There was some hope that bond insurers might be able to shore up their balance sheets via reinsurance and/or capital infusions, to avert a downgrade. The pending $1 billion investment by Warburg Pincus in MBIA, the largest monoline insurer, seemed a promising sign for the sector.
The rating agencies are keeping the heat on. Standard & Poors lowered its outlook for MBIA and Ambac. From Bloomberg:
Standard & Poor’s cut its credit outlook on MBIA Inc. and Ambac Financial Group Inc.
MBIA tumbled to the lowest since March 2000 and Ambac posted its biggest drop in a week after S&P cited “worsening expectations” for securities backed by subprime mortgages in cutting its outlook on the two biggest bond insurers. Merrill Lynch & Co., the third-largest U.S. securities firm, dropped on speculation it holds securities insured by ACA Capital Holdings Inc., whose credit rating was cut by S&P. SLM Corp., the largest U.S. education lender, plunged the most ever after saying rising borrowing costs will slow profit growth…..
S&P’s actions today spurred concern that losses tied to delinquencies on subprime home loans may increase. If all the insurers were downgraded, losses may reach $200 billion on securities being insured as some holders are forced to sell because of investment guidelines, according to data compiled by Bloomberg.