10 Jun R&R In the News — Caijing Magazine (PRC)
R&R’s Sylvain Raynes was interviewed by the New York-based correspondent for China’s leading financial weekly, Caijing, in early June. Following is a partial English translation of the original Chinese article.
Credit Market’s Recovery Grinds to a Halt
By Eva Woo, Caijing, June 6, 2008
On the afternoon of June 5, the Standard & Poor’s* rating agency downgraded its ratings of monoline bond insurers MBIA and Ambac from AAA to AA.
According to the Financial Times, MBIA immediately proposed investing US$900 million to establish a new bond insurance arm to separate the company’s public finance and municipal insurance business from the large number of high-risk bonds it insures.
The market had been showing increasing apprehension regarding the monoline insurers since June 4; on that afternoon, rating agencies warned that they intended to downgrade the two large monolines, and as soon as the news came out, MBIA’s stock price fell to its lowest level since 1988, and Ambac’s to its lowest level in history. This caused the credit market to suffer its most severe repercussions since the mortgage crisis began last year.
“This is extremely bad news, and if the situation is not corrected, it could cause the collapse of the entire bond insurance market. Loss of confidence could make it very difficult for bond insuring companies to gain new business.” So says structured finance expert Sylvain Raynes, who previously worked in the structured finance products department of Moody’s, and went on to become a founding partner of the New York-based structured finance consultancy R&R Consulting…
Raynes revealed that rating agencies normally give prior notice to companies before issuing downgraded ratings, but the public reaction of MBIA and Ambac management to the Moody’s downgrade indicates that the companies’ managers were taken by surprise.
*The FT article only refers to a Moody’s downgrade.
Related FT story, “MBIA may set up new unit to help bolster credit ratings“