Bondholders received positive news when Standard & Poor’s reaffirmed Radian Asset Assurance’s “AA” financial strength rating, with a Stable Outlook. The reaffirmation reflects Radian’s limited exposure to non-prime residential mortgage- backed securities, a problem besetting other bond insurers.
In its report maintaining Radian’s rating, S&P noted that Radian has not taken on any exposure to the subprime market since 2004, pre-dating the current rash of weak mortgage-backed securities that has plagued financial institutions. Radian provides credit enhancement to lower-rated investment grade and high non-investment grade issuers that are too small or infrequent issuers, which larger guarantors find uneconomic to insure.
ACA announces agreement with creditors
Meanwhile, ACA has responded to the severe downgrade S&P imposed yesterday. The former “A” rated bond insurer, which saw its rating fall to “CCC” in one rating action, has announced that it has entered into a forbearance agreement with its creditors.
Under the credit agreements ACA has in place, it would have been required to post collateral against the paper devaluation of its exposure to the subprime market if the company’s financial strength rating was lowered below the “A” level. However, the financial institutions that extend credit to ACA have waived such collateral posting requirements until Jan. 18, 2008, to give ACA time to develop a more permanent solution to stabilize its liquidity and balance sheet.
ACA indicated it was surprised at the magnitude of its downgrade since S&P has maintained its “AAA” rating on all ACA mortgage-backed securities that carried that rating at the time of issue. The fact that the bond raters still see these securities as “performing”, would indicate that ultimate losses are unlikely to come close to the assumptions contained in S&P’s downgrade statement issued December 19.
ACA expects to meet with S&P in the near future to review these issues.