Breaking: S&P Cuts MBIA and Ambac Ratings

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The writing was on the wall when news broke this morning that bond insurers MBIA and Ambac were dropping their resistance to ratings downgrades from Moody's. But it was S&P that struck first, chopping the ratings on both Ambac and MBIA. S&P cut the financial strength of the operating companies and the holding companies, as well as the ratings on their debt. S&P says the bond insurers face a decline in new business and lack financial flexibility.
The downgrades further damage the business prospects of the bond insurers, who need a triple A rating to carry on their business. The downgrades should ripple through the $2.6 trillion municipal bond market. Moody's has estimated that downgrades at the bond insurers could affect as many 563,000 individual ratings on municipal issues backed by bond insurance.
Oddly the reaction to the downgrades is far less panicked than what we saw a few months ago, when even rumors of downgrades could send the major indexes into a tailspin. Presumably this is because this has been telegraphed for so long that many investors have already priced in the cut.
Moody's is expected to cut soon.

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