The ratings downgrade to AA' from AAA' of Bermuda-based Commercial Guaranty Assurance (CGA) by Fitch last week could negatively impact deals wrapped by the surety, market sources said.

However, sister-company CGA Investment Management (CGAIM), a structured finance investor with nearly $3 billion in assets under management, intends to maintain its presence in the marketplace, according to the company.

"CGAIM expects to focus on the same asset classes and believes that any negative impact of the downgrade of CGA will be mostly offset by the evolution of the asset-backed CDO market, which provides an extremely efficient funding alternative for CGAIM's activities," said company President Geoffrey Kauffman.

CGAIM's portfolio is made up approximately of the following: 21.2% ABS, including consumer assets such as home equity, auto and credit cards; 25.7% CMBS; 23.6% real estate investment trust (REIT); 15.1% CBO/CLOs; and 14% other asset types.

Sources following the event are anticipating the downgrades of three repackagings managed by CGAIM, due to insurance policies written by CGA.

The deals are Guaranteed Residential Trust (GRST) 1998-1, GRST 1999-A, and Saint George CDO Funding 1999, a repackaging of CBOs and CLOs.

According to market sources, those deals are trading at distressed levels.

CGAIM has other deals in the market, which are not guaranteed by CGA, and will not be impacted by the downgrade - including a deal called Saint George Funding 2000, not to be confused with its 1999 predecessor.

In all, CGA insures approximately $2.2 billion, the majority of which is in privately-placed structured product (see chart below). Further details were unavailable at press time.

While the CGA downgrade was not surprising, as Fitch gave warning that it was not comfortable with CGA's capital levels back in June, it was surprising that the unnamed investor pulled out of a deal, which was to provide additional financing, according to a source close to the situation.

In a release from Fitch, the rating agency stated that the investor's reason for backing out of the deal with CGA was not in any way associated with CGA, but the result of an internal strategic realignment.

CGA Group will continue to explore any and all capital alternatives, the company said.

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