S&P: Bond Insurers Under Stress

The rating agency cut ACA Financial to CCC and lowered its outlooks on other industry players amid worsening performance of subprime debt

Standard & Poor's Ratings Services on Dec. 19 announced various ratings actions (see next page) on six financial guaranty insurance companies.

The rating actions were prompted by worsening expectations for the performance of insured nonprime residential mortgage backed securities and collateralized debt obligations (CDOs) of asset-backed securities. Based upon current stress test analysis, the affected companies may experience claims and/or capital consumptive negative rating transitions such that their capital resources may no longer be sufficient at their respective rating levels.

Another consideration in the analysis, if there is a capital shortfall, is the magnitude of the shortfall and the extent to which the company has raised or is planning to raise new capital, and the viability of that capital plan.

RATING OUTLOOKS AND CREDITWATCH

We are issued one downgrade on Dec. 19. The other actions are either changes in rating outlook or assignment to CreditWatch. Outlooks and CreditWatch are used in a changing credit situation when a rating change is not yet certain. Ratings may be placed on CreditWatch when an event or deviation from an expected trend has occurred or is expected, when this event or deviation increases the probability of a rating action, and when additional information is necessary to take a rating action. The greater the likelihood of a rating change, the more compelling the use of Creditwatch, with guidelines of at least a one in two likelihood of a ratings change occurring in the short term, typically within 90 days. From time to time, there may be events that present such significant uncertainty to an issuer's creditworthiness that a rating is placed on CreditWatch without the need to assess this threshold of potential change.

Similar to CreditWatch, an outlook assesses potential for change and the likely direction of the rating over the intermediate term. In contrast to CreditWatch, an outlook is assigned as an ongoing component of long-term ratings, where appropriate. Outlooks have a longer time horizon than CreditWatch listings and incorporate trends or risks with less certain implications for credit quality. The time frame for an outlook generally is up to two years. Although Standard & Poor's ratings are based on an opinion of the most likely scenario for an issuer's future performance, the outlook addresses what direction we believe the rating may take if our most likely scenario does not hold.

RATINGS ACTIONS
Rated company To From
ACA Financial Guaranty Corp.
Financial strength, financial enhancement and issuer credit CCC/WatchDev A/WatchNeg
Ambac Assurance Corp.
Ambac Assurance U.K.
Connie Lee Insurance Co.
Financial strength, financial enhancement and issuer credit AAA/Negative AAA/Stable
Ambac Financial Group
Senior unsecured and issuer credit AA/Negative AA/Stable
Subordinated hybrid security A+/Negative A+/Stable
Financial Guaranty Insurance Co.
Financial strength, financial enhancement and issuer credit AAA/WatchNeg AAA/Stable
FGIC U.K.
Financial strength, financial enhancement and issuer credit AAA/WatchNeg AAA/Stable
FGIC Corp.
Senior unsecured and issuer credit AA/WatchNeg AA/Stable
MBIA Insurance Corp.
Financial strength, financial enhancement and issuer credit AAA/Negative AAA/Stable
MBIA Insurance Corp. of Illinois
Financial strength, financial enhancement and issuer credit AAA/Negative AAA/Stable
MBIA Assurance
Financial strength, financial enhancement and issuer credit AAA/Negative AAA/Stable
MBIA
Senior unsecured and issuer credit AA/Negative AA/Stable
XL Capital Assurance
XL Financial Assurance
Financial strength, financial enhancement and issuer credit AAA/Negative AAA/Stable
XL Capital Assurance (U.K.)
Financial strength, financial enhancement and issuer credit AAA/Negative AAA/Stable
RATINGS AFFIRMED
Rated company Rating/Outlook
Assured Guaranty Corp.
Financial strength, financial enhancementand issuer credit AAA/Stable
Assured Guaranty (U.K.)
Financial strength, financial enhancement and issuer credit AAA/Stable
CIFG Guaranty
CIFG Europe
CIFG Assurance North America
Financial strength, financial enhancement and issuer credit AAA/Negative
Financial Security Assurance
Financial strength, financial enhancement and issuer credit AAA/Stable
Financial Security Assurance (U.K.)
Financial strength, financial enhancement and issuer credit AAA/Stable
Financial Security Assurance Holdings
Senior unsecured and issuer credit AA/Stable
Junior subordinated hybrid security A+/Stable
Radian Asset Assurance
Financial strength, financial enhancement and issuer credit AA/Stable
PMI Guaranty Co.
Financial strength, financial enhancement and issuer credit AA/Negative
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