Assured Guaranty Disputes Moody’s Downgrade

January 21, 2013

Moody’s Investors Service has downgraded the Insurance Financial Strength (IFS) rating of Bermuda-based Assured Guaranty Municipal Corp. to A2 from Aa3, the IFS rating of Assured Guaranty Corp. to A3, from Aa3, and the IFS rating of Assured Guaranty Re Ltd. to Baa1 from A1.

In the same rating action, Moody’s also downgraded the senior unsecured debt ratings of both Assured Guaranty US Holdings Inc. and Assured Guaranty Municipal Holdings Inc., to Baa2, from A3. The outlook for the ratings is stable.

“Today’s rating action reflects Moody’s downward reassessment of Assured’s business franchise, expected future profitability, and financial flexibility,” said Moody’s.

“Assured operates in an industry that has not recovered from the financial crisis and, like its peers, will continue to struggle in the face of declining fundamentals, including a dramatic reduction in insurance usage, modest profitability and still-meaningful legacy risk.”

Assured Guaranty, whose biggest investor is billionaire Wilbur Ross, said its credit downgrade by Moody’s was unjustified and showed a “serious flaw” in the company’s rating process.

Assured Guaranty CEO Dominic Frederico said: “We strongly disagree with Moody’s assignment of an A2 rating to AGM, especially given Moody’s statements in its own release that AGM has capital adequacy ‘corresponding to a high Aa score’ and insured portfolio characteristics that are ‘high investment grade.’

“Moody’s based its downgrade on its subjective, qualitative factors of ‘Franchise Value and Strategy,’ ‘Profitability’ and ‘Financial Flexibility,’ which we will refute later in this release.

“Moody’s ratings now appear to be determined by unsupported qualitative factors and assumptions about future product demand, future profitability and future stock price that have little or no relevance to the Company’s actual ability to meet all of its financial obligations with the highest certainty.

“When a company’s financial strength and the quality of its insured portfolio are no longer the dominant factors in its ‘financial strength rating,’ there is a serious flaw in the rating process. A close reading of Moody’s release also reveals contradictions and inconsistencies that essentially discredit it.”

Assured Guaranty said it plans to launch a new municipal-only financial guaranty insurer that will not carry a Moody’s rating.

Category: All, Business