Assured Finalizes CIFG Bond Transaction

By: Dr. Jay H. Abrams
Chief Municipal Credit Analyst

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Assured Guaranty announced that it has closed its agreement with CIFG to reinsure $13 billion of CIFG’s public finance portfolio. CIFG had seen its financial guaranty rating fall below investment grade due to its large exposure to structured finance transactions involving sub-prime mortgages.

Assured (Aa2/AAA) will not be reinsuring bonds rated below investment grade, credit default swaps, or any issues for which CIFG had established a loss reserve. Under the terms of the transaction, Assured will now process any claims arising from the portfolio, perform credit surveillance and other associated administrative tasks necessary to manage the portfolio. Investors with CIFG insured bonds can contact our office at 800-FMSbonds (367-2663) to determine whether a specific bond is covered by the agreement.

Future plans for the CIFG portfolio include efforts by Assured, in concert with bondholders and issuers, to “novate”, or transfer, the policies from CIFG to Assured so that they would become direct insured obligations of Assured and gain the benefit of its “AAA” rating. The novation process will require each policy and bond issue to be reviewed individually including legal provisions and other factors specific to that policy. 

Assured indicates that timing of this process is unsure and not every policy will be novated. Although CIFG’s policies will now benefit from Assured’s financial strength and claims paying ability, rating agencies have not yet indicated whether CIFG policies will have their ratings changed to reflect their re-insurance from Assured.

In addition to the deal with Assured, CIFG also announced a separate transaction which rid its books of $12 billion in structured finance exposures resulting in a strengthening of CIFG’s balance sheet. CIFG is considered solvent with the completion of both deals and saw its financial strength rating raised by both Moody’s (Ba3) and Standard & Poor’s (BB). CIFG will remain in business until its final policy “runs off,” but will not write new business.

Eric Dinallo, New York’s Insurance Superintendent, oversaw both transactions and has worked diligently to stabilize the municipal bond insurance industry while keeping bondholders’ insurance intact.

1/30/2009