June 20 (Bloomberg) -- MBIA Inc. and Ambac Financial Group Inc., stripped of their top bond insurer credit ratings, aren't likely to regain the AAA grades, making room for new competitors, billionaire investor Wilbur Ross said.

Moody's Investors Service yesterday followed Fitch Ratings and Standard & Poor's in downgrading MBIA Insurance Corp. and Ambac Assurance Corp., the world's largest bond insurers. Assured Guaranty Ltd., in which Ross is the second-largest shareholder, still holds a stable outlook on its AAA grade.

``The issue really is, would they ever be able to get back to a triple A rating and I would think that would be a very heavy lift for them,'' Ross said in an interview on Bloomberg Television today. ``On the other side of this credit crunch, people will be even more sensitive about ratings and the quality of the paper they're buying.''

U.S. municipalities, with average bond issues of just $33 million, according to Ross, pay to insure their bonds to gain access to the capital markets. The downgrading of Ambac and MBIA affects more than $2 trillion of debt sold by issuers ranging from school districts and sewer authorities to Wall Street firms.

MBIA fell 86 cents, or 13 percent, to $5.59 in New York Stock Exchange composite trading. The stock has fallen more than 91 percent in the past year. Ambac rose 2 cents, or 1 percent, to $2.05, after a 98 percent drop in 12 months.

``If those smaller issuers didn't have the triple-A wrapped around them, they would not really have any access to the markets,'' Ross said. ``The municipal bond business is a good one and it's an essential one,'' he said.

`Reputational Damage

Ross disclosed last month that his New York-based investment firm, WL Ross & Co., held a 13.4 percent stake in Assured Guaranty. That was about two weeks after billionaire Warren Buffett's new bond insurer, Berkshire Hathaway Assurance Corp., received a Aaa rating from Moody's and began to take municipal business away from MBIA and Ambac.

MBIA and Ambac ``are in trouble long-term,'' Christopher Whalen, a managing director at Institutional Risk Analytics in Hawthorne, California, said in a separate Bloomberg Television interview today. ``The reputational damage to these companies is also rather significant because if you're a municipal issuer, do you want to do business with them or do you do business with Warren Buffett?''

`Over Already'

The AAA status was the foundation of the companies' largest business, which charged governments, corporations and other bond issuers to guarantee their debt. MBIA Chief Executive Officer Jay Brown and Ambac interim CEO Michael Callen were hired this year to preserve the rankings after Moody's and S&P raised concern that the companies' capital wasn't high enough to cover potential losses on the more than $1 trillion in securities they insure.

``There's not likely to be a man left standing'' in the bond insurance industry, said hedge fund manager Bill Ackman, who correctly predicted shares of MBIA and Ambac would tumble. ``This thing is over already, the market just doesn't know it yet.''

Five of seven bond insurers have lost their top ratings as projections for losses on securities backed by home loans surged and confidence in the companies collapsed. Ackman, 42, is now betting against Financial Security Assurance Holdings Ltd., which along with Assured Guaranty, own the only two bond insurers that still have stable AAA ratings.

Like MBIA and Ambac, Financial Security expanded into guaranteeing and investing in mortgage securities, Ackman told a conference hosted by law firm Jones Day this week in New York. Investors haven't scrutinized Financial Security's investments closely enough and the ratings companies are misjudging the risks, he said.

Assured Drops

Assured Guaranty has dipped about 22 percent in the past year and fell 95 cents to $21.55 at 10:30 a.m. today. Financial Security is a unit of Brussels and Paris-based Dexia SA.

MBIA, which counts private-equity firm Warburg Pincus LLC and Martin Whitman's Third Avenue Management LLC as its largest shareholders, has plunged 90 percent in the past year. Ambac's biggest investors, Fidelity Management & Research Co. and Davis Selected Advisers, have watched that stock drop 98 percent.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net; Lori Rothman in New York at lrothman@bloomberg.net.

Last Updated: June 20, 2008 16:12 EDT