Moody’s threatens downgrades on MBIA and Ambac

Ratings agency Moody’s has threatened to reduce the ratings on MBIA and Ambac within the next few weeks by multiple grades.

This is despite the fact that Ambac has a subsidiary within weeks of launch, and MBIA has another in development, both of which aim to see both bond insurers eligible for future upgrades to coveted triple A ratings.

Both MBIA and Ambac had fallen dramatically over the past year as they were downgraded from coveted premium ratings. The result was that from July 2007 to July 15th 2008, MBIA lost 90% of its share value, and Ambac lost as much as 95%.

Ambac Assurance Corp. currently has Aa3 insurance financial strength and MBIA Insurance Corp. has A2 insurance strength.

However, both companies have since been building up new subsidiaries in an aim to reclaim their triple A ratings.

Ambac already has regulatory approval from the State of Wisconsin, Office of the Commissioner of Insurance for up to $1 billion in future intercompany asset sales and secured lending transactions between Ambac Assurance Corp. and its investment agreement business affiliates.

This will result in the capitalisation and reactivation of Ambac’s Connie Lee Insurance Company, Ambac Assurance’s financial guarantee subsidiary.

Connie Lee will conduct business under a new name and will focus on the US municipal and global public purpose financing markets.

Ambac Assurance is injecting $850 million into Connie Lee which will operate as a separate corporate and legal entity within Ambac Financial Group.

Connie Lee expects to write new insurance policies no later than the fourth quarter of 2008.

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