Ambac Assurance Corp lowered to 'R'

Standard & Poor's lowered its ratings on the senior secured debt issued by Reliance Rail Finance to 'BBB-' from 'BBB+' and its ratings on the junior secured debt to 'BB' from 'BBB-'.

At least it did not lower the ratings on the senior debt to subinvestment grade, as Moody's did a couple of weeks earlier, but S&P cited much the same reasons for the action.

S&P cited as reasons the "potentially higher refinancing risks, pressures across the project resulting in additional delays in delivery of the initial train sets, and a risk that liquidation of the debt insurers could affect the availability of bank debt."

The outlook on the ratings was moved to stable from negative.

S&P moved its credit ratings on credit wrapper Ambac Assurance Corp., to 'R' from 'CC'. The move to 'R' recognises that Ambac is now under regulatory supervision. Ambac was not one of the credit wrappers used by Reliance Rail.

Ambac has been directed by the Commissioner of Insurance of the State of Wisconsin to establish a segregated account for certain insured exposures and to cease paying claims on these exposures. It is S&P's view that the regulatory directive indicates a level of regulatory intervention at Ambac that is consistent with an 'R' rating.

Moody's subsequently announced that it had placed Ambac's 'Caa2' insurance financial strength rating on review for possible upgrade. The action was prompted by Ambac's announced restructuring.

The segregated account will contain Ambac's most risky exposures such as RMBS and Las Vegas Monorail and has been placed under rehabilitation by the regulator. Ambac has also entered into a non-binding agreement to commute all of its remaining ABS CDOs.

These actions are expected to improve the credit standing of Ambac's senior unsecured policyholders by settling the insurer's most risky exposures, and effectively subordinating (via the segregated account) policyholders with outstanding claims. Moody's IFSR addresses senior policy obligations residing within AAC's general account, but not the now-subordinated segregated account claims.