Bond Insurer Gets Downgraded

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Well that rally didn’t last very long did it?
The word that FGIC Corp's bond insurance arm was downgraded by Fitch today certainly didn’t help things. Not that this was totally unexpected. We predicted a downgrade today in a post early this morning. Charlie Gasparino was talking about this on Wednesday.
Fitch cut FGIC's "AAA" insurer financial strength rating by two notches to "AA.” But further cuts may be in the works, as Fitch kept FGIC on negative credit watch.
FGIC has insured about $314.8 billion of outstanding bonds, making it the fourth largest bond insurer according to Reuters.
Bloomberg breaks it down for us: "About 71 percent of FGIC's guarantees are on municipal bonds, 23 percent are structured finance and 6 percent are international transactions, according to the company's website. FGIC guaranteed $21 billion of home-equity securities, $8.8 billion of subprime mortgage debt, and $10.3 billion of CDOs backed by subprime mortgages and other loans, the Web site shows."
That’s a relatively low ratio of structured finance bonds to safer public finance bonds. Far lower, for instance, than the 36% structured finance at MBIA. This limited exposure to structured finance could limit the damage to banks that have purchased insurance from FGIC. But it also shows that Fitch was willing to cut the insurer despite ongoing talks of a Wall Street bailout, which could mean trouble for larger bond insurers and their customers.
Fitch cuts "AAA" rating of FGIC insurance unit [Reuters]
FGIC Loses AAA Rating at Fitch After Missing Deadline
[Bloomberg]

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