Assured sees Dexia deal strengthening case in Moody's review

By Ratul Ray Chaudhuri

BANGALORE, Nov 14 (Reuters) - Bond insurer Assured Guaranty Ltd (AGO.N), whose AAA-rating has been under review from Moody's Investors Service since July 21 for a possible downgrade, expects that a deal Friday to buy a rival will strengthen its case in the review.

"I would say it has to strengthen. That doesn't mean it's worth anything (to Moody's review)," Assured Guaranty Chief Executive Dominic Frederico said in a conference call with analysts.

Belgian-French financial services group Dexia (DEXI.BR) (DEXI.PA) earlier on Friday said it would sell the bond insurance business of Financial Security Assurance (FSA) to U.S. peer Assured Guaranty. [ID:nLE742831]

Frederico said Moody's concern is over Assured's ability to raise capital in the marketplace, and the transaction with Dexia proves this.

"I don't know of any company today in the financial market that raised capital accretively and we did that," he said.

"I would hope that would tend to make (Moody's) go back and use their erasers and sharpen their pencils and make another judgment (on the rating review)."

Moody's said on Friday that the impact of the deal on the ratings of Assured Guaranty and FSA will be considered in the ongoing reviews of both companies that are expected to conclude in the near term.

RIGHT TO WALK AWAY

Frederico said, while a possible Moody's downgrade of the standalone rating of Assured or FSA would not affect the deal, Assured retained the right to walk away from the deal if the credit agency warns that the combined entity will be downgraded or put on negative watch.

Assured has largely avoided the credit problems that have plagued its rivals like Ambac Financial Group Inc (ABK.N) and MBIA Inc (MBI.N), who have lost their AAA-ratings, because it stayed away from insuring repackaged subprime mortgages and other risky debt.

Assured also said Dexia will not have a majority position in the new company, even though it will hold 24.9 percent ownership in the combined entity.

Assured said under the agreement, Dexia's interest is limited to a 9.5 percent voting interest in the company and a maximum of one board seat out of the current 12.

Assured shares closed up 4.32 percent at $8.45 Friday on the New York Stock Exchange, while Dexia shares closed down 12 percent at 4.40 euros on the Euronext market. (Editing by Deepak Kannan)