Fitch cut FGIC's "AAA" insurer financial strength rating by two notches to "AA." It also cut parent company FGIC Corp's long-term rating by three notches to "A" from "AA," the third-highest investment grade.
NEW YORK (Reuters) - FGIC Corp's bond insurance arm lost its top "AAA" rating from Fitch Ratings on Wednesday, a blow to the insurer's business model that could also cause downgrades to more than 100,000 municipal bonds.
Fitch cut FGIC's "AAA" insurer financial strength rating by two notches to "AA." It also cut parent company FGIC Corp's long-term rating by three notches to "A" from "AA," the third-highest investment grade.
FGIC is owned by a group including mortgage insurer PMI Group Inc <PMI.N> and private equity firms Blackstone Group <BX.N>, Cypress Group, and CIVC Partners LP. The group acquired FGIC from General Electric Co <GE.N> in 2003 for about $2.18 billion.
FGIC is the fourth-largest bond insurer, with about $314.8 billion of outstanding bonds insured as of the end of September, most of it municipal bonds. The total also included about $31 billion of mortgage-backed securities and $28 billion of collateralized debt obligations.
!ADVERTISEMENT!Like other bond insurers, FGIC initially focused on municipal deals but ventured into structured products to boost returns. But massive defaults on U.S. subprime mortgages battered the credit quality of these products, increasing the capital bond insurers needed for an "AAA" rating.
Fitch warned in December that the loss of FGIC's "AAA" rating could also trigger downgrades to as many as 114,800 municipal bond issues it insures.
(Reporting by Dena Aubin; editing by Diane Craft)
