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DJ UPDATE: S&P May Again Downgrade FGIC's Credit Rating
21 Mar 2008 18:21 GMT =DJ UPDATE: S&P May Again Downgrade FGIC's Credit Rating DOW JONES NEWSWIRES Standard & Poor's Ratings Services said it may further downgrade the credit ratings of struggling bond insurer Financial Guaranty Insurance Co., saying recent developments damaged the company's prospects. S&P cited the refusal of largest shareholder PMI Group Inc. (PMI) to contribute more capital to FGIC and FGIC's announcement that it will stop writing new business in order to preserve capital. "In our opinion, these announcements negatively affect the company's ability to implement plans to raise additional capital and resume writing business in the future," S&P said in statement. PMI has a 42% stake in FGIC, a holding that resulted in a $776.1 million after-tax loss in the fourth quarter for PMI due to higher losses and loss-adjustment expenses. The ratings agency also took a negative view of FGIC's plan to split its safer municipal-bond business from the structured-finance segment. Regardless of whether it happens, S&P said, FGIC's capitalization and business-writing ability would be pressured and "prospects for a rating upgrade for FGIC are difficult to envision." FGIC's breakup request, made to regulators last month, surprised banks that it was in talks with to bolster the firm. The move possibly could serve as an incentive to get the banks to step up to the plate on a cash infusion. In the past, regulators have said dividing the insurers is a last resort and urged the banks to put in fresh capital. FGIC, the fourth-largest bond insurer, earlier this year lost its key AAA rating from all three major ratings firms on worries it might fail to raise $1 billion in capital to cushion possible losses on complex securities that have plunged in value. Private-equity firms Blackstone Group (BX) and Cypress Group each own 23% of FGIC while former owner General Electric Co. (GE) maintains a 5% stake. -By Andrew Edwards, Dow Jones Newswires; 201-938-5973; [email][email protected][/email] (END) Dow Jones Newswires March 21, 2008 14:21 ET (18:21 GMT)