Bond insurers face new payments on CDOs-report
NEW YORK (Reuters) - U.S. bond insurers, including MBIA Inc (MBI.N) and Ambac Financial Group (ABK.N), will likely need to make new interest payments for structured deals backed by residential mortgage debt, as more homeowners default on their mortgages, Citigroup analysts said on Wednesday.
This could place an even greater strain on the companies' cash flows at a time when they are already grappling to sustain capital levels adequate for their top ratings, the analysts said in a report.
Bond insurers have written protection on collateralized debt obligations, or CDOs, which pool residential mortgage-backed debt, and these are increasingly defaulting as they breach terms and conditions in the deals.
Around $190 billion in CDO debt based on residential mortgage bonds issued in 2006 and 2007 have hit notices of default, representing around 55 percent of the total issuance of these deals, Citigroup said.
Most of the defaults have been due to the deals breaching the required ratios of collateral, which typically stops interest payments except to holders of the most senior-rated CDO pieces.
Recently, however, some high-grade CDOs backed by mortgage debt have been defaulting because they have missed interest payments to certain tr
