WASHINGTON, March 21 Moody's Investors Service is reviewing the ratings of municipal bond insurer MBIA Insurance Corp, its subsidiaries and its holding company MBIA Inc, because of the company's "precarious financial condition" and possible regulatory actions that could hurt its credit, the rating agency said on Thursday.
National Public Finance Guarantee Corporation, a subsidiary, is at risk after it extended a $1.7 billion secured loan to the company, Moody's said.
"Should the loan become impaired, National's ability to pay dividends to cash poor MBIA Inc may be further constrained and its ability to write new business may be further delayed," said Moody's.
The contraction in municipal insurance has been sharp and swift. In 2005, more than half of new issues carried insurance.
Then, the financial crisis wrecked most of the industry. Insurers, also known as monolines, had backed the subprime mortgage debt that crumbled with the housing market and damaged their ratings.
Moody's said that the likelihood the company will receive large claims for commercial mortgage-backed securities and the uncertainty about whether it will recover money from Bank of America Inc related to those claims had inspired the review of MBIA's Caa2 rating.
MBIA claims that Bank of America is responsible for the writing of mortgages by Countrywide that were packaged into bonds that MBIA had insured. MBIA was stuck with huge losses when the loans went bad and now wants the bank to buy back the mortgages.
A settlement is vital for MBIA. The company has said there was significant risk that MBIA Insurance Corp will be put into liquidation or rehabilitation by its New York regulator if it is unable to settle its claims with the bank.
Another rating agency, Standard and Poor's, has already cut its financial strength rating on MBIA Insurance Corp by three notches to junk status, with a negative outlook.