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HenryTo
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 Posted: Thu Nov 15, 2007 10:18 am Post subject: Bond Insurers |
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This continues to bear watching going forward:
http://www.bloomberg.com/apps/news?pid=20601109&sid=aOjl_Hy9ibBI&refer=exclusive
| Quote: | Insurers could boost their padding by reinsuring the securities they guarantee, Fitch analyst Keith Buckley said on a conference call Nov. 8.
Banks may step in to back the companies because it would be cheaper than taking more writedowns, Michael Barry and Seth Levine, analysts at Charlotte, North Carolina-based Bank of America Corp., wrote in a report.
``The securities industry, no small force, has a keen interest in the financial guarantors remaining healthy and rated AAA,'' they wrote. ``Financial guarantors would not have to look far for help making sure the demand was met.'' |
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HenryTo
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HenryTo
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| Posted: Thu Jun 19, 2008 6:00 pm Post subject: |
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Moody's cuts ratings on Ambac and MBIA by one notch. Note that if these two entites are cut to single-A, then we're looking at an additional $100 billion in writed-downs at the very least.
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Moody's cuts ratings on bond insurers Ambac, MBIA
Thursday June 19, 6:57 pm ET
Moody's Investors Service cuts ratings on bond insurers Ambac, MBIA; outlook is negative
NEW YORK (AP) -- Moody's Investors Service said Thursday it cut its ratings on Ambac Financial Group Inc. and MBIA Inc. amid ongoing concerns about the bond insurers' financial health.
The rating house cut the insurance financial strength ratings for Ambac Assurance Corp. and Ambac Assurance UK Ltd. to "Aa3" from "Aaa," and for MBIA Insurance Corp. to "A2" from "Aaa."
In addition, Moody's downgraded Ambac's senior unsecured debt to "A3" from "Aa3." It lowered the surplus note rating for MBIA Insurance to "Baa1" from "Aa2," and the senior debt for MBIA to "Baa2" from "Aa3."
All the ratings remain investment grade.
The downgrades follow a review of the insurers started June 4, and reflect challenges with both companies' "financial flexibility" and expectations that losses from bonds they insure will continue to mount, Moody's said.
In response, New York-based Ambac said in a statement it was disappointed with the downgrade and the negative outlook.
"The companys strong capital base, even under Moodys stress-case scenarios, will allow it to manage through the current credit crisis" Ambac said in a prepared statement. "Moreover, we are actively managing our portfolio and expect to see concrete positive results from our remediation efforts."
It added the downgrade "should not have any material impact on its obligations to collateralize its guaranteed investment contracts and the swaps in its financial services segment."
Moody's said the ratings outlook for both companies is "negative," suggesting additional downgrades are possible. |
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rffrydr
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| Posted: Sat Jun 07, 2008 3:29 pm Post subject: |
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View from the other side:
The Reality Behind the Ambac and MBIA Downgrades
By Tom Graff
| Quote: | The most important question regarding Thursday's downgrade of Ambac (ABK - commentary - Cramer's Take) and MBIA (MBI - commentary - Cramer's Take) is obviously not about munis, but about asset-backed securities (ABS) and collateralized debt obligations (CDO).
As readers undoubtedly know by now, banks and brokerages routinely purchased monoline insurance on ABS and CDO transactions. In CDO land, the trade was usually done on the senior-most tranche of the CDO, with the monoline writing a credit-default swap (CDS) on the trade.
So the question is what are the banks' exposure? Are more writedowns in store? Let's take it step by step.
If we assume that banks and brokerages have been correctly following accounting rules, they would have been marking-to-market their CDO exposures all along. Right? Alright, let's look at one of Ambac's uglier bonds in their CDO portfolio. Citation High Grade ABS 2006-1A A1. That's CITAT 2006-1A A1, or CUSIP 17289LAA7 for those who want to follow along on their Bloombergs.
This beauty was originally rated AAA/Aaa, but, alas, it has fallen on some hard times. On June 2, Moody's downgraded this tranche to B1, remaining on negative watch. The overcollateralization test on the A tranche is currently below 100%.
Now I don't actually have offering documents on this bond, but this almost certainly means that the par value of the underlying collateral is now less than the outstanding Class A debt. Note that has nothing to do with the market value of anything.
In other words, actual realized losses on the collateral have blown through all subordination. Originally, the bond had about 14% subordinate to it, so realized losses are at least that large.
Now this Citation deal isn't as ugly as some others. As of March 31, 55% of the collateral is rated at least AA, and another 20% is rated A. Now I hear tell ratings don't mean as much as they used to, but still, a large percentage of the collateral is performing OK.
Still, given the failure of the OC test, we can assume that without any support from Ambac, this bond would in deep doo doo. There is no way this bond is getting more than 75% of its principal back.
However, had the market viewed Ambac as favorably as Moody's and S&P apparently did until just Thursday, the bond might still be trading near par. But of course, the markets have not assigned much value to Ambac's insurance for several months now.
