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Moody's 'Maybe' Magic
by Megan Barnett
Jun 4 2008
Jun 4 2008
The bond insurers get slapped with a downgrade warning.
Last Trade:Change:
Summary:
A holding company whose subsidiaries provide financial guarantee products and other financial services to clients in both … View More
Last Trade:Change:
Summary:
The Company is a provider of financial guarantee products and specialized financial services that meet the credit enhancement, … View More
Joseph (Jay) W. Brown
Industry:
Finance
Biography:
Mr. Brown rejoined the Company in February 2008 as Chairman and Chief Executive Officer. He became Executive Chairman on … View More
Attention bondholders! Moody's would like you to know that it's thinking about its ratings on the bond insurers 
MBIA and Ambac, and it thinks it's probably going to conclude that a downgrade is in order when it completes its review.
Maybe. Also, maybe not.
But probably.
Moody's "Maybe" announcement sent shares of Ambac down 17 percent and MBIA's down 15 percent. It put the chief executives of the battered monolines on the defensive. And it soured an otherwise pleasant mood on Wall Street as the Dow reversed its gains.
Just when the credit-rating agencies are coming under increasing scrutiny, Moody's fired off a warning that simultaneously affirmed its credibility with investors and raised more questions among the companies it rates.
Moody's said it will "most likely" downgrade the bond insurers' debt from triple-A to double-A and may even drop it to the A level. The bond insurers were downgraded by Fitch earlier this year, but maintained their high rating from Moody's and Standard & Poor's.
MBIA chief executiveJay Brown disagreed with Moody's assertion. In February, the agency indicated that MBIA had six to 12 months before its rating would come under more scrutiny. Brown said the environment hasn't changed since then, and that its capital position has actually improved.
"Thus we are surprised by both the timing and direction of this action and can only conclude that the requirements for a triple-A rating continue to change," he said in a statement.
Of course, many investors believe the ratings firms should have downgraded the firms' debt many months ago. Hedge fund managers like Bill Ackman and David Einhorn have been outspoken bears about MBIA and Ambac for a long while.
A downgrade would negatively impact the $1 trillion worth of debt that the two insurers have guaranteed. In preparation for this, Moody's placed a banner at the top of its website today that states:
"On June 4, 2008, Moody's placed MBIA and Ambac on review for possible downgrade. Because of the large volume of rating and watchlist changes resulting from these actions, ratings appearing on this website may not yet reflect current information."
Maybe. Or maybe not.
MBIA and Ambac, and it thinks it's probably going to conclude that a downgrade is in order when it completes its review. Maybe. Also, maybe not.
But probably.
Moody's "Maybe" announcement sent shares of Ambac down 17 percent and MBIA's down 15 percent. It put the chief executives of the battered monolines on the defensive. And it soured an otherwise pleasant mood on Wall Street as the Dow reversed its gains.
Just when the credit-rating agencies are coming under increasing scrutiny, Moody's fired off a warning that simultaneously affirmed its credibility with investors and raised more questions among the companies it rates.
Moody's said it will "most likely" downgrade the bond insurers' debt from triple-A to double-A and may even drop it to the A level. The bond insurers were downgraded by Fitch earlier this year, but maintained their high rating from Moody's and Standard & Poor's.
MBIA chief executive
Jay Brown disagreed with Moody's assertion. In February, the agency indicated that MBIA had six to 12 months before its rating would come under more scrutiny. Brown said the environment hasn't changed since then, and that its capital position has actually improved. "Thus we are surprised by both the timing and direction of this action and can only conclude that the requirements for a triple-A rating continue to change," he said in a statement.
Of course, many investors believe the ratings firms should have downgraded the firms' debt many months ago. Hedge fund managers like Bill Ackman and David Einhorn have been outspoken bears about MBIA and Ambac for a long while.
A downgrade would negatively impact the $1 trillion worth of debt that the two insurers have guaranteed. In preparation for this, Moody's placed a banner at the top of its website today that states:
"On June 4, 2008, Moody's placed MBIA and Ambac on review for possible downgrade. Because of the large volume of rating and watchlist changes resulting from these actions, ratings appearing on this website may not yet reflect current information."
Maybe. Or maybe not.
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