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Standard & Poor's affirms ratings on MBIA, Ambac, leaves door open for downgrades

Standard & Poor's affirms ratings on MBIA, Ambac, leaves door open for downgrades

Standard & Poor's Ratings Services affirmed its rating on MBIA Inc. and Ambac Financial Group Inc. on Monday, saying it appears the troubled bond insurers will raise enough cash to pay the claims they are likely to face.
S&P affirmed its "AAA" rating on Ambac and MBIA, though Ambac remains under scrutiny for a downgrade in the next few months.
These companies write insurance policies that promise to repay bondholders when bond issuers default. Bond insurers have come under pressure to prove they can withstand a spike in claims as credit quality decays across a broad swath of debt.
Since the beleaguered bond insurance industry was thrust to the foreground of the credit crisis, MBIA has sold $1.6 billion (euro1.08 billion) of stock and $1 billion (euro0.67 billion) in bonds, fortifying a $17 billion (euro11.47 billion) cushion the company has available to pay claims.
S&P said raising this money "is a strong statement of management's ability to address the concerns relating to the capital adequacy of the company." Based in Armonk, New York, MBIA insures $670 billion (euro452.18 billion) in debt.
Ambac last month scrapped a plan to raise more than $1 billion (euro0.67 billion) by selling stock. S&P left the company on CreditWatch, implying a 50 percent chance of a downgrade in the next three months, hinging on the company's ability to raise cash.
Ambac has reportedly been in talks with a number of banks over a bailout plan to help the company safeguard its financial strength rating. Ambac insures about $555 billion (euro374.57 billion) in debt,
A person familiar with the discussions, who asked to remain anonymous because he was not authorized to speak publicly about the subject, said Ambac is looking to raise about $3 billion (euro2.02 billion) to help bolster its reserves to cover claims.
Negotiators are optimistic a deal will be struck, but because of the complicated nature of the plan an agreement may not be sealed until late this week or next week, the person said.
Downgrades of major bond insurers like Ambac, Security Capital Assurance Ltd. and Financial Guaranty Insurance Co. have rocked the sector and the bond market this year.
The industry insures $2.3 trillion (euro1.5 trillion) in debt, and the value of this debt is imperiled if the insurers sheltering it are less sturdy. Most of the debt these companies insure is government bonds floated to finance projects like hospitals, schools and roads.
MBIA's stock surged $1.78, or 14.6 percent, to $13.96. The shares have still lost more than three-quarters of their value since the middle of last year. Shares of Ambac climbed $1.18, or 11 percent, to $11.89. The stock is down more than 85 percent since the middle of June.
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Associated Press Writer Mike Gormley in Albany contributed to this report.


Updated : 2021-03-03 19:05 GMT+08:00