Tuesday, January 29, 2008

Bond Insurers Face Downgrade Despite Call for Delay

(CNBC) Wall Street bond rating agencies are poised to downgrade two big bond insurers, Ambac Financial Group and MBIA, even though New York state insurance regulars would like to get a postponement until the state can develop a bailout package, CNBC has learned.

Losing a Triple A rating could be devastating for the bond insurers, preventing them from drumming up new clients -- and possibly forcing them out of business.

Barring some last minute agreement on a bailout package, the downgrades could come as early as Wednesday.

Insurer Ambac has received a downgrade from rating agency Fitch, but has so far been spared by Standard & Poor's and Moody's. MBIA hasn't been downgraded.

The ratings agencies realize they're walking a tight rope -- if they downgrade the insurers, they could expedite their demise. On the other hand, if they follow New York's request and don't downgrade, they're in essence violating their duty to downgrade bonds on objective criteria.

Moody's downplayed the likelihood of striking a deal with New York, however. A spokesman for the ratings agency confirmed that Moody's has had conversations with the Insurance Department, but said "we don't forbear on our ratings" based on talks with government officials.

Standard & Poor's had no comment.

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