More on monolines

Monoline insurer, Assured Guaranty Corp., continues to see its credit ratings coming under pressure. Last week Moody's moved again, placing its 'Aa2' insurance financial strength rating on the monoline under review for possible downgrade.

Despite recent improvements in the company's market position, Moody's says the expected performance of Assured's insured portfolio, particularly mortgage-related risks and pooled corporate exposures, has substantially deteriorated. This has a direct, negative impact on Moody's assessment of the company's risk-adjusted capitalisation.
Moody's said that the review will consider Assured's weakened risk-adjusted capital adequacy position, the effect of any capital remediation efforts, and the pending acquisition of Financial Security Assurance Inc. (FSA), on the financial guarantor's business and financial profile.

At the same time and for much the same reasons, Moody's placed the 'Aa3' insurance financial strength rating assigned to FSA on review for possible downgrade. As part of the review, Moody's will refine its assessment of FSA's insured portfolio, with an emphasis on factors that could affect the ultimate RMBS losses to FSA, including recent performance trends, remaining economic uncertainties, and loss mitigation activities.

Moody's will also evaluate the company's business and franchise sensitivity to weaker capital adequacy and core profitability. In addition, the review will consider any capital remediation plans that FSA might pursue and the likely strategic direction of the firm, given the changing dynamics within the industry and the potential effects of its planned acquisition by Assured Guaranty.

Only three weeks after last confirming its 'BBB-' long-term issuer default rating on Downer EDI, Fitch has again affirmed the rating, this time after reviewing the potential implications for Downer arising from the deteriorating financial position of two monoline insurers. FGIC (UK) Limited (FGIC) and Syncora Guarantee Inc (Syncora) both provide guarantees to the bank lending syndicate and to bondholders in connection with the Reliance Rail project financing transaction. Reliance Rail is 49 per cent owned by Downer.

Fitch does not consider that any rating action is warranted at this time in view of the non-recourse nature of the Reliance Rail project financing structure to Downer, and the agency's expectation that any credit event affecting one or both of the monoline insurers would be unlikely to result in a material weakening of Downer's credit profile. Fitch will, however, continue to monitor developments and assess any impact on Downer's ratings.

Fitch revised the outlook on the 'A-' long-term issuer default rating assigned to Vodafone Group Plc to negative from stable and affirmed the 'F2' short-term IDR. The outlook change reflects concerns that Vodafone's operational performance and cash flow generation will be negatively impacted by continuing recessionary conditions and rising competition in its major markets, as well as at its growing Indian operation. In addition, Fitch notes that Vodafone's Turkish business may take longer than initially expected to turn around.

These trends suggest that over the next three years free cash flow generation is likely to be less than has been achieved in recent years, assuming a broadly unchanged dividend payout. While the company's rating is able to tolerate a short-term spike in leverage at the current rating level, the outlook change also reflects the reduced headroom the group has at the 'A-' level.

Vodafone has a $265 million, January 2013 bond on issue in the domestic market. The bond was issued in August 2006.

Fitch took another look at Bank of America Corp., post the release of the 'stress test' results and while it affirmed the 'A+/F1+' long- and short-term issuer default ratings assigned to the holding company, it lowered the individual rating to 'D' from 'C/D' and removed it from Rating Watch Negative. The IDRs are linked to expected government support and therefore have a stable outlook.

On the other hand, the downgrade of the individual rating reflects an expectation of continued deterioration in credit quality and sensitivity to distressed market conditions, which hamper the prospects for BAC's profitability. This rating is consistent with that of an entity with elevated vulnerability to adverse external trends but with some remaining margin of flexibility.

The same ratings and rating actions apply to key subsidiaries Bank of America N.A. and Merrill Lynch & Co.