DJ Fitch Doesn't See Bond Insurers Affected By Katrina
09/09 15:30 *DJ Fitch Doesn't See Bond Insurers Affected By Katrina
09/09 15:43 DJ Fitch Doesn't See Bond Insurers Affected By Katrina
By Stan Rosenberg
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Fitch Ratings said Friday it doesn't expect its financial strength ratings for bond insurers to be affected by credit deterioration or losses related to Hurricane Katrina.
The hurricane that tore through the Gulf Coast on Aug. 29 already has caused rating agencies Moody's Investors Service and Standard & Poor's Corp. to place about $9.5 billion of bonds from Louisiana and Mississippi municipalities and agencies - as well as bonds of the states themselves - on watch for possible downgrade.
Many of the bonds are insured against default by the bond insurers, raising questions about their financial standing should they have to pay out large volumes of claims.
09/09 16:32 DJ Fitch Doesn't See Bond Insurers Affected By Katrina -2
Fitch, which covers 10 insurers, said it knows of "several instances" of missed debt service payments by insured entities but described the amounts as " immaterial." Some of the missed payments also apparently took place before the hurricane struck and before their Sept. 1 payment date.
The rating agency didn't put any numbers on the missed payments.
"Fitch believes liquidity claims could increase in subsequent payment periods as these payments have yet to be remitted to the trustees," analyst Thomas J. Abruzzo said in a statement.
Many municipal bond issues, however, contain reserve funds from which debt service on bonds can be paid for a specified period of time, Abruzzo said. These reserves usually are created at the time of issuance and frequently cover six months to a year, according to analysts.
"Of course, of critical importance is the longer-term ability of the underlying issuers to re-establish infrastructure and resume revenue-generating capabilities to help service their debt," Fitch said.
Fitch said other types of bonds, such as mortgage-backed securities, also may be impacted by Katrina, but it anticipated the diverse nature of the collateral behind these transactions would limit credit deterioration or incurred losses.
While most bonds have underlying ratings, those that are insured against default take on the financial strength ratings of the insurers. Most are rated AAA, although some carry AA and A ratings.
The insurers rated by Fitch are MBIA Insurance Corp., Ambac Assurance Corp., Financial Security Assurance Inc., Financial Guaranty Insurance Co., XL Capital Assurance Inc., XL Financial Assurance Ltd., Assured Guaranty Corp., Assured Guaranty Re International Ltd., CIFG Guaranty and Radian Asset Assurance Inc.
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Fitch's assessment stood in contrast to a statement Wednesday by Standard & Poor's that said five of the bond insurers "are clearly facing uncertainty" because of the size of their exposure in the Gulf Coast region.
Nine primary bond insurers have $13.8 billion of exposure to municipal bond issuers whose creditworthiness may have been affected by Katrina, S&P said.
While four of those companies had a "low likelihood of suffering rating stress," details of changes in credit quality to various insured issuers will determine how susceptible each of the other five are, said S&P analyst Dick Smith.
Even so, he said, it would take a lot to threaten any of the companies. A scenario that resulted in rating downgrades for insured issuers of up to two notches, combined with short-term rating defaults, "will not likely threaten any of those companies' ratings," Smith said.
By short-term defaults, he said he was referring to those that could be promptly corrected, such as payments missed because an issuer suffered flood damage and couldn't get into its office as opposed to more serious problems like the disappearance of the revenue base backing certain bond issues.
The five companies "facing uncertainty" are ACA Financial, Ambac, Financial Guaranty, Financial Security and MBIA, Smith said. The insurers at low risk were Assured Guaranty, CIFG, Radian Asset and XL Capital.
In response to a question, Smith said it would be "premature" to put the companies on watch for a downgrade. "It's just not known what the level of claims could be from their exposure at this point. To put them on watch and materially impact their business, when in fact this thing may play out in a way that there is no real problem, may be overkill," he said. |
