S&P Takes MBIA Off Downgrade Review, Approves Ambac Plan

Some of the cloud over MBIA was removed today as Standard and Poor’s affirmed its AAA. However, the number one bond insurer still has a negative outlook. The AAA for Ambac was also affirmed based on its capital raising plan and likelihood of being able to implement that plan. However, it remains on review for possible downgrade.

From Reuters:

Standard & Poor’s on Monday ended its downgrade review for MBIA Corp’s top “AAA” rating, citing success by the largest U.S. bond insurer in raising new capital.

The action reflects the company’s ability to successfully access $2.6 billion in extra capital that can be used to pay claims, S&P said in a statement.

The outlook is negative, indicating a rating cut may still be likely over the next two years.

The “AAA” ratings of Ambac Financial Group were “affirmed,” based on S&P’s assessment of the company’s capital-raising plans and ability to implement its plans.

Ambac remains on review for downgrade, however, “to reflect uncertainty surrounding the risk profile and capitalization plans for the reported new corporate structure being contemplated by the holding company,” S&P said.

The “AAA” ratings of XL Capital Assurance Inc, part of Security Capital Assurance (SCA.N: Quote, Profile, Research), meanwhile were cut six notches to “A-minus,” and remain under review for further downgrades.

Financial Guaranty Insurance Co’s ratings were also cut to “A,” the sixth-highest investment grade, from “AA” and remain on review with developing implications, meaning they may be raised, lowered or affirmed.

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  1. fmo

    Anyone old enough to be appropriately responsible for other people’s money “knows” what happened here, and the pressure that was applied given ARS problems.

    One day I’m going to get a ratings company in discovery and I promise you goodbye first amendment privilege.

  2. Anonymous

    Why is everybody surprised by this? According to a Minsky cycle, this is the point where all the insiders bail out and rush for the exits with their pockets stuffed with cash. This is most specifically an insider rescue, an expected one. Don’t be dumb money, run for the exits with what you have been given.

  3. Yves Smith


    No, he does mean First Amendment. No one has ever successfully sued a rating agency for bad ratings. They claim a First Amendment exemption, that they are journalists publishing opinion. That fiction has been repeatedly affirmed in court decisions.

    We cited in an earlier post an article that argued that ratings agencies were sufficiently involved in structuring CDOs that they could be deemed to be underwriters and thus liable. No one has puled off that line of attack, however.

    Google “rating agencies” and “first amendment” for more detail. This, for instance comes from an SEC release. Note that the rating agencies (NRSROs) are objecting to regulation because it might weaken their First Amendment protection. They want to have their cake and eat it too:

    Some commenters9 believe that the NRSRO designation acts as a barrier to entry into the credit rating business. Others have raised concerns about the extent of the Commission’s legal authority to regulate or impose requirements on NRSROs. Commenters argue that the Commission does not have explicit regulatory authority over NRSROs, and that it would be inappropriate for the Commission to impose a more comprehensive regulatory framework on rating agencies absent legislation. Others have argued that NRSRO rating activities are journalistic and are consequently afforded a high level of protection under the First Amendment. According to these commenters, suggestions that the Commission inspect or otherwise impose regulatory burdens on NRSROs would implicate the NRSROs’ First Amendment rights. They further believe that new legislation providing the Commission with additional authority over NRSROs would face the same First Amendment challenges.

  4. Anonymous

    I took a look at an Ambac policy the other day, which happened to be appended to the $50 million Las Vegas Convention and Visitors Authority revenue bond issue sold on Nov. 14. This was a somewhat unusual issue in that the authority sold the bonds at auction, and paid for the insurance up front. Usually the underwriter has the option of bidding with or without insurance.

    “This Policy is noncancelable,” it says. “The premium on this Policy is not refundable for any reason, including payment of the Obligations prior to maturity.” The policy does not insure “against any risk other than Nonpayment.”

    There was nothing in the specimen policy mentioning a rating downgrade. On page 4, under the section entitled “Bond Insurance” was this sentence: “No assurance can be given by the Authority that the Bond Insurer will be able to meet its obligation under the Policy.”

    Time to Pull Out, Read Your Bond Insurance Policies:


  5. Hubert


    check out Frank Partnoy on the Rating agencies. He did a very long analysis where he found the 1st amendment stuff somewhat fragile, an legal accident waiting to happen.
    You might google it. I think I found it the same way…..

    BR and thanks for your great work all these days….

  6. foesskewered

    If it were only an opinion, then investors are entitled to dismissing them. Unfortunately, most investors are too vested to rebel. Sigh, freedom of speech or freedom of $, what a dilemma

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