turn to hurt, as the firm on Friday became the latest bond insurer to be hit with a ratings warning.
Fitch Ratings put Ambac's triple-A credit rating on "watch for a possible ratings downgrade," citing an updated review of the firm's exposure to collateralized debt obligations and CDOs squared, which are CDOs that pool and securitize other collateralized debt obligations, many of which are deteriorating in credit quality and value. The move comes a day after Fitch did the same to Ambac rival
, which saw its stock take a drubbing of on news the firm has extensive exposure to the risky structured products.
Fitch says Ambac is about $1 billion short enough capital to meet the pristine triple-A requirements. The company has four to six weeks to obtain some capital, add a layer of reinsurance, or take "other risk mitigation measures," said the agency. Otherwise, the company's credit rating will likely be cut one notch to AA-plus.
Shares of Ambac were down 5.9% in recent trading, a milder slump compared with MBIA's drop of more than 20% on Thursday.
Fitch, in putting MBIA on credit watch Thursday, said the company also comes up $1 billion of capital short of a AAA credit rating because of CDO downgrades. That includes the recent $1 billion investment that the private-equity firm Warburg Pincus made in MBIA.
Fitch similarly gave MBIA four to six weeks to "obtain further capital commitments and/or put in place reinsurance or other risk mitigation measures." Fitch says it expects to downgrade the firm to AA-plus if it cannot come up with the capital in time.
All of the credit ratings agencies have been closely scrutinizing the finances of companies such as MBIA, Ambac,
Financial Guaranty Insurance Co.
XL Capital Assurance
Financial Security Assurance
. These guarantors rely on having pristine credit ratings and more than enough capital to guarantee that investors receive their interest payments on securities they own.
A ratings downgrade for any of them could force some fixed-income investors into a selling spree, because parameters of their investment funds require that their holdings be insured by a guarantor with a AAA rating.
In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click
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