Bond insurers MBIA and Assured Guaranty are under significant pressure thanks to their exposure to Puerto Rican debt.
A bond insurer sells insurance to owners of bonds, which serves as protection in the event of default.
Monday’s selling has the stocks trading down 17% and 12%, respectively, after Governor Alejandro García Padilla warned Puerto Rico would have trouble paying off its $US72 billion debt load.
According to a November 18 press release by Moody’s, “MBIA and Assured Guaranty will be able to absorb possible losses on the electric authority, PREPA, bonds they insure without significant pressure on their credit profiles, however more systemic defaults by Puerto Rico would exert meaningful negative pressure.” At the time, the rating agency noted the two firms have net exposure of $US4.5 billion and $US4.9 billion, respectively.
Today’s weakness has MBIA trading near its lowest levels since 2011 while Assured Guaranty has slid back to levels last seen in November.
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