MBIA Removed From Review at S&P, Ambac May Be Cut

MBIA Removed From Review at S&P, Ambac May Be Cut

Feb. 25 (Bloomberg) -- MBIA Inc., battling to stave off the crippling loss of its AAA credit rating, won a reprieve from Standard & Poor's, which said it's unlikely to downgrade the bond insurer any time soon.

The insurer remains on negative outlook, meaning that any ratings move may be lower, though nothing is imminent, New York- based S&P said today in a statement. Ambac Financial Group Inc., which ranks second to MBIA among bond insurers, is still being reviewed for a possible downgrade, S&P said.

MBIA and Ambac soared in New York Stock Exchange composite trading on speculation the companies will dodge a credit rating that would stymie their ability to guarantee debt and strip the AAA stamp from $1.2 trillion of insured municipal and asset- backed debt. Armonk, New York-based MBIA jumped as much as 18 percent and Ambac of New York gained as much as 19 percent.

``We've avoided the brink for the first quarter,'' said Peter Plaut, an analyst at hedge fund Sanno Point Capital Management in New York. Sanno doesn't disclose its assets under management.

MBIA's ability to raise $2.6 billion was ``a strong statement of management's ability to address the concerns relating to the capital adequacy of the company,'' S&P said.

Liz James, an MBIA spokeswoman and Vandana Sharma, a spokeswoman for Ambac, didn't return calls seeking comment.

Broader Review

S&P made the announcements as part of a broader review of ratings of all the bond insurers, also known as monolines, which cover $2.4 trillion of municipal and asset-backed debt. S&P, Moody's Investors Service and Fitch Ratings have been scrutinizing the companies after they posted record losses on collateralized debt obligations they guaranteed. CDOs repackage pools of assets into separate pieces that are given different ratings.

Banks stood to lose as much as $70 billion if the CDOs they owned no longer carried an automatic AAA rating because of the insurance.

``It's positive for the monolines, positive for the banks that rely on these wraps and it's positive for the municipal bond market,'' Plaut said.

The financial strength ratings on XL Capital Assurance Inc. and XL Financial Assurance Ltd., units of Security Capital Assurance Ltd., were reduced to A- from AAA and left under review, S&P said. The ratings company cited Security Capital's failure to raise additional capital.

Financial Guaranty Insurance Co. was lowered to A from AA and remains under review after S&P determined its potential losses may be higher than previously estimated.

CIFG Guaranty had its AAA rating affirmed, though S&P said the company has a negative outlook because of concerns that parent Natixis SA won't continue to support it.

BLOOMBERG