S&P backs bond insurers’ AAA ratings, sparking rally

Feb.25, 2008 in Market Outlook

MBIA, Ambac jump on positive S&P actions

Rating agency says bond insurers’ efforts to raise capital bearing fruit

By Alistair Barr, MarketWatch

Last Update: 3:47 PM ET Feb 25, 2008

SAN FRANCISCO (MarketWatch) — MBIA Inc. and Ambac Financial shares jumped on
Monday, spurring a broader market rally, after Standard & Poor’s took positive
rating actions on their bond-insurance businesses and said the companies’ efforts
to raise capital are bearing fruit.

S&P affirmed Ambac’s (ABK) AAA rating, saying it has assessed the scope of the
company’s plan to raise new capital from a group of banks that are major
counterparties to the bond insurer. The insurer’s rating remains on CreditWatch
with negative implications because the company’s plans and risk profile are still
uncertain, S&P added.

At the same time, the ratings agency took MBIA’s (MBI) AAA rating off CreditWatch
because of the company’s success in boosting its claims paying resources by $2.6
billion recently.

MBIA’s moves are “a strong statement of management’s ability to address the
concerns relating to the capital adequacy of the company,” S&P said in a written
statement.

Ambac shares jumped 13% to $12.10 during afternoon trading, while MBIA shares
surged 19% to $14.49.

After the S&P statement came out, blue-chip stocks saw a spike higher. At last
check, the Dow Jones Industrial Average was up 200 points at a session high of
12,577.Ambac and MBIA have been trying to raise capital to preserve their AAA
ratings. Without those top ratings, their businesses may be imperiled.

A group of eight banks that are major counterparties to Ambac is close to
injecting new capital into the insurer, two people familiar with the situation
said on Friday. The plan could raise $3 billion in new capital, according to a
Wall Street Journal report.

“If this proposal comes to fruition, this shows that the market is really
working. We’re awaiting the final steps,” said Wisconsin Insurance Commissioner
Sean Dilweg, who regulates Ambac’s bond insurance unit. “This S&P AAA affirmation
agrees with everything that we’ve seen so far.”

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