Standard & Poor's today lowered its financial strength ratings on Ambac Assurance Corp. and MBIA Insurance Corp. to 'AA' from 'AAA' and placed the ratings on CreditWatch with negative implications.

The ratings on the holding companies, Ambac Financial Group and MBIA, have been lowered to 'A' and 'A-' from 'AA' and 'AA-', respectively, and placed on CreditWatch with negative implications.

These rating actions on the insurance firms are a reflection of the rating agency's view that these entities will face diminished public finance and structured finance new business as well as declining financial flexibility.

Additionally, S&P thinks that continuing deterioration in key areas of the U.S. residential mortgage sector and related CDO structures will place increasing pressure on capital adequacy. The 'AA' financial strength ratings of these companies are supported by currently sound claims paying ability and liquidity levels in our opinion.

According to the rating agency, resolution of the negative CreditWatch will be dependent on clarification of ultimate potential losses as well as future business prospects, the outcome of strategic business decisions, and potential regulatory developments.

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