US-based bond insurer MBIA this week had its senior debt rating downgraded by Moody’s.
Moody’s Investors Service cut MBIA’s rating two notches from Ba1 to Ba3, three levels below investment grade.
The rating cut was blamed on MBIA’s exposure to high-risk investments, including residential mortgage-backed securities. Moody’s also cited ongoing litigation against the firm.
“These rating actions reflect further expected insured portfolio deterioration at MBIA Insurance Corporation and the uncertainty stemming from ongoing litigation challenging MBIA’s recent restructuring,” Moody’s said.
In its statement, Moody’s also warned of “meaningful uncertainty about the actual losses that MBIA will incur due in part to the lack of consensus about the direction of the economy and its effect on portfolio credit performance.”
MBIA is currently the target of a lawsuit by a group of 18 financial institutions who claim that the bond insurer’s restructuring earlier this year was fraudulent.
In the first quarter of 2009, MBIA divided its insurance operations into two segments, called National Public Finance Guarantee, and MBIA Insurance.
A statement by MBIA said: “we believe that these lawsuits are without merit and that the New York State Insurance Department’s approval of the transactions will be upheld.”
