Ambac Financial Group Downgraded; Analysts Say Cities, Banks Could Be At Financial Risk

Source: Associated Press

NEW YORK -- A downgrade of bond insurer Ambac Financial Group Inc. is likely to have far-reaching effects, making it more difficult for cities to issue new bonds and forcing further write-downs at financial services companies, analysts said today.

After Ambac scrapped plans to raise $1 billion in capital, Fitch Ratings cut the company's crucial financial strength rating to "AA" from "AAA."

The downgrade likely means Ambac will not underwrite any more business, said John Flahive, director of fixed income for BNY Mellon Wealth Management. Market prices of existing bonds insured by Ambac and MBIA Inc. were trading lower before the downgrade, and Flahive suggested any downgrade could accelerate the decline.

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But while downgrades threaten to send financial services firms further into a tailspin, it also will create huge problems for municipalities.

Prior to Ambac's downgrade, T.J. Marta, a fixed-income analyst at RBC Capital Markets, said a downgrade of the company would lead to downgrades of all the municipal bonds it insured. Subsequently, it will become more difficult for cities, counties and other local entities to issue debt for building projects, Marta said.

Several types of municipal issuers will be most vulnerable if they can no longer secure insurance. These are borrowers like small private schools and hospitals that are not backed by a regular tax base or revenue stream. Typically, these entities have had to secure insurance to gain credibility with the public and sell their debt.


Read more: http://www.post-gazette.com/pg/08018/850370-28.stm

towns and cities can raise capital to build/repair infrastructure, schools, sewage treatment, etc.?

Now, who rates the credit raters?

When the judgment of Moody's, Fitch, S&P or any other rating or analytical service firm comes into question, it throws a lot of things off kilter. Those companies do their best to objectively carry out and deliver a reliable service (in spite of opinions to the contrary) but they are, after all, staffed by human beings.

And we all know humans are not infallible.

n/t

or maintained, municipally?

Checked out the meaning of small "d" "democrat" lately?