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S&P DOWNGRADES FGIC, PLACES MBIA AND XLCA ON CREDITWATCH NEGATIVE
Shortly after downgrading 8,342 classes of sub-prime and other mortgage backed obligations representing approximately $270.1 billion in value, Standard & Poor’s (S&P) announced the downgrade of bond insurer FGIC to “AA.”
FGIC was also placed on CreditWatch with developing implications, meaning the rating could further be raised or lowered, depending on whether the insurer is successful in accessing additional capital. FGIC had been rated “AAA” since its founding in the early 1980s.
Simultaneously, S&P placed MBIA and XLCA on CreditWatch Negative. Both insurers previously had negative outlooks. Although MBIA has been able to access an additional $1.5 billion of additional capital, the large scale of projected losses by the insurer caused S&P to see increased urgency in completing its capital raising efforts. The change from a negative outlook to negative CreditWatch shortens the timeframe S&P is willing to give MBIA to solidify its capital base.
XLCA’s negative watch came in response to S&P’s view that the plans to raise capital by the insurer are more uncertain than originally thought. XLCA has announced it is no longer planning to raise capital from third parties due to poor market conditions.
Typically, CreditWatch is used by S&P to indicate at least a one-in-two likelihood that a rating will be changed within a 90-day window. Unlike CreditWatch, an outlook is assigned to all ratings and indicates the general direction of a rating over a term lasting up to two years.
02/02/08
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