MBIA & Ambac Ratings, The Next Banking Crisis
#2 Guarantor floored... Ambac Financial Group scrapped a plan to raise equity capital...
after the bond insurer's shares plunged 70% in the past two days, putting its AAA credit rating in jeopardy.
Ambac blamed "market conditions" and scrutiny by ratings companies for its decision to drop efforts to sell $1 billion of shares or convertible notes.
Ambac, which traded at more than $96 eight months ago, has lose 93% of its market value in the last year.
Moody's said this week it may cut Ambac's ratings after the company forecast writedowns of $3.5 billion on subprime-mortgage securities.
Fitch demanded the company raise $1 billion by the end of the month.
Ambac, the 2nd largest financial guarantor may have to stop writing insurance or sell itself.
#1 Guarantor on the ropes... MBIA raised $1 billion last week in the sale of surplus notes...
and last month entered a deal to sell $1 billion of equity to private-equity firm Warburg Pincus LLC.
The surplus notes plunged as low as 70 cents on the dollar today, indicating a yield of about 25%.
MBIA shares dropped 18%, extending its 56% decline this week.
Prices for credit-default swaps that pay investors if MBIA or Ambac can't meet their debt obligations...
imply a 73% chance the companies will default in the next five years.
The Nattering One muses... If bond insurers losing their AAA credit rating, the debt they insure,
$2.5 Trillion worth, would also get a lower credit rating.
This would cause another wave of bad debt write down from financial institutions and defaults.
The Nattering One still believes that the rating agencies WILL NOT downgrade the guarantors under any circumstance.
It would be a financial disaster and the end of the confidence game for all involved.
We've Nattered before about low risk premiums for high risk debt and what happens when the underlying stock price falls,
predicted cash flow declines as the economy slows, and the borrowed money or debt backing the LBO or stock buyback cannot be serviced?
The rating agency collusion will not stop the default on the riskier junk debt, write offs will ensue, dwarfing the current mortgage and ABCP morass.
In The Next Banking Crisis... Jim Jubak does a great job of explaining our long term Nattering...
"Wall Street continues to talk as if all we're facing is a two-quarter downturn, although perhaps of some severity,
but the early money is starting to behave as though things are likely to be worse than that..
Junk-bond investors, taking a clue from the 30%-to-50% losses suffered in the subprime-mortgage market
by investors who held on too long, are moving toward the exits with all due speed.
As the economy slows, the default rate is rising for corporate debt, especially for the high-risk, high-yield corporate debt called "junk".
That's opening a Pandora's box of potential write-downs that could dwarf the losses in the mortgage market."
after the bond insurer's shares plunged 70% in the past two days, putting its AAA credit rating in jeopardy.
Ambac blamed "market conditions" and scrutiny by ratings companies for its decision to drop efforts to sell $1 billion of shares or convertible notes.
Ambac, which traded at more than $96 eight months ago, has lose 93% of its market value in the last year.
Moody's said this week it may cut Ambac's ratings after the company forecast writedowns of $3.5 billion on subprime-mortgage securities.
Fitch demanded the company raise $1 billion by the end of the month.
Ambac, the 2nd largest financial guarantor may have to stop writing insurance or sell itself.
#1 Guarantor on the ropes... MBIA raised $1 billion last week in the sale of surplus notes...
and last month entered a deal to sell $1 billion of equity to private-equity firm Warburg Pincus LLC.
The surplus notes plunged as low as 70 cents on the dollar today, indicating a yield of about 25%.
MBIA shares dropped 18%, extending its 56% decline this week.
Prices for credit-default swaps that pay investors if MBIA or Ambac can't meet their debt obligations...
imply a 73% chance the companies will default in the next five years.
The Nattering One muses... If bond insurers losing their AAA credit rating, the debt they insure,
$2.5 Trillion worth, would also get a lower credit rating.
This would cause another wave of bad debt write down from financial institutions and defaults.
The Nattering One still believes that the rating agencies WILL NOT downgrade the guarantors under any circumstance.
It would be a financial disaster and the end of the confidence game for all involved.
We've Nattered before about low risk premiums for high risk debt and what happens when the underlying stock price falls,
predicted cash flow declines as the economy slows, and the borrowed money or debt backing the LBO or stock buyback cannot be serviced?
The rating agency collusion will not stop the default on the riskier junk debt, write offs will ensue, dwarfing the current mortgage and ABCP morass.
In The Next Banking Crisis... Jim Jubak does a great job of explaining our long term Nattering...
"Wall Street continues to talk as if all we're facing is a two-quarter downturn, although perhaps of some severity,
but the early money is starting to behave as though things are likely to be worse than that..
Junk-bond investors, taking a clue from the 30%-to-50% losses suffered in the subprime-mortgage market
by investors who held on too long, are moving toward the exits with all due speed.
As the economy slows, the default rate is rising for corporate debt, especially for the high-risk, high-yield corporate debt called "junk".
That's opening a Pandora's box of potential write-downs that could dwarf the losses in the mortgage market."
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