Ratings Roundup: Ambac, Prospect Medical, First American Title

January 22, 2008

Standard & Poor’s Ratings Services has placed Ambac Assurance Corp.’s financial strength, financial enhancement, and issuer credit ratings and Ambac Financial Group Inc.’s senior unsecured, issuer credit, and hybrid security ratings on CreditWatch with negative implications. S&P also placed the preferred stock ratings of the committed capital facilities supported by, and for the benefit of, Ambac on CreditWatch with negative implications. “These actions follow this morning’s announcement that Ambac Financial Group is not proceeding with a planned $1.0 billion equity offering due to market conditions,” S&P explained. The rating agency also said that based on its latest stress test, published Jan. 17, it has “identified a capital shortfall of approximately $400 million in new capital in applying our ratings criteria. In our opinion, the decision not to proceed with the equity offering is symptomatic of an environment in which Ambac’s capital-raising options are impaired.” S&P added that “the amount of additional capital that Ambac may need to sustain our view of the current ratings could continue to increase, reflecting the uncertainty surrounding the ultimate levels of subprime and other mortgage-related losses. Ambac continues to explore capital-raising options, but it is increasingly uncertain whether it can implement any of these over the near term. To the extent that Ambac is unable to raise sufficient capital over the near term in relation to its increased capital needs, these ratings could be lowered.”

Standard & Poor’s Ratings Services has lowered its counterparty credit rating on Prospect Medical Holdings Inc. to ‘B-‘ from ‘B+’ and placed it on CreditWatch with negative implications. “We took this rating action because of Prospect Medical’s adverse business development,” explained S&P credit analyst Joseph Marinucci. “The company’s fiscal-year 2007 pro forma cash flow will likely be materially lower than it had planned because of lower revenue stemming from member attrition, a higher claim trend due to increased utilization of specialty services, and modestly higher administrative expenses.”

Standard & Poor’s Ratings Services has placed its ‘A-‘ counterparty credit and financial strength ratings on First American Title Insurance Co. (FAF Title) on CreditWatch with negative implications. S&P also placed its ‘BBB’ counterparty credit rating on First American Corp. (FAF) on CreditWatch with negative implications. “The outlook on these companies had been negative since Aug. 2, 2007, due to concerns about FAF Title’s operating performance,” S&P noted. “The CreditWatch placement follows FAF’s announcement that it plans to restructure itself by forming and spinning off a separate holding company for its Financial Services segment, which represents its title and personal lines operations,” said S&P credit analyst James Brender. “FAF will continue to own its Information Solutions segment, which consists of its mortgage and property information businesses and its investment in First Advantage Corp.”

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