CreditSights Defends its Bleak Outlook for Monolines
CreditSights is defending its bleak outlook for the monoline industry following criticism from bond insurer Ambac (NYSE: AMB) over its most recent assessment.
In a note to readers, CreditSights said it felt Ambac mischaracterized exactly what the CreditSights analyst said.
In substance, we simply indicated that the worst-case scenarios (if they in fact come to pass) as recently updated by Moody’s would lead to more charges on the direct and indirect impact that would follow. The losses under the more dire scenarios are more likely to materially exceed anything reflected at this point on the books of the monolines.
In its original report, CreditSights wrote that “If losses were to migrate toward the higher end of Moody’s stress test, we think that a downgrade of both companies would become inevitable. Based on Moody’s most stressed case scenario, Ambac could be facing losses of more than $8 billion and MBIA could be facing losses of more than $10 billion. In our opinion, it is likely that both Ambac and MBIA will see continued deterioration in their second lien exposures in the second quarter. While Ambac has since stated that it is unlikely to raise additional capital and MBIA has said that it will not raise additional dilutive equity capital, we think both companies will be forced to raise significant additional capital in the second quarter or face an almost certain downgrade.”
In its response to the original report, Ambac said the CreditSights article “offers little independent analysis, fails to consider the basic structural arrangements of individual transactions (one cannot simply multiply a cumulative loss assumption by net par outstanding to determine ultimate loss) and does not attempt to reconcile to Moody’s previously reported RMBS losses for Ambac.”
CreditSights concludes that “In the end, we stand by our analyst and his right to an opinion (misrepresented by third parties or otherwise) based not only the data presented but also a minor dose of common sense based on what has transpired over the past year.”
The May 21 CreditSights analysis Ambac & MBIA: Sinking on Second Lien Slime is available for purchase.
Ambac’s response and its presentation on its second lien exposures is available here.
CreditSights’ Note to readers is available here.
FT Alphaville offers more details.
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