| NEW YORK
NEW YORK MBIA Inc's (MBI.N) insurance arm on
Friday lost its top rating from Fitch Ratings, which also cut
the parent company's ratings due to capital adequacy concerns.
MBIA Insurance Corp, the insurance arm of the world's
biggest bond insurer, saw its ratings fall to "AA," the third
highest, from a top rating of "AAA." Fitch also cut the parent
company by three notches to "A," the sixth highest, from "AA."
MBIA shares fell 4.5 percent to trade at $13.65 after the
"The market is already somewhat discounting the value of
the franchise," said Evan Rourke, portfolio manager with M.D.
Sass in New York.
Tom Spalding, portfolio manager at Nuveen Investments in
Chicago, said prices of municipal bonds insured by MBIA are
unlikely to cheapen after the Fitch downgrade but price
improvement will slow.
"Retail will still buy MBIA insurance, but I don't think
institutions are going to be quite as aggressive," Spalding
Prices of MBIA-insured munis have been edging higher since
Standard & Poor's and Moody's Investors Service affirmed the
guarantor's triple-A rating, Spalding said.
Some municipal issuers started using MBIA again because
rival Financial Security Assurance, owned by Dexia
(DEXI.BR)DEXI.PA, which boasts untainted top ratings from
three agencies, has gotten too expensive, Spalding said.
Fitch had been the last of the three major U.S. credit
rating agencies to still have the top "AAA" rating for MBIA's
insurance arm on review for downgrade.
"Fitch does not believe it will be possible for MBIA to
significantly improve its credit profile until the company can
more fully reestablish momentum in the financial guaranty
market, especially in the core U.S. municipal finance sector,"
Fitch said in a statement.
Fitch said the company's claims-paying resources are as
much as $3.8 billion below target for a "AAA" rating. Fitch
also noted it expects the company's losses from collateralized
debt obligations to reach as high as $4.9 billion.
"We respectfully disagree with Fitch's conclusions," MBIA
Chief Financial Officer C. Edward Chaplin said in a statement
on Friday. "MBIA has a balance sheet that is among the
strongest in the industry with over $17 billion in
claims-paying resources, and has a high quality insured
portfolio, factors which we believe enable MBIA to meet severe
economic stress scenarios."
MBIA had asked Fitch to withdraw its ratings on March 7,
and on March 24 Fitch said it planned to keep rating the
MBIA said in a statement at the time that Fitch's rating
process differed from those of other agencies, and that in
turbulent times, there was a risk of misinterpretation.
Fitch also said it maintains a negative outlook for MBIA,
which means more cuts are possible.
"My reaction is 'big deal,"' said Jim Ryan, an insurance
analyst at Morningstar. "MBIA has two of the more important
rating agencies standing behind them, and for now, that's
(Reporting by Dan Wilchins and Anastasija Johnson; Editing
by Leslie Adler)