Fitch Goes Negative On Ambac

Fitch Ratings placed Ambac Assurance Corp. on negative watch Friday after a review of the bond insurer’s collateralized debt obligation and residential mortgage-backed securities portfolio. On the same day, CIFG Holding Ltd., parent of bond insurer CIFG Assurance North America Inc., announced it finalized a deal to receive $1.5 billion of capital and named John Pizzarelli chief executive officer of the company. Ambac’s triple-A rating is maintained for now by all three major credit rating agencies. According to the Fitch release, total subprime mortgage collateral exposure of the company is $32.2 billion as of Sept. 30. “This review indicates that Ambac’s capital adequacy under Fitch’s Matrix financial guaranty capital model currently falls below guidelines for a AAA ... rating by around $1 billion,” the Fitch statement said. The company has four to six weeks to obtain further capital commitments and put in place additional reinsurance to return to a stable outlook. If the company is unable to do this, Fitch would lower the rating to AA-plus. This comes after Assured Guaranty Ltd. agreed to reinsure $29 billion of financial guaranty contracts on Ambac’s books. Fitch’s Tom Abruzzo said in an interview that the action was taken into account when the agency made the decision to put Ambac on negative watch. This news came on the heels of an announcement last Wednesday that Standard & Poor’s changed its outlook on the company to negative from stable. Earlier in the month, Moody’s Investors Service affirmed Ambac’s stable outlook. Ambac stock fell $1.04 to close at $26.66 on Friday.Meantime, the closing of CIFG’s planned $1.5 billion of capital injection was announced. It is provided by Banque PopulaireGroup and Caisse d’Epargne Group, now the majority stockholders. Natixis, previously owner of CIFG, is no longer a shareholder of the company. CIFG still has a triple-A rating, but has a negative outlook from Standard & Poor’s and Moody’s. Fitch maintains a stable outlook, but said in November that there is a “high probability” that CIFG will fall below its capital adequacy benchmarks. Standard & Poor’s has said previously that this capital injection would not change the company’s negative outlook.On the management side, Pizzarelli will take over the helm from Jacques Rolfo, who has left the company.“While these are clearly challenging times for the bond insurance industry, we are fortunate at CIFG to have the strong backing of our new shareholders, Banque Populaire and Caisse d’Epargne,” Pizzarelli said in a statement. “I’m excited about the opportunity to strengthen CIFG’s platform with particular focus on the municipal and global infrastructure markets. I continue to be confident about the future of the bond insurance industry because of the tangible benefits it offers issuers and investors in the global capital markets.”Pizzarelli was managing director of CIFG’s global public finance and infrastructure division, a position he took over in March of this year. Prior to that, he worked at Lehman Brothers for a brief time as a senior vice president in the project finance unit of its public finance department. Pizzarelli is widely recognized in the municipal bond industry for his time spent as head of public finance at MBIA Insurance Corp. where he focused on debt financing in the transportation, infrastructure, higher education, housing, and health care sectors.