MBIA splits itself in two

The monoline insurer, MBIA Insurance Corporation, restructured during the week, dividing its financial insurance operations in two. MBIA Insurance Corporation of Illinois will take over MBIA's municipal bond business and MBIA Insurance Corporation will hold the remainder of the bond insurance portfolio, including structured finance exposures.  MBIA Illinois is expected to be renamed National Public Finance Guarantee Corporation.

As a result of this restructure Moody's Investor Service lowered its insurer financial strength assigned to MBIA Corp to 'B3' from 'Baa1', with a developing outlook, and placed the 'Baa1' insurer financial strength rating assigned to MBIA Illinois on review for possible upgrade.

Standard & Poor's lowered the 'AA' financial strength ratings assigned to MBIA Corp and MBIA Illinois to 'BBB+' with a negative outlook, and to 'AA-', respectively, but placed the latter on CreditWatch with developing implications.

Elsewhere in the insurance sector S&P revised the outlook on the 'AA' and 'A+' long-term credit and insurer financial strength ratings assigned to the core Axa Group operating entities and the holding company respectively, to negative from stable. The outlook revision reflects S&P's view of prospects at AXA group for a material decline in profits over the medium term in its life, savings and asset management businesses, as well as weakened capital adequacy owing to the decline in equity and credit markets,  

S&P may consider downgrading AXA if the recovery of earnings capacities and capitalisation over 2009/10 remains inconsistent with the ratings. AXA SA has $750 million of subordinated perpetual bonds, callable in October 2016, outstanding in the domestic market.

Aegon N.V., the parent company of Monumental Life (which has issued bonds in Australia via its Monumental Global Funding vehicles and still has $200 million of November 2011 bond outstanding), was downgraded by Moody's and placed on CreditWatch with negative implications by S&P, last week. The rating actions were in response to the release of preliminary 2008 fourth quarter results revealing a loss of €1.2 billion and a consequent deterioration in financial flexibility.

Moody's lowered its senior debt and insurance financial strength ratings on the company to 'A3' from 'A2' and lowered the same ratings on Aegon's US life insurance operations to 'A1' from 'Aa3'. S&P assigns a long-term credit rating of 'A+' to Aegon and long-term credit and insurer financial strength ratings of 'AA' to the core operating subsidiaries. S&P expects to reassess the CreditWatch before the end of March 2009 and may affirm the ratings with a negative outlook or lower them by one notch.

Swiss Reinsurance Company Ltd. (Swiss Re) has some $750 million of perpetual bonds, callable in May 2017, outstanding in the domestic market. S&P lowered the long-term credit and insurer financial strength ratings assigned to the group to 'A+' from 'AA-', with a stable outlook.

The rating action is in response to the much greater than anticipated capital depletion seen at Swiss Re during 2008, the capital raising this has necessitated and the potential adverse flow-on effects that this could have, particularly on the group's future earnings and financial flexibility. In S&P's opinion, the decision taken by Swiss Re management during 2007 to tactically build its ABS portfolio is the root cause of the precipitous fall seen in the group's book equity during 2008.

Following the announcement by Lloyds TSB Group of heavy, 2008 pre-tax losses at HBOS, Fitch Ratings lowered the individual ratings it assigns to Lloyds Banking Group Plc (LBG), Lloyds TSB Bank Plc (LTSB) and HBOS Plc to 'C/D' from 'B/C', 'B/C' from 'B', and 'C/D' from 'C', respectively. All three individual ratings were then placed on Rating Watch Negative.

At the same time, LBG's Support rating was upgraded to '1' from '5' and its Support Rating Floor revised to 'AA-' from 'No Floor', reflecting Fitch's view that support from the UK authorities will be channelled through LBG. This action allowed the issuer default ratings of 'AA-/F1+' assigned across the group to be affirmed.

In an apparently unrelated move, Moody's downgraded the long-term senior debt ratings assigned to LBG and LTSB to 'A1' from 'Aa1' and 'Aa3' from 'Aaa', respectively, and assigned a stable outlook to the ratings. The bank financial strength rating on LTSB was also lowered to 'C+' from 'B+', with a negative outlook. At the same time the various ratings assigned to HBOS Plc and Bank of Scotland Plc were aligned with those assigned to LBG and LTSB (even though Lloyds has not assumed or guaranteed any HBOS debt) with the exception of the BFSR on Bank of Scotland, which was lowered to 'C-' and remains on review for further possible downgrade.

Among industrial debtors a more severe decline in BMW AG's key automotive markets than previously anticipated, by magnitude as well as by pace, which resulted in much weaker unit sales volume than expected, has triggered a review of the 'A2/P1' long- and short-term credit ratings assigned by Moody's. Moody's said that BMW's profitability and cash generation could deteriorate over the medium term to an extent materially below its current rating category.

BMW Australia Finance Limited has issued bonds in the domestic market, although none are believed to be outstanding. It has also been a prolific issuer in the Euromarket.