MBIA's bond insurer unit loses top rating from Fitch

By Walden Siew

NEW YORK (Reuters) - MBIA Inc's (MBI.N: Quote, Profile, Research, Stock Buzz) insurance arm on Friday lost its top rating from Fitch Ratings, which also cut the parent company's ratings due to capital adequacy concerns.

MBIA Insurance Corp, the insurance arm of the world's biggest bond insurer, saw its ratings fall to "AA," the third highest, from a top rating of "AAA." Fitch also cut the parent company by three notches to "A," the sixth highest, from "AA."

MBIA shares fell 4.5 percent to trade at $13.65 after the rating cuts.

"The market is already somewhat discounting the value of the franchise," said Evan Rourke, portfolio manager with M.D. Sass in New York.

Tom Spalding, portfolio manager at Nuveen Investments in Chicago, said prices of municipal bonds insured by MBIA are unlikely to cheapen after the Fitch downgrade but price improvement will slow.

"Retail will still buy MBIA insurance, but I don't think institutions are going to be quite as aggressive," Spalding said.

Prices of MBIA-insured munis have been edging higher since Standard & Poor's and Moody's Investors Service affirmed the guarantor's triple-A rating, Spalding said.

Some municipal issuers started using MBIA again because rival Financial Security Assurance, owned by Dexia (DEXI.BR: Quote, Profile, Research, Stock Buzz)(DEXI.PA: Quote, Profile, Research, Stock Buzz), which boasts untainted top ratings from three agencies, has gotten too expensive, Spalding said.