New York bailout plan may not save top bond ratings

Bond insurers led by MBIA Inc. and Ambac Financial Group Inc. may lose their top AAA ratings before they benefit from any rescue plan, Bloomberg News Service reported.
The bond insurance industry stands to lose $41 billion on securities linked to subprime and other mortgages, according to JPMorgan Chase & Co. analysts. Efforts by New York Insurance Superintendent Eric Dinallo, 44, for a $15 billion fund to bolster insurers’ capital are likely to be overtaken by events, independent research firm CreditSights Inc. said last week.
“Given the number of competing interests and levels of commitment of participants involved, we think it is unlikely that an agreement sponsored by Dinallo could be hammered out within the appropriate timeframe,” CreditSights analysts Rob Haines, Craig Guttenplan and Joe Di Carlo in New York wrote in a report. “In the off chance that any deal could be solidified, the rating agencies are likely to have already taken action.”
The industry guarantees about $2.4 trillion of securities issued by U.S. cities and states, as well as bonds backed by mortgages, credit cards and other assets. Insurers including Security Capital Assurance Ltd., FGIC Corp. and ACA Capital Holdings Inc. have been seeking capital since November when Fitch Ratings and Moody’s Investors Service began reviewing the effect of rising defaults on mortgage securities guaranteed by the companies.
Dinallo’s department hired investment bank Perella Weinberg Partners to advise it on the financial stability of bond insurers and how to protect their customers, a Dinallo spokesman said last week. •