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• Moody's downgrades MBIA's rating to A2; outlook is negative J�rody+�a �vaurl�Drss S�snri+ca� Rating Action: MBtA insurance Corporation Moody's downgrades MBIA's rating to A2; outlook is negative Page 1 of 3 Global Credit Research Rating Action 19 JUN 2008 Save as FDF � IVew York, June 19, 2008 — Moody's Investors Service has downgraded to A2, from Aaa, the insurance financial strength ratings of MBIA Insurance Corporation (MBIAj and its affiliated insurance operating companies. In the same rating action, Moody's also downgraded the surplus note rating of MBIA Insurance Corporation to Baa1, from Aa2, and ihe senior debt rating of the holding company, MBIA, fnc. (IVYSE: MBi) to Baa2, from Aa3. Toda�s rating action concludes a review for possibfe downgrade that was initiated on June 4, 2008, and reflecis MBIA`s timited financial flexibility and impaired franchise, as we�l as the substantial risk within its portfolio of insured exposures and a movement toward more aggress�ve capital managemen[ within the group. The rating agency said that while the group remains strongly capitalized, estimated to be consistent with a Aa fevel rating, and benefiis from substantial embedded earnings in its existing insurance portfotio, these other business factors led to the lower rating outcome. Furthermore, MBIA's insured portfolio remains vulnerable to further economic deterioration, particularfy given the {everage contained in its sizable portfolio of resecuritization transactions, including some commercial real estate CDOs. The outlook for the ratings is negative, reflecting the material uncertainty about the firm's strategy and the non-negligible likelihood of further adverse developments in its insurance portfolios or operations. As a result of today's rating action, the Moody's-rated securities that are guaranieed or "wrapped" by MBIA are also downgraded to A2, except those with higher public underlying ratings. A lisf of these securities will be made available under "Ratings Lists" at www.moodys.com/guarantors. Moody's said that substantial uncertainty about the ultimate performance of MBIA's mortgage relaied exposures continues to adversefy affect markei perceptions of the firm, greatly impairing its financia! flexibility and ability to write new insurance. MBIA has recorded approximately $2.1 bi[lion in cumulative loss reserves and impairments associated with iis mortgage related portfolio, mostly from second lien mortgage backed securities and asset-backed CDOs (ABS CDOs}. Moody's noted that, over the last few months, MBIA has written little new business, and its financial flexibility has deteriorated substantiatly as evidenced by the significant decline in the company's stock price and high current spreads on its debt securities, making it extremely diffrcult to economically address polential capital shortfalls sf�ould markets continue to worsen. Moody's has re-estimaied expected and stress loss prajections on MBIA's insured portfolio, focusing on the company's mortgage-related exposures as well as other sectors of the portfolio polentialty vulnerable to deterioration in the current environment. Based on Moody's revised assessment of the risks in MBIA's portfolio, estimated stress-case losses would approximate $13.6 billion at the Aaa threshold and $9.4 billion at the A2 threshold. This compares to Moody's estimate of MBIA's claims paying resources of approximately $15.1 billion. Moody's noted that its stress case estimates for MBIA's residentiat mortgage-related exposures increased by roughly $500 million to $5.9 biflion, which was largely offset by insured portfolio amortization since year-end 2007. Relative to Moody's 1.3x "target" level for capital adequacy, MBIA is currently $2.6 billion below the Aaa target level and is $2.8 billion above the A2 target level. The rating agency noted that MBIA's recent decision to retain at the holding company the $1.1 billion in proceeds from its most recent equity offering is indicative of a more aggressive capital management strategy, and is a negative credit consideration for the insurance company's rating. Such decision, however, puts the holding company in a strong liquidity position, said Moody's, providing additional comfort about the firm's ability fo manage the effect of acceleraGon and coltateralization in its GIC business triggered by the downgrade. MBIA has indicated that the firm does not intend to issue additional dilutive capital in the curreni environment and that if will review its strategic options for redeploying the holding company funds, including possible stodc buybacks. Moody's said that, beyand MBIA's afFected mortgage related exposures, portfolio risks appear to be well contained as reflected by its core low-risk municipal book and high average underlying ratings. Most sUuctured finance sectors outside of residentia! mortgage related products are performing welt, although certain exposures, such as some commercial real estate CDOs, because of their leveraged structure and sector concentration, may be more sensitive ta severe economic or sector deterioration. While portfofio http://www.moodys. com/moodys/cust/research/NID Cdocs/ 19/2007 l 000005 1 1 849. asp?doc... 6/ 19/2008