Credit rating firms seen holding back on bond insurers

By Neil Shah - Analysis

NEW YORK (Reuters) - Wall Street's top credit-rating agencies may be delaying a downgrade of the bond insurance companies at the heart of the credit crisis due to fears that ratings cuts could trigger another crisis in global markets.

That is the view of many investors and analysts in U.S. capital markets, who say rating firms Moody's Investors Service and Standard & Poor's have already given MBIA Inc (MBI.N: Quote, Profile, Research, Stock Buzz) and Ambac Financial Group (ABK.N: Quote, Profile, Research, Stock Buzz), the two largest bond insurers, too much time to shore up their troubled balance sheets.

"What are they waiting for?" said Edward Grebeck, chief executive of Tempus Advisors, a debt strategy firm in Stamford, Connecticut. "It's not like the bond insurer crisis started two weeks ago or in December."

Moody's and Standard & Poor's warned several bond insurers in December to raise more cash or risk eventually losing their top ratings, which are crucial to their business of guaranteeing roughly $2.5 trillion of securities tied to municipalities and consumer debt.

If the bond insurers lose their top ratings, Wall Street firms that bought this insurance are likely to unleash another wave of potential losses on mortgage investments, while other investors may be forced to sell insured debt, setting off a chain reaction that could hurt the slowing U.S. economy.

"Some of the monolines (insurers) should have been downgraded a long time ago." said Arturo Cifuentes, managing director at fixed-income broker-dealer R.W. Pressprich in New York and a former Moody's analyst.

"If any other company with a 'AAA' rating had been in that situation, it would have been downgraded on the spot - two, three days and that's it," he said.

Spokespersons for Moody's and Fitch Ratings were not available for comment.