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NEW YORK, May 20 (Reuters) - The bond insurance arm of CIFG Holding Ltd was slashed to junk status by Moody’s Investors Service on Tuesday, due to concern about its capital position.
Two months ago the insurer held pristine “Aaa” or “AAA” ratings from the major rating firms. Rating cuts and downgrade warnings of bond insurers, including MBIA Inc (MBI.N) and Ambac Financial Group ABK.N, had roiled financial markets earlier this year.
However, the impact of subsequent rating cuts has been muted as many investors already had accounted for potential cuts and losses at the bond insurers before the rating companies completed their reviews.
Moody’s downgraded the insurance financial strength ratings of bond insurer CIFG Guaranty, CIFG Europe and CIFG Assurance North America, Inc to “Ba2,” two levels below investment grade, from “A1,” the fifth highest, and kept the ratings under review with uncertain direction.
The rating cuts “reflect the high likelihood that, absent material developments, the firm will fail minimum regulatory capital requirements,” due to losses stemming from its debt and exposure to subprime mortgages, Moody’s said.
In March, Moody’s had estimated CIFG’s expected loss on asset-backed collateralized debt obligations at $433 million, and stress losses, consistent with a 21 percent cumulative loss on 2006 subprime mortgage first liens pools, at $1.3 billion.
“The breach of such regulatory capital requirements would put the firm in a precarious position,” Moody’s said in a statement, due to the company’s exposure to credit default swaps, Moody’s said.
CIFG in March asked Fitch Ratings to withdraw ratings for its CIFG Guaranty unit and two affiliates, citing lack of confidence in Fitch’s methods.
The two other major rating firms, Standard & Poor’s and Moody’s, earlier this year stripped CIFG of its top “AAA” rating, and Moody’s move on Tuesday shows how fast a top rating can turn into junk status.
“The review with direction uncertain reflects potential changes in the credit profile of the firm that could occur over the next couple of months as CIFG attempts to implement capital strengthening plans,” Moody’s said. (Reporting by Walden Siew; Editing by Leslie Adler)