Fitch Downgrades Triad's IFS to 'BB'; Remains on Watch Negative

Business Wire, May 2, 2008

NEW YORK -- Fitch Ratings has downgraded the ratings on Triad Guaranty Inc. (Triad Guaranty) and its mortgage insurance subsidiary Triad Guaranty Insurance Corporation (Triad) as follows:

Triad Guaranty Insurance Corporation

--Insurer financial strength (IFS) to 'BB' from 'BBB-'.

Triad Guaranty Inc.

--Long-term Issuer to 'CCC' from 'BB-'.

--$35 million 7.9% fixed coupon senior notes due Jan.15, 2028 to 'CCC/RR4' from 'BB-'.

The affected ratings remain on Rating Watch Negative, where they were originally placed on Oct. 25, 2007 by Fitch.

This action follows the announcement by Triad Guaranty that it may plan to start up a new monoline mortgage insurance company with a group of investors led by Lightyear Capital LLC, and that if the plan is executed, that it would place Triad Guaranty Insurance Corporation into voluntary runoff.

Without the prospects of profitable future business to offset the likely increase in losses created by the 2006 and 2007 vintage years, or a meaningful capital infusion, Fitch believes that Triad's margin of safety to meet policyholder obligations could become pressured if delinquency and loss development continue at a sustained pace. Additional concerns include Triad's Option-ARM portfolio which represented over 12% of the company's insurance in force as of year-end 2007 and the performance trends of the 2007 vintage, a significant portion of which was made up of loans with loan-to-value ratios (LTVs) of 95% or greater. The 2007 vintage is currently exhibiting delinquencies trends that are materially higher than the troubled 2006 vintage for Triad and the rest of the U.S. mortgage insurers. As such, Fitch believes that Triad's current level of capitalization and overall financial profile are now consistent with a non-investment grade IFS rating.

The rating action also recognizes that even if the new company is not formed, Fitch believes it is highly likely that Triad will be placed into runoff, as the company appears to be unable to attract new capital. Positively, Fitch believes that if the new mortgage insurance company is formed, its potential ability to assist in the provision of administrative services to Triad may support a more orderly runoff.

With the prospects of Triad being placed in run-off, it will be much more difficult for Triad to continue to make dividend payments to Triad Guaranty in order to support holding company level debt service. Given this, Fitch has lowered Triad Guaranty's senior debt rating to 'CCC', implying that default is a real possibility. Consistent with its practice for low non-investment grade debt ratings, The Recovery Rating (RR) of 'RR4' on Triad Guaranty's debt obligations indicates that the recovery prospects of Triad's Guaranty's senior debt would be influenced by actual loss development at the operating company and regulatory restrictions on cash flows between the operating and holding company.

Triad Guaranty is a holding company that provides private mortgage insurance coverage in the United States through Triad, its wholly owned subsidiary. For Dec. 31, 2007, Triad Guaranty reported consolidated assets under Generally Accepted Accounting Principles of $1.1 billion and shareholders' equity of approximately $499 million.

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