FGIC plan could benefit muni bonds, issuers
NEW YORK (Reuters) - FGIC Corp’s plan to split its municipal bond business into a separate company could eventually lift values of state and local government debt it guaranteed, investors and issuers said on Friday.
The move by FGIC, which on Thursday became the first insurer to lose its top “AAA” rating from all three rating agencies, is the latest step in the rescue of the U.S. bond insurance industry.
FGIC told New York regulators it wants to separate its municipal bond business from the riskier structured finance insurance operations, New York Insurance Superintendent Eric Dinallo said on Friday.
Municipal bonds backed by FGIC could benefit if the company’s plan convinces rating agencies to remove it from the negative credit watch and affirm current ratings, said Tom Spalding, portfolio manager at Nuveen Investments in Chicago.
“It’s a positive factor for municipal bonds insured by FGIC,” said Spalding, adding there was no immediate market reaction.
FGIC Corp had about $315 billion of bonds insured as of the end of September, including about $224 billion of municipal bonds.
Values of insured municipal bonds have declined in recent months as rating agencies cut top “AAA” ratings for many insurers because guarantors may face huge payouts on subprime mortgage securities and other risky debt.
Regulators have been working with insurers and banks to come up with a solution that would help prop up their ratings.
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