UPDATE 3-Fitch may cut ratings of bond insurer SCA

(Adds other insurers in sixth paragraph, investor quote)

By Walden Siew

NEW YORK, Dec 12 (Reuters) - Fitch Ratings placed the top-tier ratings of bond insurer Security Capital Assurance SCA.N and its financial guaranty insurance units on review for a possible ratings downgrade, the rating company said on Wednesday.

The Bermuda-based bond insurer, which holds top "AAA" ratings, has exposure to structured finance collateralized debt obligations that are now rated junk due to their link to deteriorating subprime mortgages, Fitch said.

SCA's capital adequacy currently falls below guidelines for an 'AAA' rating by more than $2 billion, due to sharp downgrades by Fitch in a number of SCA's insured CDOs, Fitch said in a statement.

SCA, which provides financial guaranty insurance and other credit products to public finance markets, has four to six weeks to obtain "firm capital commitments" to meet capital guidelines that may result in a more favorable view by Fitch, the rating company said.

"If SCA is unable to meet capital guidelines in the noted timeframe, Fitch would expect to downgrade SCA's ratings" by two notches to "AA," or the third highest rating, Fitch said, sending SCA stocks down about 22 percent on Wednesday.

Fitch Ratings last month said it may cut ratings of bond insurance companies, noting that companies such as SCA and also Ambac Financial Group (ABK.N) had a "moderate" probability of potential cuts. Fitch last month noted that CIFG Guaranty and Financial Guaranty Insurance Co. had a "high" probability.

"I will not be surprised if FGIC loses its triple-A," Tom Metzold, a senior Eaton Vance portfolio manager, said on Wednesday, during the Reuters Investment Outlook 2008 Summit in New York.

$90 BILLION AND GROWING

SCA's exposure to the CDOs totaled almost $16.1 billion as of Sept. 30, Fitch said. Most of the transactions were underwritten in 2006 and 2007 and are backed by collateral most exposed to mortgage loan deterioration, Fitch said.

Through last month, more than $90 billion worth of structured finance CDOs had been downgraded by the three main rating companies, according to Barclays Capital.

The company also has exposure to prime second-line mortgage securities totaling $4.7 billion as of Sept. 30, Fitch said.

"While we are disappointed with Fitch's decision today, we have a plan to address their additional capital requirements," Paul Giordano, SCA's president and chief executive officer, said in a statement. "Our plan involves a range of options for increasing our capital position within the time period indicated by Fitch."

SCA said the company is in talks with all three major rating companies regarding its capital positions.

Structured finance CDOs originally rated "AAA" by Fitch, Moody's Investors Service or Standard & Poor's would now be rated in either the "BBB" category, the lowest tier of high-grade, or non-investment grade, due to expected credit deterioration, Fitch said.

"In the event of a potential default, Fitch believes these transactions will potentially be exposed to greater loss severity," Fitch said. (Editing by Diane Craft)