S&P Cuts MBIA Monoline to Junk
[Update 1: clarifies Q209 earnings] Standard & Poor's lowered the financial strength ratings on MBIA Insurance Corp. to double-B plus from triple-B. The rating agency also lowered the counter-party credit rating on MBIA Inc. (MBI), the group holding company. The blow to MBIA's bond insurance unit brings its rating to non-investment grade or "junk" status. Monolines like MBIA typically insure only products with ratings equal or less than its own. S&P said continued adverse loss developments within MBIA and exposure to certain asset classes within the insured portfolio acted as driving factors in the downgrades. "Losses on MBIA's 2005–2007 vintage direct [residential mortgage-backed securities] RMBS and [collateralized debt obligation] CDO of [asset-backed securities] ABS could be higher than we had expected," S&P said in the ratings announcement. "However, the downgrade also reflects potentially increased losses in other asset classes, including but not limited to CMBS and -- for other years prior to 2005 -- within RMBS." At the same time, S&P affirmed its single-A rating of MBIA's new business, National Public Finance Guarantee Corp., which assumed MBIA's US public finance business. The rating agency indicated the affirmation came in light of the business unit's lack of exposure to structured finance. MBIA responded to the slash of its insurer financial strength (IFS) rating on Tuesday, indicating business will continue as usual. “The downgrades of MBIA Insurance Corporation’s IFS rating and the debt ratings of MBIA Inc. will have no material impact on our business activities," a company spokesperson told HousingWire. "We remain confident that we have adequate resources to meet all of our obligations to policyholders and debtholders." MBIA, like many other monolines in the space, is focused currently on balance sheet management, much moreso than sourcing new business. The ratings cuts arrive after MBIA's Q209 profits came in 47% narrowed from the year-ago quarter. The recorded profits came in large part from decreases to its loan loss reserves after MBIA estimated recoveries of $1.1bn in obligations from defaulted second-lien mortgages it said should have never been securitized to begin with. Write to Diana Golobay.