Dec. 14 (Bloomberg) -- FGIC Corp. and XL Capital Assurance Inc., two bond insurers, may lose their Aaa credit ratings at Moody's Investors Service after a slump in the value of the debt they guarantee.

MBIA Inc., the largest bond insurer, and CIFG Guaranty had their outlooks lowered to ``negative'' by the New York-based ratings company today. The Aaa rankings of Ambac Financial Group Inc., Assured Guaranty Corp., and Financial Security Assurance Inc. were all affirmed, signaling no plans to change them, Moody's said. Radian Group Inc. was also affirmed.

``Several of the guarantors still have appropriate levels of capitalization to support the current rating and those that may not are taking active steps to strengthen their position,'' Moody's managing director Jack Dorer said in a statement.

The ratings of bond insurers came under scrutiny by Moody's, Standard & Poor's and Fitch Ratings last month after declines in the credit quality of the securities they guarantee raised concerns they may need more capital. A loss of the top rankings would throw into doubt the ratings of $2.4 trillion in debt guaranteed by the insurers and would wipe out the companies' main business of underwriting risk.

``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,'' Dorer said in the statement.

FGIC Has Plan

FGIC said today it has developed a plan to ensure it can continue to meet Moody's requirements for the top credit rating.

``The company's investors have voiced their support for the plan and their commitment to maintaining FGIC's triple-A ratings,'' FGIC said in a statement distributed by Business Wire. ``However, the company can give no assurance that the plan will be implemented to the satisfaction of all rating agencies in a timely manner.''

For more than 20 years, the safety of bond insurance has eased the way for elementary schools, Wall Street banks and thousands of municipalities to sell debt with unquestioned credit quality. The bond insurers promise to make interest and principal payments as they come due on securities if the issuer faltered.

Stocks, Bonds Hurt

U.S. bond prices and the stocks of insurers have been hurt by concerns about the financial health of the bond insurance companies amid record defaults on subprime loans that back bonds and other securities, such as collateralized debt obligations.

MBIA and Ambac lost more than half their stock market value this year on concerns they may lose their ratings.

Ambac, the second-biggest in the industry, guarantees $546 billion of securities. MBIA stands behind about $652 billion of municipal and structured finance bonds, while FGIC has insured $314 billion of debt.

MBIA this week said it received a $1 billion investment from private equity firm Warburg Pincus LLC to bolster its capital after Moody's said on Dec. 5 the Armonk, New York-based company is ``somewhat likely'' to face a shortage of capital. Less than a month earlier, Moody's had described a potential shortfall as ``unlikely.''

``While Moody's believes that the Warburg Pincus investment will address the estimated hard capital shortfall at MBIA, the negative outlook incorporates uncertainty about the performance of the guarantor's portfolio,'' Dorer said in today's statement.

Paying a Price

The bond insurers are paying a price for expanding beyond municipal bonds to guaranteeing debt backed by subprime mortgages and home equity lines of credit as well as CDOs that contain asset-backed debt. CDOs take pools of securities and then slice them into pieces with different credit ratings, from no rating through AAA.

Record defaults on the subprime debt contained in the bonds sparked losses that have spread throughout the credit markets, forcing the writedowns by banks. The collapse of the U.S. subprime mortgage market has led to about $76 billion of losses at securities firms and banks this year. Subprime loans are made to people with poor credit.

The bond insurers reported combined losses of $2.9 billion in the third quarter after writing down the value of some of the CDOs and other securities they guarantee amid the worst housing slump in two decades.

To contact the reporter on this story: Christine Richard in New York at crichard5@bloomberg.net

Last Updated: December 14, 2007 21:07 EST