Assured Guaranty Ltd.'s shares plummeted Tuesday after the bond insurer said adjusted earnings would likely fall during the second quarter, and a day after its top-notch financial strength rating was placed on review for a potential downgrade by Moody's Investors Service.
Shares of Assured Guaranty fell $7.43, or 39.6 percent, to $11.32. Earlier in the session, shares hit $7.95, their lowest price since the company went public in 2004.
Assured Guaranty had been considered by investors to be the strongest bond insurer since it had yet to be downgraded by the ratings agencies. That could change in the coming months as Moody's reviews its rating.
Moody's said in a statement that Assured Guaranty's portfolio risk profile, shifts in demands on bond insurers and a potential weakening of franchise value and financial flexibility if losses rise led to the review.
Since late 2007, bond insurers have been facing mounting pressure from investors and ratings agencies worried that a potential spike in claims tied to mortgage-backed securities and other risky debt. As mortgages have increasingly defaulted over the past year, investors and ratings agencies widely expect bonds and debt backed by the troubled loans would likely default as well.
Ratings agencies have been worried that the spike in claims would sap enough money from bond insurers to leave them without enough capital reserves to warrant a top-notch rating.
Continued deterioration in credit markets is likely to reduce new business generation as well, ratings agencies have said.
Assured Guaranty said early Tuesday morning it expects adjusted second-quarter earnings of $38.7 million, or 42 cents per share. Its adjusted earnings totaled $46.7 million, or 68 cents per share, during the year-ago period.
Analysts polled by Thomson Financial, on average, forecast earnings of 57 cents per share for the quarter. Analyst estimates typically do not include special gains and charges.
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