Financial Security Assurance is no longer on Standard & Poor’s watch list because the bond insurer’s proposed sale to Assured Guaranty will probably extend past the normal time horizon for ratings watch, the rating agency said.

S&P had placed FSA’s 'AAA' financial strength rating on CreditWatch negative in October, citing uncertainty over whether the insurer would continue to be supported by its parent, Dexia SA.

The agency uses CreditWatch to examine companies’ ratings in light of identifiable events and short-term trends. However, FSA’s financial strength pivots on an event that is not a short-term trend.

Less than two months after being placed on negative watch, FSA Holdings, the parent of FSA, agreed to sell itself to Assured Guaranty for cash and stock currently worth about $761 million.
If that sale closes, S&P said it will probably not cut FSA’s rating.

In the meantime, gauging the insurer’s financial strength depends on the outcome of a deal whose time horizon is likely longer than the CreditWatch timeframe, S&P said.

The deal still hinges on an agreement ensuring Dexia and the French and Belgian governments retain responsibility for FSA’s troubled financial products division. The deal also requires assurance from rating agencies that the acquisition will not hurt the insurers’ ratings.

“The amount of work that remains in finalizing all the points of the transaction and evaluating any risk to Assured and FSA translates into a remaining time horizon that extends beyond our defined time window for resolving the CreditWatch status of ratings,” S&P said in a statement.

The removal of FSA from CreditWatch does not mean FSA is in the clear. Without the successful closing of the sale, S&P said FSA could face a downgrade. The insurer’s rating outlook remains negative.

FSA Holdings lost $8.44 billion last year and Moody’s Investors Service slashed the company’s financial strength rating to Aa3 in November.

The company’s liabilities exceeded its assets by $5.18 billion at the end of last year. Thanks to steep mortgage losses in the last two years, FSA Holdings in its history has cumulatively lost $7.04 billion, after paying dividends to common shareholders.

The losses are mostly attributable to the financial products division, which would be split off from the rest of the company should the sale to Assured close. If not, S&P said FSA might have trouble raising capital and writing new business.

FSA insures $408.53 billion in bonds, including $306.23 billion municipal bonds. Assured Guaranty Corp. is the leading bond insurer by volume, while FSA is second.

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