Super Friday for monolines? Moody’s cuts rating on XLCA

SCA’s bond insurance business, XL Capital Assurance, lost its crucial AAA rating on Thursday evening. But Moody’s didn’t just cut XLCA, the fourth largest bond insurer, from AAA to AA. It downgraded it by six notches.

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Pimco’s Bill Gross has vivid words to put things in perspective: How can Ambac, through the magic of its triple-A rating, with equity capital of less than $5bn, insure the debt of the state of California, the world’s sixth-largest economy? ... Apply the same logic to the gargantuan size of the asset-backed market it has insured in recent years - subprimes and CDOs in the trillions of dollars - and you must come to the same logical conclusion: this is absurd.