LONDON, Jan 21 (Reuters) - Household British names from the London Underground to Arsenal Football Club felt the impact of the crisis among bond insurers on Monday as some of their insured debt was downgraded by Fitch Ratings.
Fitch cut some 3.8 billion pounds ($7.41 billion) worth of European debt on Monday in the wake of its decision on Friday to cut bond insurer Ambac ABK.N by two notches to AA from AAA.
The news is the latest blow to confidence in very highly-rated debt, shaken after severe downgrades and unexpected losses in the structured finance and structured investment vehicle sectors.
“The downgrade of Ambac’s IFS (insurer financial strength) rating could be a seismic event in global credit markets, as the number of insured issues rated by Fitch is roughly 138,000,” analysts at Calyon said in a note to clients.
Among the debt downgraded to AA from AAA were bonds issued by Premiership club Arsenal to help finance the construction of its Emirates stadium in London, as well as loans from the European Investment Bank [EIB.UL] that are paying for infrastructure investment in the Tube.
Also hit was debt issued by pub companies Punch Taverns PUB.L, Mitchells & Butlers (MAB.L) and Spirit, as well as some bonds issued by gas and electricity companies.
All of the borrowers had used Ambac to insure the debt in order to give it higher ratings than could be achieved on a standalone basis. In Arsenal’s case, for instance, Fitch says the underlying rating on the bonds is BBB, eight notches below AAA and six notches below AA. That allowed for lower interest costs.
Royal Bank of Scotland analysts say that Ambac is one of the three most active bond insurers in Europe, along with MBIA (MBI.N) and FSA. As recently as Jan. 10 the analysts had said they expected Ambac to retain its triple-A ratings.
Fitch said all of the actions — with further cuts still possible — were a direct result of its downgrade of Ambac on Friday.
Fitch cut Ambac after the bond insurer scrapped plans to issue $1 billion of new equity to shore up its balance sheet after writing down repackaged consumer debt hit by the subprime mortgage crisis.
Ambac insures $556 billion of bonds globally, including U.S. municipal debt as well as structured finance securities. (Reporting by Richard Barley; Editing by Paul Bolding)