Moody's expects to finish FSA, Assured review in Sept
By Anastasija Johnson
NEW YORK, Aug 5 (Reuters) - Moody's Investors Service said on Tuesday it expects to complete its review of bond insurers Financial Security Assurance and Assured Guaranty Corp by early September and is weighing changing the way it rates financial guarantors.
The rating agency also said all bond insurers, except for a new unit of Berkshire Hathaway Inc (BRKa.N), would be hurt by additional deterioration in the U.S. mortgage market.
Moody's in July said it may cut its top ratings on FSA and Assured Guaranty (AGO.N), citing concerns about securities they guarantee and raising questions over the future need for bond insurers.
FSA, which is owned by Dexia (DEXI.BR), and Assured are the last two established bond insurers with AAA ratings. If they are cut, it would leave newcomer Berkshire Hathaway Assurance Corp as the only guarantor with a top rating by Moody's.
Bond insurers have been downgraded due to losses they are expected to take from insuring risky residential mortgage-backed debt and questions about their capital position.
Moody's action on FSA and Assured raised a lot of eyebrows since both insurers have the capital required for the top rating, but the rating agency on Tuesday said concerns about franchise value and financial flexibility may outweigh capital considerations.
"As we've seen for other guarantors, not much has to go wrong for a company's fortunes to turn on a dime," Moody's said in a special report.
Moody's said FSA's and Assured's exposure to large and complex structured financings may leave them vulnerable to a higher degree of volatility than their existing business models can sustain at current "Aaa" ratings.
Bond insurers that guarantee only debt sold by U.S. states and local governments are more likely to have triple-A ratings than companies with exposure to both municipal and structured securities, the rating agency said.
But even Berkshire Hathaway, which limited its business to municipal bonds, would only have the third-highest investment grade rating of "Aa2" if not for an additional guaranty from "Aaa"-rated affiliate Columbia Insurance Company, Moody's said.
Moody's said Syncora Holdings, formerly Security Capital Assurance SCA.N, Financial Guaranty Insurance Co and CIFG are most exposed to further deterioration in the U.S. mortgage market as delinquencies and foreclosures mount, followed by MBIA (MBI.N), Ambac (ABK.N) and FSA.
Assured and Radian Asset (RDN.N) are by far the least exposed to additional mortgage losses, it added.
Given the changes in the bond insurance industry, Moody's said it will reassess certain aspects of how it rates guarantors and if significant changes are needed, it will issue a "request for comment" from market participants.
(Reporting by Anastasija Johnson, Editing by Chizu Nomiyama,)
