Outlook Slashed for Bond Insurers MBIA, Ambac

Standard & Poor's slashed its outlook for Ambac Financial Group and MBIA Insurance, the world's biggest bond insurers, that insure more than $1.2 trillion in debt.

S&P now has a "negative" outlook for those bond insurers, and for XL Capital Assurance, a unit of Security Capital Assurance, indicating their triple-A ratings have a greater chance of a rating cut in the next two years.

It also is reviewing Financial Guaranty Insurance, a unit of Blackstone Group, for a downgrade, citing deteriorating performance of mortgage debt and collateralized debt obligations.

"The rating actions were prompted by worsening expectations for the performance of insured nonprime residential mortgage-backed securities and CDOs of asset-backed securities," S&P said in a statement.

S&P also cut its ratings on ACA Financial Guaranty to junk status. ACA's rating was lowered to "CCC," or eight levels below investment grade, from "A," the sixth-highest investment-grade rating.


ACA's "capital resources may no longer be sufficient at their respective rating levels," the rating company said.

"Another consideration in the analysis, if there is a capital shortfall, is the magnitude of the shortfall and the extent to which the company has raised or is planning to raise new capital, and the viability of that capital plan," S&P said.

Canadian Imperial Bank of Commerce said on Wednesday that there was a "reasonably high probability" that it will incur a large write-down in its first-quarter results due to its exposure to ACA. CIBC declined to comment on whether it is involved in a bailout of ACA.

At the same time, S&P affirmed the top "AAA" ratings of Assured Guaranty (AGO.N) and CIFG Guaranty. It also affirmed the ratings of Financial Security Assurance Holdings, Radian Asset Assurance and PMI Guaranty.

Egan-Jones Ratings said last month a downgrade would likely mean ACA would have to close.

"If ACA were downgraded, it would likely go out of business," Egan-Jones' Sean Egan said at the time.