Updated from Wednesday, Dec. 5.

Moody's Investors Service estimates that monoline insurer MBIA ( MBI) may be at a greater risk of facing a capital shortfall than its previous assessment, another blow to a key link in the chain of players backing an ever-shakier credit market.

Moody's more bearish view of the bond insurer was issued as part of a preliminary report sent out Wednesday to brief investors on the rating agency's progress as it conducts a more thorough review of other insurers, including Ambac Financial ( ABK), CIFG, Financial Guaranty Insurance Co. and SCA.

A Moody's spokeswoman said the agency declined to comment beyond the release. MBIA shares closed down 16% to $27.42 on Wednesday.

Monoline insurers, which use their high credit rating to provide insurance on debt issued by corporations and municipalities, have experienced capital concerns because many moved away from the staid business of enhancing the credit rating of insuring government bonds and corporate debt to insuring esoteric mortgage debt.

Moody's, as well as Fitch Ratings and Standard & Poor's, has been reviewing whether these companies are sufficiently capitalized to insure debt in the event of increasing defaults in a deteriorating housing market environment.

In its briefing, Moody's said that MBIA "is at greater risk of exhibiting a capital shortfall than previously communicated," adding that it "now considers this somewhat likely."

MBIA, which earlier this week celebrated its 20th anniversary of being a publicly traded company on the New York Stock Exchange, had been considered one of the stronger of the crop of monoline insurers that have been under balance sheet pressure.

A call to MBIA's CEO Gary Dunton in Armonk, N.Y., was directed to a spokesman, who did not return a call. The company issued a statement Wednesday noting that Moody's had not yet taken action and that other monoline insurers were in the same boat.

"The company believes that maintaining a strong balance sheet and an adequate capital cushion is prudent," the statement read. "Therefore, the company has been pursuing capital contingency plans, even in the absence of any immediate rating agency requirements."

MBIA shares were rallying 3.8% to $28.45 on Thursday.

The Moody's statement also comes a week after activist Bill Ackman of Pershing Square Capital publicly lambasted the insurer, accusing the firm of improprieties in its business operations and saying that it was not deserving of its triple-A rating.

Ackman, who is betting in his $6 billion hedge fund that MBIA will fail, says he looks to make hundreds of millions in the event the insurer collapses.

Rating agencies have not been swift to downgrade these insurers, preferring to give the companies sufficient time to address the capital concerns that have been raised. The implications of a significant monoline downgrade for these companies, which rely heavily on their credit rating to underwrite debt insurance, are significant because the insurers provide guarantees for some $2.5 trillion in debt.

Options for many have included turning to outsiders or their parent entities for more cash or forming a reinsurance pool that would act as an additional buffer in the event securities default.

CIFG received a $1.5 billion cash injection from its French parent Banque Populaire Group and the Caisse d'Epargne Group, which own controlling stakes in the entity. Other insurers, including FGIC, continue to wait for their parents to intervene.

The Blackstone Group ( BX), which holds a 23% stake in FGIC, is believed to be leading the charge in assessing the capital requirements of the monoline insurer but has yet to lay out a plan, which has been unsettling for staffers within the company, sources familiar with the company tell TheStreet.com.

Calls to Blackstone and FGIC were not immediately returned.

FGIC is also 23% owned by private-equity firm Cypress Group and 42% by the PMI Group ( PMI).

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