Ambac Financial Group Inc. became the first bond insurer to lose its AAA rating after Fitch Ratings downgraded the company.
Ambac Assurance Corp.’s ranking was lowered two levels to AA and may be reduced further, New York-based Fitch said today in a statement.
The downgrade “reflects the significant uncertainty with respect to the company’s franchise, business model and strategic direction.”
Ambac the second-largest bond insurer, dropped to $6.23 in New York Stock Exchange trading after earlier trading as high as $7.18. The New York-based company today abandoned plans to raise $1 billion in capital after a 70 percent plunge in its shares in the past two days.
Moody’s Investors Service and Standard & Poor’s, the two largest ratings companies, are also reviewing Ambac’s ratings for a possible reduction.
Without its AAA rating Ambac may be unable to write the top- ranked bond insurance that makes up 74 percent of its revenue. Ambac may have to stop making insurance or sell itself, said Robert Haines, an analyst at CreditSights Inc., a bond research firm in New York.
Ambac insures about $556 billion in municipal and structured finance debt.
FT Alphaville provided a prognosis from RBS:
From a rating perspective, in the absence of a bail-out, we see the agencies as more likely to downgrade than not, and once the first downgrade has gone through (likely Fitch with respect to SCA next week), it will become much easier for the other agencies to follow suit with other monolines. We now expect the future for the monolines to play out as follows. Fitch will likely downgrade SCA next week, and FGIC and Ambac the following week – assuming it sticks to its own six week deadline. Moody’s will follow in due course with downgrades to Ambac, MBIA, FGIC and SCA, and S&P will downgrade FGIC. The damage the downgrades of other agencies will do to these monolines is likely to prompt the others to downgrade as well. In theory, these downgrades will be to the double-A category, based on the comments of the agencies so far.