MBIA downgraded to junk by S&P

Rating agency Standard & Poor’s has cut the credit rating of monoline bond insurer MBIA to BB+, the highest non-investment grade level, lending weight to fears of a second wave of downgrades linked to the declining US commercial real estate market.

In July, S&P cut Ambac, the other leading US monoline, from BBB to CC – but the rationale in this case was different: the agency said Ambac’s existing portfolio of subprime-linked RMBS would force it to increase its cash reserves to the point where its surplus would fall below required levels.

By contrast, MBIA’s downgrade, as well as representing its exposure to the 2005–2007 vintage securities at the heart of the crisis, “also reflects potentially increased losses in other asset classes, including but not limited to CMBS and – for other years prior to 2005 – within RMBS”, S&P said.

US commercial property prices continue to fall steeply with no sign of slowing: the Moody’s/Real index of commercial real estate is now down 39% as of July this year.