Bond Insurers Talking to Banks About Eliminating $125B in Insurance on Risky Debt Securities
According to a Financial Times (FT) report on Sunday, bond insurers such as Ambac Financial Group, MBIA Inc., and FGIC are in discussions with banks about wiping out $125 billion of insurance on risky debt securities to limit the damage to the insurers from the credit crisis.
Discussions about "commuting" these insurance contracts, which were sold by the bond insurers to banks in the form of credit default swaps (CDS), have taken on a renewed sense of urgency amid a rash of rating downgrades in the bond insurance sector, the report said.
The talks center on CDS contracts issued by bond insurers to guarantee payments on collateralized debt obligations (CDOs), complex debt securities often backed by mortgages that have plunged in value amid a wave of foreclosures, the FT said.
The nominal value of these CDSs on CDOs is about $125 billion, according to estimates by Standard & Poor's, the FT said.
Published on June 23, 2008
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