Credit concerns may not have begun with Bond Insurance Companies. But credit concerns have surely spread to them. The concerns are a result of the Bond Insurance Companies dabbling far afield from Municipal Bonds, for which the Bond Insurance Companies came into existence. These Companies have strayed into subprime mortgages and Collateralized Debt Obligations and other complex financing arrangements that nobody -- including the Bond Insurance Companies -- understand very well.
With the number of mortgage defaults and other unpaid debts increasing precipitously, investors and credit rating agencies have looked at the collateral that Bond Insurance Companies have taken in exchange for good money, and they "have begun to question whether guarantors have enough reserves to pay claims on their insurance contracts, particularly those backing mortgage-related securities." Vikas Bajaj, "Bond Insurer Plans to Split to Protect Its Ratings" p. B1, col. 6 in Business Day Section (New York Times Nat'l Ed., Saturday, February 23, 2006).
Actually, investors and perhaps credit raters too, are now certain that insurance contracts and any kind of guarantee of "mortgage-related securities" are bad investments and credit risks. That is the reason why Ambac, and other Bond Insurance Companies, are trying to split themselves in two, one corporation to insurance Municipal Bonds -- and perhaps salvage a high credit rating, and the other corporation to corral the toxic mortgage-related securities in the credit pits.
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