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Moody's: Municipal-Only Bond Insurers Might Get AAA

July 31, 2008: 10:46 AM EST

CHICAGO -(Dow Jones)- Bond insurers that cover only municipal and public purpose bonds might be more likely to win a top credit rating than insurers that dabble in securities backed by consumer and other loans, Moody's Investors Service said Thursday.

Moody's held a conference call Thursday to discuss its recent ratings actions on bond insurers.

Earlier this week, Moody's put the B2 rating of Security Capital Assurance Ltd.'s (SCA) bond insurance units on review after the insurer announced a deal to cancel contracts it had with Merrill Lynch & Co. (MER) to cover losses on the investment banks' collateralized debt obligations, or CDOs, that are backed by subprime mortgages.

Last week, Moody's said it might downgrade the remaining two stable triple A- rated bond insurers from the seven that held that rating last year, Assured Guaranty Ltd. (AGO) and FSA Corp.

Several downgraded bond insurers have announced plans to start up new bond insurer subsidiaries that would only insure municipal bonds, in order to have a chance to win the top rating, which most municipal bond issuers require.

-By Lavonne Kuykendall, Dow Jones Newswires