NEW YORK - FGIC Corp., the bond insurer stripped of its AAA ranking by Moody's Investors Service Thursday, asked to be split in two to protect the ratings on municipal bonds it guarantees.
FGIC, owned by Blackstone Group LP and PMI Group Inc., applied for a license from New York state insurance regulators to create a standalone municipal company, Brian Moore, a spokesman, said. The move would separate the unit that guarantees subprime-mortgage bonds, collateralized debt obligations, and the other types of financial products that led to the ratings downgrade.
"We will look at the business plan and we will see where it goes," New York Insurance Superintendent Eric Dinallo said yesterday. "Maybe just the filing of the application will invite capital in," he said.
Bond insurers including FGIC, MBIA Inc., and Ambac Financial Group Inc. are struggling to raise capital and remain intact after taking more than $8 billion in write-downs largely related to mortgage-linked securities they guaranteed. The insurers use their AAA ratings to back about $2.4 trillion of debt and losing that imprimatur casts doubt on the rankings of thousands of schools, hospitals, and local governments nationwide.
The application by FGIC may help the company attract new capital or create other options where it wouldn't have to follow through with a separation, Dinallo said.
"I think there is an opportunity instead of just selling the municipal side, so to speak, you might find it in the totality of the book," Dinallo said.
FGIC insures about $314 billion of debt, including $220 billion in municipal bonds.
FGIC's request follows comments by Dinallo and New York Governor Eliot Spitzer Thursday on Capitol Hill that insurers may need to be split if they can't raise enough capital to compensate for losses on subprime-mortgage guarantees.
"Other bond insurers will be tempted to follow suit, especially the ones that have already been downgraded by at least one rating agency," said Donald Light, an insurance analyst at Celent, a Boston-based consulting firm.
Spokesman Moore said FGIC wants to organize a new domestic financial guarantee insurer that "would be used to provide support for public finance obligations previously insured by FGIC and write new business to serve the municipal markets."
