MBIA Capital Position Worse Than Previously Thought.
MBIA Inc. (MBI) is at greater risk of having insufficient capital to maintain its triple-A rating than previously thought, Moody's Investors Service said Wednesday as it reviews the capital of financial guarantors.
Moody's now considers the large bond insurer "somewhat likely" to have insufficient capital to weather the deterioration of the securities they guarantee, which include collateralized debt obligations backed by subprime mortgages.
The ratings agency still considers CIFG's rating as the most likely to fall under capital benchmarks for a triple-A rating, even though the insurer late last month announced it will receive an $1.5 billion cash infusion "that would significantly reduce that risk," Moody's said
. Financial Guaranty Insurance Co. (FGIC), Security Capital Assurance (SCA) and Ambac (ABK) are also considered "somewhat likely" by Moody's to have insufficient capital to support their ratings.
A downgrade of insurers - even if by one notch - could trigger massive repricing of the securities they wrap, or insure. About 45% of the investment-grade municipal bond market is insured, according to the Lehman Brothers Municipal Index. Insurers' wraps, because of the ratings of their firms, give bonds AAA ratings.
Market participants fear that distrust of the entire bond insurance industry could result from a downgrade of just one or two firms.
MBIA's credit default swaps, which measure investor views on company's creditworthiness, widened to 430/475 basis points after the news, according to Lindsey Spink at Robeco Weiss Peck & Greer. At its tightest today, MBIA CDS was 400 basis points, he said. It closed at 430/460 basis points on Tuesday. These levels, however, reflect the double-A rating of the holding company rather than the triple-A insurance rating. .
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