A Keefe, Bruyette & Woods analyst upgraded bond insurer Assured Guaranty Ltd. on Wednesday, saying the public offering of 23.9 million shares announced late Monday will help shore up its capital base and protect its investment-grade rating.
Analyst Nathaniel Otis raised his rating to "Outperform" from "Market Perform," despite his ongoing concern over possible further deterioration in residential mortgage-backed securities.
Moody's Investors Service in November cut its insurance financial strength rating on the Bermuda-based company one notch to "Aa3" from "Aa2" and warned further cuts could come. Moody's move was based largely on Assured Guaranty's exposure to mortgage-backed securities. A loss of Assured Guaranty's investment-grade rating could hurt its ability to write new business.
Bond insurers have struggled since the beginning of the credit crisis because of insurance covering risky debts such as mortgage-backed securities. As mortgages defaults have soared over the past two years, it has widely been expected that bonds backed by the troubled loans would default as well, triggering huge payouts by insurers such as Assured Guaranty.
Still, Otis said he sees potential for the company's shares to gain as much as 28 percent. He has a target price on the stock of $28.
The shares have dropped 22 percent since hitting a 12-month high on Nov. 17.
He noted that in a recent presentation, the company said it did not expect to underwrite any U.S. residential mortgage-backed securities in 2010, and will focus on growing its more-secure public finances business.
On Tuesday, Assured Guaranty said it plans to cut between 15 to 20 percent of its 270-person staff by March. Following that and Monday's public offering announcement, shares fell 79 cents, or 3.5 percent, to finish Tuesday's trading at $21.89.