Fitch Ratings has downgraded bond insurer Ambac Financial Group by two notches to AA from AAA. The ratings remain on rating watch negative and follow Ambacs decision to suspend efforts to raise $1 billion in capital. Ambac was placed on watch in December by Fitch because of a capital shortfall of $1 billion at the crucial AAA rating level.
Fitch said in a news release that the decision reflects, among other things, the significant uncertainty with respect to the companys franchise, business model and strategic direction. Ambac announced in a news release that it had scuttled plans to raise equity capital to bolster its position because of market conditions and other factors, including the recent actions of certain rating agencies. On Jan. 16, Moodys Investors Service announced that it had placed Ambac on review for possible downgrade.
Bond insurers are the latest victims of the subprime mortgage crisis, suffering higher than expected losses from credit enhancement provided to residential mortgage-backed securities. Analysts reportedly have said the downgrade of bond insurers could have long-term effects on organizations that issue municipal bonds, including hospitals, limiting the availability of bond insurance and making it more difficult to issue new debt. -- by Cinda Becker
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