In what might serve as a template for other troubled financial guarantors, CIFG has received a $1.5 billion capital infusion from the shareholders that control its French parent company.
The relief, which was announced Thursday, will bolster CIFG against its exposure to securities backed by troubled subprime mortgages. It also will prevent CIFG from losing its all-important triple-A credit rating. Indeed, Fitch Ratings Thursday affirmed that rating Thursday.
For financial guarantors like CIFG,
Security Capital Assurance
, maintaining a top credit rating is crucial. That¿s because most bond issuers won't pay for insurance from a guarantor that doesn¿t have super-strong balance sheets and capital reserves.
The credit ratings have broader credit market implications, too. Many municipal bond funds are required to own bonds rated triple-A that are insured by a triple-A-rated guarantor. So a downgrade of an insurer's rating could trigger massive selling in the $14 trillion municipal bond market.
Earlier this month, Fitch
called into question the capital reserves at a slew of financial guarantors, underscoring how the collapse of the subprime mortgage sector was threatening yet another part of the financial world.
Fitch had said the ratings of the insurers was in question because of their exposure to collateralized debt obligations, or CDOs, that had been downgraded since early September. These securities were often backed by troubled subprime mortgage paper.