Fitch cuts Ambac ratings
"As Fitch announced on Dec. 21, 2007, when it placed Ambac on Rating Watch Negative, the company has a modeled capital shortfall of $1 billion at the 'AAA' rating threshold. The downgrade places Ambac's operating subsidiaries' IFS rating at a level consistent with their currently modeled capital adequacy threshold without the benefit of the noted capital increase. The downgrade in the holding company debt ratings reflects greater uncertainties surrounding Ambac's future earnings and fixed charge coverage ratios, together with movement to the more typical notching used at the 'AA' IFS rating level.
"The decision to downgrade the IFS rating by two notches, coupled with the continuation of the Negative Rating Watch, reflects the significant uncertainty with respect to the company's franchise, business model and strategic direction; uncertain capital markets and the impact of Ambac's recent decisions on future financial flexibility; the company's future capital strategy; ultimate loss levels in its insured portfolio; and the challenges in the financial guaranty market overall. Fitch expects to resolve the Negative Rating Watch after the agency evaluates these various qualitative factors, and provide that feedback to the market upon the conclusion of this review."
S&P had discussed a possible ratings cut earlier in the day.