CIFG Holding, the holding company for CIFG's financial guaranty subsidiaries, announced late today that it has formally requested that Fitch Ratings withdraw the insurer financial strength ratings for the following affiliated companies: CIFG Guaranty, CIFG Assurance North America and CIFG Europe.
The firm thinks that Fitch is not in a good position to "accurately determine the appropriate capital requirements for CIFG's insured portfolio." Fitch rates a smaller portion of the insurer's insured deals, currently 33% of policies written as compared with over 70% by the other two rating agencies individually. Specifically, Fitch does not formally rate many of the RMBS and ABS CDO transactions that it identifies as the source of their greatest concern. Furthermore, the rating rates less then 30% of CIFG's Global Public Finance and Infrastructure deals, which represent a key part of the bond insurer's future growth strategy.
"The decision to call on Fitch to withdraw CIFG ratings is not directly related to the downgrade to A - (Outlook Negative) announced today by Fitch. This was a decision we have been considering for some time," said John Pizzarelli, CEO of CIFG in a company release. "While the company continues to work with Moody's and S&P to address their concerns to upgrade its ratings as soon as possible, CIFG believes achieving higher ratings with Fitch would be impeded by the limitations of that agency's approach to rating financial guaranty companies."
Earlier in the day, Fitch Ratings downgraded CIFG Guaranty's issuer financial strength rating to 'A-' from 'AA-' with a negative rating outlook. CIFG's proforma claims paying resources, including its $1.5 billion capital infusion from shareholders Caisse Nationale des Caisses d'Epargne et Prevoyance and Banque Federale des Banques Populaires, fall under the 'A' capital level.
However, these resources fall below Fitch's 'AA' capital target by $1.2 billion to $1.7 billion, the rating agency said, a driver behind the downgrade. Furthermore, the rating agency felt that CIFG's shareholders may be less willing to provide further capital support to CIFG in the future if CIFG is unable to successfully resume underwriting new business. A lack of new issuance might create economic incentives for shareholders to consider pulling money out of the company, which could further pressure ratings, Fitch said.
The bond insurer said it would focus on municipal finance while exiting from "several higher-risk capital intensive structured finance business lines". However, CIFG's business platform primarily focused on structured finance business underwriting, particularly CDOs. The monoline also has a single-A rating from all three rating agencies, a factor that will make it difficult to compete for new business, Fitch said. As a result, CIFG said it will stop underwriting new business until the company can stabilize its financial and ratings position. CIFG's insured SF CDO losses will ultimately fall within $1.7 to $2.4 billion, Fitch said.