Sewer mess gets FGIC downgraded

The bond insurers are back in the news. Moody’s has downgraded the triple-A insurer financial strength rating of FGIC. Moody’s notes that the New York-based firm, unlike its larger rivals Ambac (ABK) and MBIA (MBI), has failed to raise new capital and has stopped writing new business. The downgrade “reflects Moody’s view that the cushion above the required regulatory minimum may not be sufficient to absorb additional losses associated with FGIC’s mortgage related exposures,” the rating agency wrote Monday afternoon, “and the recent deterioration of Jefferson County (AL) bonds, to which FGIC has sizable exposure.” Jefferson County is the Alabama county whose sewer authority got caught up in the recent mayhem in the market for auction-rate municipal bonds.

FGIC’s downgrade could be bad news for its owners, including mortgage insurer PMI Group (PMI) and private equity giant Blackstone (BX). Another investor in FGIC is General Electric (GE), which owns 5% of the insurer’s common stock and $300 million worth of preferred stock as well.

Meanwhile another small, memorably named bond insurer - the CIFG unit of French banks Banque Populaire and Caisse d’Epargne - demanded Monday that Fitch withdraw its ratings on the company. CIFG, echoing an argument made last month by MBIA, said it “believes that Fitch is not in a good position to accurately determine the appropriate capital requirements for CIFG’s insured portfolio.” Update: CIFG’s decision comes just weeks after Fitch downgraded the company. How convenient.