Corporate Default Risk Soars to Record on Ambac Ratings Cut

By Hamish Risk and Abigail Moses

Jan. 21 (Bloomberg) — The risk of European companies defaulting soared to a record on concern credit ratings cuts at bond insurers Ambac Financial Group Inc. and MBIA Inc. may trigger forced asset sales and worsen credit market turmoil.

Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings jumped 10.25 basis points to 82.5, according to JPMorgan Chase & Co., the highest since the index started in 2004.

Ambac was stripped of its top AAA grade by Fitch Ratings on Jan. 18 after the New York-based company abandoned plans to raise new equity. Moody’s Investors Service and Standard & Poor’s are reviewing Ambac and MBIA, throwing doubt on the ratings of the $2.4 trillion of debt guaranteed by bond insurers and threatening forced sales by investors that are restricted to holding the highest-grade bonds.

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