Fitch Cuts MBIA's Rating to "AA"

Fitch cut the rating to "AA" from "AAA." The downgrade could make it difficult for MBIA to book new business, as bond insurers typically need the top-tier rating to attract customers. MBIA's rating was placed on negative outlook, which is a long-term view of the company.

MBIA's reserves are between $3.4 billion and $3.8 billion short of what is needed for Fitch to consider the bond insurer worthy of being rated "AAA," the ratings agency said in a statement.

MBIA responded to the downgrade within minutes.

"We respectfully disagree with Fitch's conclusions," C. Edward Chaplin, MBIA's chief financial officer, said in a statement.

In March, MBIA requested Fitch withdraw its financial strength rating on the bond insurer entirely. MBIA said it made the request because Fitch changes ratings rapidly and unexpectedly, not because of fears of a downgrade.

Fitch denied the request of the Armonk, N.Y.-based insurer, saying withdrawing the rating would disrupt already struggling credit markets by forcing some investors to sell MBIA-insured bonds. Some investors are required to hold only rated or highly rated bonds in their investment portfolios.

Rising defaults among mortgages has ratings agencies worried there will be a spike in claims payments in the coming months, as bonds backed by those mortgages are likely to default. The rise in claims would severely cut into cash reserves for some bond insurers and potentially put others out of business.

Since December, MBIA has raised about $2.6 billion to help ensure it has enough money to pay out a potential spike in claims, while still maintaining enough excess capital to warrant its current "AAA" ratings. MBIA insures almost $680 billion in bonds.

Fitch said it took into account the recent capital raising efforts when cutting the rating.