Moody's downgrades Financial Security

Moody's Investors Service said it downgraded Financial Security Assurance Holdings Ltd.'s senior unsecured debt to A3 from Aa2, its junior subordinated debt to Baa1 from Aa3 and the contingent capital securities of Sutton Capital Trusts I, II, III and IV to A3 from Aa2.

This concludes the review for possible downgrade that began on July 21, and the outlook is developing.

The agency said the downgrade reflects its view of Financial Security's diminished business and financial profile resulting from its exposure to losses on U.S. mortgage risks and disruption in the financial guaranty business more broadly.

Moody's said the developing outlook reflects both (a) potential positive movement in the company's financial and business profile following the acquisition of its financial guaranty business by Assured Guaranty Corp., assuming Financial Security is capitalized and positioned as an ongoing writer of high-quality financial guaranty insurance within the group, and (b) potential negative rating pressure should the acquisition fail to close or should Assured Guaranty pursue a different strategy for Financial Security.

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