Rescue package to be too late to save bond insurers ratings
An independent research form has warned that the proposed rescue plan for US bond insurers is unlikely to be completed before the major players lose their AAA ratings.
CreditSights Inc implied that the banks being called upon by New York Insurance Superintendent Eric Dinallo to formulate a $15bn rescue package for bond insurers have too much on their own plate to be able to complete the rescue in time.
“Given the number of competing interests and levels of commitment of participants involved, we think it is unlikely that an agreement sponsored by Dinallo could be hammered out within the appropriate timeframe,'' CreditSights said.
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The bond insurance companies guarantee in the region of $2,500bn of debt-based securities worldwide, effectively lending their own AAA rating to any security they underwrite. Earlier this month credit ratings agency Fitch cut the rating of Ambac Financial’s insurance arm after Ambac had to abandon a share issue to raise funds to shore up its capital base.
The other agencies, such as Moody’s, have Ambac and the other bond insurers under review, while they examine the effects of the increasing number of defaults on mortgage securities guaranteed by the companies.
The bond insurers are finding it difficult in the current market conditions to raise the capital necessary to hang on to their AAA ratings, and it is this that has prompted New York Insurance Superintendent Eric Dinallo to try and put together a rescue package.
