Reuters) - Moody's Investors Service on Thursday cut bond insurer MBIA Inc's (MBI.N) senior debt rating deeper into junk bond status, citing expected portfolio deterioration and litigation.

Moody's cut MBIA's senior debt rating to Ba3, three levels below investment grade, from Ba1, the highest junk rating, and said more cuts are possible.

"These rating actions reflect further expected insured portfolio deterioration at MBIA Insurance Corporation and the uncertainty stemming from ongoing litigation challenging MBIA's recent restructuring," Moody's said in a statement.

On June 5th, rival rating agency Standard & Poor's cut the ratings for National Public Finance Guaranty Corp, a unit of MBIA Inc, to A from AA-minus.

Moody's also confirmed the Baa1 rating, which is three levels above junk, of National with a developing outlook.

Moody's on Thursday said creditors and counterparties have sued MBIA, requesting that a Feb. 17 restructuring of the group that led to National's capitalization with some of MBIA Insurance Corp's resources be reversed.

National's ability to write new business may be "substantially constrained" while the litigation remains outstanding, Moody's said.

MBIA in a statement said "we believe that these lawsuits are without merit and that the New York State Insurance Department's approval of the transactions will be upheld."

The company also said "lawsuits that MBIA has filed both against certain mortgage loan seller/servicers related to their improper origination and servicing practices and against certain originators of credit default swap transactions could potentially result in substantial recoveries for MBIA, which are not yet reflected in MBIA's financial statements."

MBIA added that National's current capitalization is consistent with a "very high investment grade rating." (Reporting by Walden Siew; Editing by James Dalgleish)