Moody's late on Friday said it was considering cutting the Aaa ratings of Financial Guaranty Insurance Co (FGIC), partly owned by Blackstone Group <BX.N>, and XL Capital Assurance Inc
LONDON (Reuters) - Credit analysts warned on Monday that if Moody's Investors Service downgraded some specialist bond insurers it could have far-reaching impact on financial markets.
Moody's late on Friday said it was considering cutting the Aaa ratings of Financial Guaranty Insurance Co (FGIC), partly owned by Blackstone Group <BX.N>, and XL Capital Assurance Inc
<XL.N>.
It put a negative outlook on the Aaa ratings of MBIA Insurance Corp <MBI.N> and CIFG Guaranty, but affirmed the ratings.
!ADVERTISEMENT!The ratings agency is concerned the insurers do not have sufficient capital to support their ratings -- which are crucial to their ability to write insurance contracts -- after the subprime mortgage crisis raised the possibility of widespread losses on insured structured finance securities.
"In the cases in which we moved to a negative outlook or have initiated a review for possible downgrade, capitalization currently falls below Aaa levels or could fall under that level in one of our stress cases," said Jack Dorer, a managing director at Moody's.
Analysts at CreditSights, an independent credit research firm, said there were a host of possible risks attached to the action.
"The loss of the AAA monoline business model could potentially force banks to consider taking write-downs on the value of their monoline wraps," they wrote in a note to clients, adding to the swathe of multi-billion dollar structured finance writedowns already announced.
It could also further crimp issuance in the structured finance markets generally, hurting access to funding, and create turmoil in the U.S. municipal bond market, they warned.
Royal Bank of Scotland credit analysts said the results of Moody's review of the bond insurer sector was mostly in line with expectations.
"The biggest surprise was MBIA's negative outlook, which will likely cause a significant negative reaction in the market, given it is the world's largest bond insurer and had already raised $1 billion of fresh equity capital," they wrote in a note to clients.
Buyout firm Warburg Pincus LLC <WP.UL> said last week it would invest $1 billion in MBIA, bolstering its finances.
MBIA said in a statement it was confident of returning to a stable outlook as it implemented other components of a capital plan that it had presented to Moody's.
FGIC said late on Friday that it too had developed a plan to build up capital to protect its triple-A rating.
Moody's affirmed the Aaa ratings of Ambac Assurance Corp <ABK.N>, Assured Guaranty Corp and Financial Security Assurance Inc, as well as the Aa3 rating of Radian Asset Assurance <RDN.N>, all with a stable outlook.
(Reporting by Richard Barley; Editing by Quentin Bryar)
