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With Standard & Poor's having downgraded the bond insurers earlier this month and Fitch Ratings dropping their ratings earlier this year, the battered monolines have nowhere to turn for a top rating. And while the ratings agencies drop the ratings, share prices follow. Ambac, which slid 1.97% in late-morning trading Friday, to $1.99 has lost nearly 80% of its value since closing at $9.50 on March 7, the day it priced a $1.5 billion equity offering. MBIA shares, which have lost about 50% of their value in the past two months, fell even harder Friday, declining about 6.82% in late-morning trading to about $6.01. The MBIA downgrade was prompted by the bond insurer's "limited financial flexibility and impaired franchise." MBIA's decision on June 12 to potentially direct $900 million in proceeds from a $1.1 billion equity offering toward the capitalization of a new municipal bond insurance subsidiary rather than flow the capital to its existing insurance company also prompted the ratings move. Furthermore, Moody's is concerned that MBIA's risky mortgage-related exposures could impede its ability to write new policies. The Ambac downgrade was driven by Moody's concerns surrounding the monoline's mortgage-related exposures. "The company's financial flexibility has deteriorated substantially since the $1.5 billion raise (equity offering) in March 2008, as evidenced by the profound decline in Ambac's market capitalization," Moody's said. MBIA shot back, saying it was "baffled" by Moody's analysis and said its $16 billion in claims paying resources is more than enough capital to meet policy holders' obligations. It is sticking with its capital deployment plans despite the downgrade. Ambac who said its was "disappointed" with the ratings decision, said its "strong capital base, even under Moody's stress-case scenarios, will allow it to manage through the current credit crisis." Ambac is also on plan with its own alternative strategy, which involves the launch a triple-A rated financial guarantor utilizing an existing inactive unit, Connie Lee Insurance Co. The ratings news may be music to the ears of vocal activist William Ackman. The founder of hedge fund Pershing Square Capital Management LP, who has waged a long-running short-selling campaign against MBIA and Ambac, speaking at a Jones Day conference on Wednesday, criticized MBIA's decision to renege on its capital deployment plans. He also warned that MBIA is at risk of insolvency as it continues to eat away at its statutory capital via loss reserve allocations. - Michael Rudnick See June 4 story from Dealscape Categories Deal Video
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Moody's Investors Service gave MBIA Inc. and Ambac Financial Services Inc. a swift kick in the you-know-what, with the removal of the monolines' triple-A ratings. Moody's on Thursday evening announced it had 
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