S&P Raises Assured Guaranty (AGO) to 'AA'; Notes Strong Competitive Position vs. Peers

March 18, 2014 3:17 PM EDT Send to a Friend
Standard & Poor's Ratings Services said that it raised its financial strength and enhancement ratings on Assured Guaranty Municipal Corp. (AGM), Assured Guaranty Corp. (NYSE: AGO), Assured Guaranty Re Ltd. (AG Re), and Municipal Assurance Corp. (collectively, Assured or the company) to 'AA' from 'AA-'. In addition, pursuant to our application of standard notching criteria, we are raising our ratings on the preferred capital trusts Sutton Capital Trust I, Sutton Capital Trust II, Sutton Capital Trust III, Sutton Capital Trust IV, Woodbourne Capital Trust I, Woodbourne Capital Trust II, Woodbourne Capital Trust III, and Woodbourne Capital Trust IV to 'A+' from 'A'; and our counterparty, debt, and senior unsecured ratings on Assured Guaranty Ltd., Assured Guaranty Municipal Holdings Inc., and Assured Guaranty US Holdings to 'A' from 'A-'. The outlook is stable.

We are withdrawing the financial strength ratings and financial enhancement ratings on Assured Guaranty Mortgage Insurance Co. (merged into AGM). All policies of this company were reassumed by the acquiring company or all its exposures have expired and the company has subsequently surrendered its insurance licenses.

The rating action reflects our view that Assured's competitive position remains strong relative to its peers' in the bond insurance industry. We believe that Assured no longer warrants a different rating than other recent entrants in the financial guaranty market based on its legacy structured-finance portfolio (which has materially declined since 2008). We believe Assured's ability to insure approximately $7.5 billion of par in the primary public finance market (capturing 62% of total primary insurable public finance transactions) and $1.1 billion in secondary market transactions in 2013 is a positive fundamental expression of market acceptance of Assured's financial guarantee policy. The company's legacy U.S. and residential mortgage-backed securities structured-finance portfolio no longer places Assured at a competitive disadvantage based on issuer, institutional, and retail investor sentiment. In addition, the full payment of claims to investors on various "high-profile" municipal bankruptcies held in Assured's insured portfolio demonstrates and reiterates to various constituents the value of bond insurance and the credit position and capacity of the company.

The stable outlook reflects Assured's strong competitive profile. The outlook also incorporates the company's market position in insuring new primary public finance debt issues and its ability to insure available U.S. public finance debt issues trading in the secondary market. The outlook also reflects Assured's pricing discipline when insuring transactions while competing with its bond insurance peers. In the near term, we expect insurable volumes and risk-adjusted pricing to be muted due to lower municipal yields, but expect the company to target appropriate risk-based profitability consistent with the market environment. As market yields widen based on our economic expectation, we believe Assured will be able to capture additional issuers and will be able to raise its risk-based premium pricing to more profitable levels appropriate for the rating category.

We could lower the rating below the 'AA' category if the current spread compression persists beyond the next 12 months and Assured's public finance risk-adjusted pricing decreases to less than 4% and remains there. We could also lower the rating if the company exhibits significant volatility from earnings or capital adequacy. Based on our view of the new-issue U.S. public finance and financial guarantee markets, we do not expect the business or financial risk profiles of the company to change dramatically and therefore do not expect to raise the ratings.


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