Fitch Still Assessing Financial Guarantor Exposure to Hurricane Katrina

Business Wire, Sept 9, 2005

NEW YORK -- Fitch Ratings has reviewed the insured portfolios of the financial guaranty insurance companies the agency rates in order to assess the impact of Hurricane Katrina. While information on the condition of many debt issuers within the disaster area remains unknown at the present time, Fitch does not currently expect credit deterioration and/or future incurred losses related specifically to Katrina to affect the insurer financial strength (IFS) ratings of any of the Fitch-rated financial guarantors.

Historically, financial guarantors have experienced few, if any, claims and virtually no losses net of recovery, resulting from most previous natural disasters in the U.S. This said, previous natural disasters have not resulted in the level of evacuation and displacement associated with Katrina, which creates a relatively greater risk of potential debt service interruption. Therefore Fitch will continue to closely monitor the developing situation in the region and any potential adverse impact on the insured portfolios of the financial guarantors.

In aggregate, the financial guarantors have reported approximately $14.6 billion of municipal finance net par in force within the Federal Emergency Management Agency (FEMA)-designated disaster areas. This includes exposures within a tri-state area of Louisiana, Mississippi and Alabama. However, for analytical consistency, Fitch has excluded state-wide exposures. Approximately $4.2 billion of this exposure is in greater New Orleans itself.

Given the disruption currently taking place within the area, Fitch anticipates insured exposures situated within Greater New Orleans to be more at risk of stress in the future. Although the financial guarantors' reported exposures relate to FEMA-designated disaster areas, Fitch notes some differences in reporting criteria. FEMA-designated disaster areas may include counties/parishes designated for 'individual assistance', as well as a broader universe designated for 'public assistance'. Reporting among the financial guarantors has been inconsistent on this point, but for the purpose of this analysis, the reported numbers of the four largest financial guarantors- Ambac, FGIC and FSA and MBIA- are based on the broader designation.

Fitch's U.S. Public Finance group has noted public finance underlying ratings that are most vulnerable due to the effects of Hurricane Katrina. For more information, see Fitch's press release dated Sept. 8, 2005 ('Fitch Expands List of U.S. Public Finance Ratings at Risk due to Hurricane Katrina'), which is available on the Fitch Ratings web site at www.fitchratings.com. Disruptions in the revenue generating or collection capabilities of these or other issuers whose debt carries insurance may pose liquidity risk to the financial guarantors should they need to make interim debt service payments.

Sept. 1, 2005 was the first significant debt service payment date for public finance exposures following the impact of Katrina. At the present time, Fitch is aware of several instances of missed debt service payments by entities with debt insured by the financial guarantors. The amounts of the debt service payments were immaterial. Fitch notes, however, that underlying bond structures in many cases may have required that debt service payments due Sept. 1, 2005 be remitted by issuers to trustees several days prior to the Sept. 1 payment date, and thus prior to the onset of the current disaster conditions. Fitch believes liquidity claims could increase in subsequent payment periods as these payments have yet to be remitted to the trustees. That said, many municipal finance bond issues maintain debt service reserve funds, which help to support debt service payments for a specified period of time. Of course, of critical importance is the longer-term ability of the underlying issuers to re-establish infrastructure and resume revenue generating capabilities to help service their debt.

In addition to public finance transactions, certain insured structured finance exposures, such as residential mortgage-backed securities, manufactured housing and student housing/student loans, may also be impacted by the hurricane. However, Fitch does not envision material credit deterioration or incurred losses with respect to structured finance exposures, due primarily to the diverse nature of the majority of the underlying collateral.

The financial guaranty insurance and reinsurance companies covered under this review include the following:

The financial guaranty insurance and reinsurance companies covered under this review include MBIA Insurance Corp. (MBIA; IFS rated 'AAA'), Ambac Assurance Corp. (Ambac; IFS rated 'AAA'), Financial Security Assurance Inc. (FSA; IFS rated 'AAA'), Financial Guaranty Insurance Co. (FGIC; IFS rated 'AAA'), XL Capital Assurance Inc. (XLCA; IFS rated 'AAA'), XL Financial Assurance Ltd. (XLFA; IFS rated 'AAA') Assured Guaranty Corp. (AGC; IFS rated 'AAA'), Assured Guaranty Re International Ltd. (AG Re; IFS rated 'AA'), CIFG Guaranty (CIFG; IFS rated 'AAA') and Radian Asset Assurance Inc. (Radian; IFS rated 'AA', Rating Outlook Negative)