Assured Guaranty rating on review for downgrade

The news sent shares plummeting $7.43, or 39.6 percent, to close at $11.32 on more than double average volume. Shares hit a multi-year low of $7.95 earlier in the session.

Assured Guaranty currently carries a top-notch "Aaa" rating from Moody's for its financial strength, which is vital for the bond insurer's ability to book new business.

Assured Guaranty's portfolio risk profile, shifts in demands on bond insurers and a potential weakening of franchise value and financial flexibility if losses rise have led Moody's to review the company's financial strength, the ratings agency said in a statement late Monday.

Responding Tuesday morning to Moody's planned review, Assured Guaranty's president and chief executive, Dominic Frederico, said in a statement, "We believe it is important for investors to know that Moody's action is not at all reflective of a deterioration in Assured's capital base, credit exposures or earnings outlook."

Assured Guaranty's capital requirements currently meet Moody's standards for "Aaa" ratings, Frederico said in the statement. Moody's noted that a downgrade would likely be no more than two notches to "Aa2."

Since late 2007, bond insurers have faced mounting pressure from investors and ratings agencies worried about a potential spike in claims tied to mortgage-backed securities and other risky debt. As mortgages have increasingly defaulted over the past year, investors and ratings agencies widely expect bonds and debt backed by the troubled loans would default as well.

Ratings agencies have been worried that the spike in claims will sap enough money from bond insurers to leave them without the capital reserves to warrant a top-notch rating.

Continued deterioration in credit markets is likely to reduce new business generation as well, ratings agencies have said.

Assured Guaranty was one of the few remaining bond insurers that had yet to be downgraded by ratings agencies amid the deterioration in the credit markets.