Monday, December 17, 2007

Fitch: FGIC on Rating Watch Negative

by Bill McBride on 12/17/2007 06:17:00 PM

Press Release: Fitch Places FGIC on Rating Watch Negative After CDO & RMBS Review

Fitch Ratings has placed the following ratings of FGIC Corporation (FGIC Corp.) and subsidiaries Financial Guaranty Insurance Co. (FGIC) and FGIC UK Ltd. on Rating Watch Negative:

FGIC Corp.

--Long-term 'AA';

--$325 million of 6% senior notes due Jan. 15, 2034 'AA'.

Financial Guaranty Insurance Company

FGIC UK Ltd.

--Insurer financial strength 'AAA'.


This action follows the completion of the updated assessment by Fitch into FGIC's current exposure to structured finance collateralized debt obligations (SF CDOs) backed by subprime mortgage collateral and one CDO-Squared deal, as well as FGIC's exposure to residential mortgage-backed securities (RMBS). This review indicates that FGIC's capital adequacy under Fitch's Matrix financial guaranty capital model currently falls below guidelines for an 'AAA' IFS rating by more than $1 billion, due to downgrades by Fitch in a number of FGIC's insured SF CDO's coupled with some deterioration in the company's RMBS portfolio, including second-lien mortgage securitizations.

If within the next four-to-six weeks, FGIC is able to obtain firm capital commitments, and/or put in place reinsurance or other risk mitigation measures in order to meet capital guidelines, Fitch would expect to affirm FGIC's ratings with a Stable Rating Outlook. If FGIC is unable to meet capital guidelines in the noted time frame, Fitch would expect to downgrade FGIC's ratings. In that event, Fitch anticipates downgrading FGIC's IFS rating no lower than one or two notches. FGIC and its investor group have presented plans to Fitch about bolstering FGIC's capital position to support an 'AAA' IFS rating. While the basics of the plan would appear to be sufficient to restore FGIC's 'AAA' rating and Stable Outlook, execution of the plan could be challenged by individual requirements at each of FGIC's primary investors.