Beleaguered bond insurers MBIA Insurance Corp. and Ambac Assurance Corp. received some welcome good news Monday from Standard & Poor's, with the rating agency affirming ratings on the two largest monolines. MBIA saw its financial strength rating removed from credit watch and assigned a negative outlook -- meaning a downgrade was less likely; Ambac saw its 'AAA' rating affirmed, although the company remains on credit watch, S&P said.
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The agency said that MBIA's efforts to bolster its capital position by more than $2.5 billion since last November were a "strong" reason behind the monoline's improved ratings situation. Ambac saw its ratings fortune improve amid reports late last week that a group of banks reached an agreement to pump more than $3 billion in capital into the ailing insurer if need be; S&P said the insurer would remain on credit watch "to reflect uncertainty surrouding the risk profile and capitalization plans for the reported new corporate structure being contemplated by the holding company." Ambac has been considering a break-up of the monoline, separating its municipal bond insurance business from its asset-backed book of business in a so-called "good bank/bad bank" scenario that would isolate the more risky portions of the company's business. While MBIA and Ambac saw their ratings take a turn for the better, both XL Capital Assurance Inc. and Financial Guaranty Insurance Co. saw their ratings dropped. For XLCA, in particular, the drop was large -- from 'AAA' to 'A-,' following Moody's downgrade of the bond insurer in early February. FGIC saw its ratings drop further, from 'AA' to 'A,' as S&P said that its modeling found even more likely losses in the insurer's portfolio. The news of MBIA and Ambac's affirmations sparked a strong rally in the financial markets, with the Dow Jones Industrial Average rising nearly 190 points to close out Monday's trading session. MBIA shares jumped nearly 20 percent to close at $14.58, while Ambac saw its shares jump 15.8 percent to $12.41. Disclosure: The author held no shares in any company mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.