2.2. Ratings

The effectiveness of the monolines in facilitating PPP funding through the capital markets has been severely impaired by the reduction in their ratings. The downgrades have been of differing levels of severity from company to company, but the entire sector has been affected. In considering possible lessons of the monoline story, it is useful to note that the credit problems were not related to their activities in the public finance and infrastructure sectors but rather to exposures on asset-backed securities for which

Monoline Ratings pre and post crisis

		June 2007	November 2009
	Moody's	S&P	Moody's	S&P
Assured Guaranty Corp. Financial Security Assurance (UK) Ltd.* Ambac Assurance Corp. MBIA UK Insurance Ltd. Syncora Guarantee (UK) Ltd. FGIC UK Ltd.*	Aaa Aaa Aaa Aaa Aaa Aaa	AAA AAA AAA AAA AAA AAA	Aa3 Aa3 CC BB+ Ca Withdrawn	AAA AAA Caa2 B3 CC Withdrawn

* Acquired by Assured Guaranty in July 2009. November 2009 ratings are for the merged entities.

** Formerly XLCA

*** Regulatory action 24/11/09 required cessation of payment of claims.

Source: public information

the underlying assets were sub-prime or other non-standard U.S. mortgage loans. With few exceptions, the infrastructure portfolios of the monolines have continued to perform, indicating that the terms and conditions required by the monolines in the sector have been effective in protecting investors from losses and should be considered as models for financings going forward.

Following the downgrading of the monolines' ratings, bond investors have withdrawn from the PPP market. The reasons for this and other constraints on reviving the capital market execution are explored in the next section.