Following up on a review-for-downgrade initiated March 20, Moody's lowered ratings on Bermuda-based Assured Guaranty Ltd. to A2 from Aa3, while also downgrading several related entities and subsidiaries.
"Today's rating action reflects Moody's downward reassessment of Assured's business franchise, expected future profitability, and financial flexibility," read a statement from 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."
MKM Partners analyst Harry Fong, who had recently speculated that Moody's unusually lengthy review process might be a sign the ratings agency was having second thoughts about the potential downgrade, nonetheless maintained his "Buy" rating and $28 12-month price target. Assured Guaranty shares opened some 4% lower, but were down by 2.57% to $14.23 about 30 minutes into trading."While this downgrade is clearly unwelcome news, its shares still represent excellent value, in our opinion. As we have highlighted several times since Moody's issued its downgrade notice last year, the company does have options, and we are confident management planned for this possibility," Fong wrote. BTIG analyst Mark Palmer predicted Friday morning's selloff after the downgrade could take the shares lower by 10% or more. However, he added, "we doubt very much that any downdraft will persist." Palmer added that since the initial review for downgrade was initiated "a significant number of investors have done a great amount of work to understand [Assured Guaranty's] value proposition. Many of those with whom we have discussed the company have conducted runoff analyses based on its existing portfolio that led them to conclude that [Assured Guaranty] shares are worth materially more than their current trading level - in some cases more than twice as much more - even if zero new business is factored in." One of Assured's staunchest defenders is investor Wilbur Ross, who in August called Assured "probably the best risk/reward position in my entire portfolio,". A call to Ross wasn't returned, and spokespeople for Assured Guaranty did not respond to an email message seeking comment on the downgrade. -- Written by Dan Freed in New York. Follow @dan_freed
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