On top of that, we see that straight AAA-rated home-equity paper in late 2006 (which, generally speaking, is better insulated than this CDO against losses) is trading in the mid 70s, and AA paper in the 30s. Could the bid on this thing possibly be more than $50? With or without Ambac insurance?
So now that Ambac has been downgraded, is there really any difference in the value of this bond? Is there really a lot more to be written down?
Of course, the above discussion has an "IF" the size of Ed McMahon's mansion. That is IF owners of this paper have been properly marking-to-market their positions.
What I'm afraid may be happening in some cases is that the bond itself has been marked in the right neighborhood, but the CDS price has been marked as if there actually were a AAA counter-party. So a bank would price our Citation deal at $40 or what have you, but price the CDS contract from Ambac as if there was a large gain in it. Now that CDS isn't worthless, if for no other reason than run-off, but it's sure not worth what it would be with Goldman Sachs as the counter-party.
An interesting twist on this story, and one that is probably helping to drive LIBOR and swaps spreads higher the last couple days. The AAA CDO/Monoline CDS combo trade was extremely popular with European banks. Perhaps the next round of big writedowns is coming from the Continent. |
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HenryTo
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HenryTo
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| Posted: Wed Jun 04, 2008 11:11 am Post subject: |
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Look for a ratings cut to AA over the next few weeks. As mentioned, a cut to AA would not be a disaster and should mean minimal write-downs among financial institutions, but a cut to single-A or lower would mean a potential collective write-down of $100 billion or higher - and that's only in municipal debt (the structured finance holdings are still a "blackbox").
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Moody's says will likely cut MBIA, Ambac from Aaa
Wed Jun 4, 2008 1:00pm EDT
NEW YORK, June 4 (Reuters) - Moody's Investors Service on Wednesday said it is likely to cut the top ratings of the bond insurance arms of MBIA Inc (MBI.N: Quote, Profile, Research) and Ambac Financial Corp (ABK.N: Quote, Profile, Research), on concerns about mortgage-related losses and limited new business prospects.
The ratings on MBIA Insurance Corp and Ambac Assurance Corp are likely to be cut to the "Aa" level, which would be one to three notches lower than its current "Aaa" rating, though a drop to the "A" area is also possible, Moody's said.
Moody's cited growing concerns that losses from residential mortgage-backed debt will be higher than expected and significantly constrained prospects for new business as reasons for the action.
MBIA and Ambac are also hampered from raising new capital, as their market capitalization has plunged and their cost of accessing the debt markets is very high, Moody's said.
The ratings of assets insured by the companies, which includes municipal debt, are also likely to be cut, except when the rating of the underlying asset is higher than that of the insurers. |
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HenryTo
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| Posted: Fri May 30, 2008 8:21 am Post subject: |
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Bloomberg beating this issue to death (so to speak):
http://www.bloomberg.com/apps/news?pid=20601087&sid=a0tWb0sTTgu8&refer=home
| Quote: | The team from Moody's Analytics, which operates separately from Moody's ratings division, uses credit-default swap prices as an alternative system of grading debt. These so-called implied ratings often differ significantly from Moody's official grades.
The implied ratings frequently show that swap traders think debt is in more danger of defaulting than Moody's credit ratings signify. And here's the kicker: The swaps traders are usually right.
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Ambac and MBIA have raised billions of dollars of new capital so that Moody's and Standard & Poor's would keep top ratings for the bond insurers -- and the rating firms have done just that.
Moody's implied-ratings group paints a completely different picture. Using the CDS market, Munves's unit rates both MBIA and Ambac Caa1. That's seven notches below junk and 15 below the official Moody's rating.
Swap traders see there's a huge risk that Ambac and MBIA will default, hedge fund adviser Tim Backshall says. He says swap traders don't trust S&P's and Moody's investment-grade ratings for the companies. |
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HenryTo
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| Posted: Tue May 13, 2008 3:03 pm Post subject: |
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Agree. Capital requirements to maintain a double-A rating is immensely lower than triple-A. Write-downs would also be minimal although I haven't see any official estimates. Getting a double-A rating would most likely mean shifting to run-off mode.
Bank of America estimated that a downgrade to single-A or lower would mean a bank write-down of more than $100 billion in muncipal debt alone. |
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rffrydr
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| Posted: Tue May 13, 2008 2:56 pm Post subject: |
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...which means it won't happen.
In runoff would be an interesting entity--trade like a bond?
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HenryTo
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| Posted: Tue May 13, 2008 2:50 pm Post subject: |
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It looks like both Moody's and S&P are gearing up to cut MBIA's and Ambac's ratings to AA from AAA. This is not an "end of the world scenario" but it would mean incrementally more write-downs. A rating cut to single A or below would be catastrophic for banks' balance sheets, however.
http://www.bloomberg.com/apps/news?pid=20601087&sid=az2uYHRScTSM&refer=home |
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rffrydr
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rffrydr
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| Posted: Wed Apr 23, 2008 3:51 pm Post subject: |
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Whacked. MBI down 33%.... not again.
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rffrydr
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rffrydr
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rffrydr
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rffrydr
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