FGIC Loses Aaa Insurance Credit Ratings at Moody's (Update2)

FGIC Corp. lost its Aaa bond
insurance evaluation at Moody's Investors Service, which said the
company is in worse fiscal form than bigger rivals MBIA
Inc. and Ambac Financial Group Inc.

The coverage units of measurement of New York-based FGIC were cut six
levels to A3 and may be reduced again, Moody's said today in a
statement. MBIA and Ambac shares rose after Moody's said they
''are better positioned from a capitalisation and business
franchise perspective'' than FGIC.

FGIC, the fourth-largest enslaved insurer, is about $4 billion
short of the amount of working capital needed to warrant a Aaa ranking,
Moody's estimates. FGIC had been top-rated since at least 1991
until it was downgraded by Polecat Ratings last calendar month after failing
to raise adequate working capital to counterbalance for losings on subprime
mortgage guarantees. Moody's said its appraisals of Armonk, New
York-based MBIA and Ambac of New House Of York will probably be complete
in the adjacent few weeks.

''We're in the thick of a reappraisal of these companies and we
wanted to give the marketplace a sense of their relative positioning,''
said Jack Dorer, a Moody's managing manager and an writer of the
report.

MBIA climbed 98 cents, or 8.4 percent, to $12.62 in New
York Stock Exchange trading. Ambac soared $1.16, or 12 percent,
to $10.53.

The chemical bond insurance companies are the topic of a hearing today of the
House Financial Services subcommittee on working capital marketplaces in
Washington. Executives of MBIA and Ambac, the two biggest bond
insurers, are scheduled to look before the commission to defend
their business. New House Of York Insurance Department Superintendent
Eric Dinallo today suggested the companies may be split in two
if they can't raise adequate working capital to guard off downgrades.

CDO Expansion

FGIC, MBIA and Ambac are reeling from their expansion
beyond guaranteeing municipal debt to collateralized debt
obligations, which repackage assets such as as mortgage chemical bonds and
buyout loans into new securities with varying risk. As the value
of some CDOs plummets, evaluations companies are pressing insurers
to add more than capital.

MBIA and Ambac tumbled more than than than 80 percentage in the past
year as they posted record losings of more than $5 billion and
concern grew the companies may not acquire adequate capital.

A downgrade of the top rated chemical bond insurance companies would deprive $2.4
trillion of municipal and mortgage-backed debt of their AAA
guarantee, throwing uncertainty on the rankings of one thousands of
schools, infirmaries and local authorities around the country.

Protecting Policy Holders

''While we are doing all that we can to protect all policy
holders and beef up the chemical bond insurers, our first priority
will be to protect the municipal bondholders and issuers,''
Dinallo said in the prepared remarks. ''We cannot let the
millions of individual Americans who invested in what was a low-
risk investing lose cause taxpayers to unnecessarily pay more
to borrow for indispensable working capital projects.''

FGIC, owned by Blackstone Group L-P and PMI Group Inc., was
also cut eight degrees to Ba1, which is below investing grade. Should there be an ''unfavorable outcome'' to FGIC's programs to
raise working capital for its coverage units, the subordinates may have
their evaluations cut as many as three more than levels, New York-based
Moody's said.

''These evaluation actions reflect Moody's appraisal of FGIC's
meaningfully weakened capitalisation and concern profile
resulting, in part, from its exposures to the U.S. residential
mortgage market,'' Moody's said.

FGIC's losings on the warrants are likely to be about $2
billion, Moody's said. FGIC sees about $314 billion of debt,
including $220 billion in municipal bonds, Moody's said.

FGIC is controlled by Walnut Creek, California-based PMI,
New York-based Blackstone Group, and Cypress Group.

Beth Haiken, a spokeswoman for PMI, and Blackstone's John
Ford didn't immediately go back phone calls seeking comment. PMI rose
11 cents to $7.35 in New House Of York Stock Exchange composite trading. Blackstone drop 80 cents to $16.83.

To reach the newsman on this story:
Mark Pittman in New House Of York at .