Insurer downgrade may hit municipals
NEW YORK - (Jan 19) - The downgrading yesterday of bond insurer Ambac Financial Group Inc. is likely to have far-reaching effects, making it more difficult for cities to issue new bonds and forcing further write-downs at financial services companies, analysts said.
...
Ambac and chief competitor MBIA together insure $700 billion in municipal bonds, and MBIA's "AAA" rating also is under threat. The company issued $1 billion in bonds this week to preserve the rating.
MBIA said yesterday that it intends to keep working toward maintaining its "AAA" rating.
Since late last year, when the agencies first raised the prospect, analysts have suggested any move to cut Ambac or MBIA below "AAA" could lead to a reduction in the value of portfolios at dozens of financial institutions, said Donald Light, an analyst at Celent LLC.
"Bond insurers are the linchpin holding together valuations of portfolios of all kinds of financial institutions," Light said.
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ACA faced a midnight deadline last night to persuade trading partners to give the insurer more time to get out of $60 billion in credit-default swap contracts it can't pay, the company's regulator said.
ACA has yet to notify the regulator, the Maryland Insurance Administration, whether its clients have agreed to extend the deadline without posting $1.7 billion more in collateral, said Karen Barrow, director of public affairs for the state agency.
"Ultimately,
if the forbearance agreements are not extended and the money is due, it may make them insolvent. We then may have to take action regarding their insolvency."
T.J. Marta, a fixed-income analyst at RBC Capital Markets, predicted
a downgrade of Ambac would lead to downgrades of all the municipal bonds it insured.
Subsequently, it will become more difficult for cities, counties and other local entities to issue debt for building projects, Marta said.
Baltimore Sun
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