An alert reader tipped us off to the latest development on the bond insurer front. As Reuters tells us, while XL’s insurance subsidiaries are not bond insurers, the are exposed to bond insurer Security Capital via a reinsurance/investment relationship.
XL’s senior debt was downgraded one level to Baa1.
From Reuters:
Moody’s Investors Service on Friday cut its ratings on XL Capital Ltd, citing losses from the company’s reinsurance of and investment in Security Capital Assurance.
The Bermuda insurer said last week it expects a net loss in the fourth quarter of $1.0 billion to $1.2 billion, blaming charges connected to its investment in SCA. SCA is under stress due to mortgage exposures of its bond guarantee arm, XL Capital Assurance Inc.
Moody’s cut XL Capital’s senior debt rating one notch to “Baa1,” the third-lowest investment grade, from “A3.” The outlook is stable, indicating an additional rating change is not anticipated over the next 12 to 18 months.
“The downgrade reflects the company’s relatively weak profitability and related coverage of interest and preferred dividends, most recently stemming from losses associated with its reinsurance of and investment in Security Capital Assurance,” Moody’s said in a statement.
The cost to insure XL Capital’s debt with credit default swaps fell 2 percent on Friday to around 260 basis points, or $260,000 per year for five years to insure $10 million in debt, according to Markit Intraday.
The Wall Street Journal gave more detail on the downgrades:
Moody’s downgraded ratings of XL’s insurance units, including XL Insurance (Bermuda) Ltd. and XL Re Ltd., one notch to A1 from Aa3. It also cut XL Capital’s senior debt rating Baa1 from A3. The outlook on the ratings is now stable.
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An interestting tidbit from Euroweek.com (subscription, which I don’t have)
AIG has a 9.05 bn exposure to Ambac, and 7.06 bn to FGIC. Its exposure to other monolines is smaller, with SCA at 658 mn. Several years ago, the Economist did a feature on the convoluted structure of AIG, which they judged to be essentially impervious to analysis. This was prior to the Spitzer/Greenberg brouhaha, and the subsequent fines.
Can the US Governement bodies, investigate any of the bermuda based insurers… ?
OT
Hidden Swap Fees by JPMorgan, Morgan Stanley Hit School Boards
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ay5LDbjbjy6c
What New York-based JPMorgan Chase didn’t tell them, the transcript shows, was that the bank would get more in fees than the school district would get in cash: $1 million. The complex deal, which placed taxpayer money at risk, was linked to four variables involving interest rates. Three years later, as interest rate benchmarks went the wrong way for the school district, the Erie board paid $2.9 million to JPMorgan to get out of the deal, which officials now say they didn’t understand.
“That was like a sucker punch,” Barker says. “It’s not about the district and the superintendent. It’s about resources being sucked out of the classroom. If it’s happening here, it’s happening in other places.”
$12 Billion in Deals