Moody's Downgrades MBIA, Ambac

With less than perfect credit, the companies can continue to earn money through existing policies, but will find a hard time winning new business and growing.

In a company statement, MBIA said it was "disappointed" and "baffled" by Moody's action. It noted it had $16 billion in claims-paying resources, "more than enough" to cover its obligations.

"This is an issue of ratings and not solvency," MBIA said.

MBIA said Moody's downgrade will allow certain holders of insurance contracts the right to terminate the agreements or require the company to post additional collateral. MBIA said it had "sufficient liquid assets" to deal with either scenario.

Ambac also said it was "disappointed" and "disagreed" with Moody's decision.

"The company's strong capital base, even under Moody's stress-case scenarios, will allow it to manage through the current credit crisis," Ambac said in a statement." Moreover, we are actively managing our portfolio and expect to see concrete positive results from our remediation efforts."

Ambac said the downgrade had no "material impact on its obligations to collateralize its guaranteed investment contracts and the swaps in its financial services segment."

Shares of Ambac opened trading Friday down 4.9% and MBIA's stock was plummeting 10.2% to $5.79.