Moody's lowers FGIC debt to Caa2

Moody's Investors Service said it downgraded FGIC Corp.'s senior unsecured debt to Caa2 from B3 and Grand Central Capital Trusts I-VI's contingent capital securities to B3 from B2 concurrent with the downgrade of Financial Guaranty Insurance Co.'s insurance financial strength to B1 from Baa3.

This concludes the review for possible downgrade begun on March 31, and the outlook is negative.

The agency said the downgrade reflects Financial Guaranty's severely impaired financial flexibility and its proximity to minimum regulatory capital requirements relative to Moody's estimates of expected case losses. It also considers the likelihood that the company's previously announced restructuring plan will ultimately result in it retaining the higher-risk portion of the insured portfolio without the premiums associated with its lower-risk business.

The downgrade of FGIC's senior unsecured debt reflects the operating company's inability, without regulatory approval, to upstream dividends to the holding company to service debt, Moody's added.

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