FGIC Plans to Request Company be Split into Two Entities, Moody Cut Its Triple A Rating
As reported in the Wall Street Journal, according to a source familiar with the matter, Financial Guaranty Insurance Co., a major bond insurer, has notified the New York State Insurance Department that it will request to be split into two companies.
One of the firms would likely retain much of the business of insuring structured finance bonds such as those backed by mortgages, which have come under severe pressure due to the housing market slowdown, according to the person.
The other company would likely retain most of the municipal bond insurance business, which is stronger, the person said.
Details of the precise structure are still unclear, but the plan could involve raising additional capital.
The news comes a day after New York Gov. Eliot Spitzer and the state's insurance commissioner Eric Dinallo testified to Congress about the problems facing the bond insurers.
Moody's Investors Service had cut FGIC Corp.'s key AAA bond insurer ratings on Thursday. According to Moody, the actions were the result of FGIC's "meaningfully weakened capitalization and business profile resulting, in part, from its exposures to the U.S. residential mortgage market," the ratings company said. Moody's believes FGIC's capital base is $4 billion short of what would be needed to retain a AAA rating.
Published on February 15, 2008
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