Amend: Fitch Downgrades SCA and XLCA; Outlook Negative.

NEW YORK -- (This amends a press release issued earlier today and contains revised stress impairment information in the fourth-to-last paragraph.)

Fitch Ratings has downgraded the following ratings on Security Capital Assurance Ltd. (SCA) and its financial guaranty insurance subsidiaries:

XL Capital Assurance Inc. (XLCA)

XL Capital Assurance (U.K.) Ltd. (XLCA-UK)

XL Financial Assurance Ltd. (XLFA)

--Insurer financial strength (IFS) to 'BB' from 'A'.

Security Capital Assurance Ltd.

--Long-term Issuer to 'B-' from 'BBB';

--$250 million fixed/floating series A perpetual non-cumulative preference shares to 'CCC' from 'BBB-'.

Twins Reefs Pass-Through Trust

--$200 million pass-through trust securities to 'B' from 'BBB'.

Fitch has also removed the affected ratings from Rating Watch Negative, where they were originally placed on Dec. 12, 2007. The Rating Outlook is Negative.

The downgrade of SCA and its financial guaranty subsidiaries centers on Fitch's updated assessment of the company's capital position, a review by Fitch of the company's current capital enhancement plans, and an update on Fitch's current views of U.S. subprime related risks. The downgrade also reflects what Fitch views as the material erosion in SCA's franchise value and competitive business position following downgrades to well below 'AAA' by each of the three major rating agencies.

Fitch believes that SCA's current level of capital and claims paying resources is no longer consistent with Fitch's guidelines for an investment grade IFS rating. Fitch currently believes that expected losses on SCA's structured finance collateralized debt obligations (SF CDO) backed by subprime residential mortgage backed securities (RMBS) will ultimately fall within a range of about $3 to $4 billion. This compares to SCA's modeled claims paying resources and committed external reinsurance coverage of $4.2 billion as of Dec. 31, 2007. Expected losses reflect Fitch's current estimates of the range of projected losses over the life of these transactions, stated on a present value basis. From a present value perspective, Fitch discounts the expected future loss rates on SF CDOs by 5% over a two-year period for CDO-squareds, five years for mezzanine SF CDOs and seven years for high-grade SF CDOs.

SCA recently disclosed that it has unilaterally terminated seven credit default swap (CDS) contracts with Merrill Lynch International (MLI) under which XLCA had covered risk of losses on SF CDO transactions. While Fitch is not in a position to opine on the validity or merits of the termination, Fitch notes that a ruling in SCA's favor could have meaningful positive impact on the company's capital position and credit ratings in the future. Projected losses on the seven SF CDO transactions account for a material percentage of the aggregate SF CDO expected losses estimated by Fitch.

According to SCA, MLI repudiated the contracts by committing to provide third parties with the same CDO control rights that it had previously promised to XLCA. MLI disputes the terminations and has filed suit in U.S. District Court to seek legal enforcement of XLCA's obligations under the contracts. Fitch believes it could be several years before the dispute is settled.

Fitch notes that SCA has been aiming to restore the company's financial and capital position. In the interim, with the loss of its top credit ratings and its decision to defer raising additional capital at the present time, SCA has chosen to forego underwriting new financial guaranty business for the foreseeable future to preserve capital. The suspension of new underwriting is expected to help SCA's capital position as the company will benefit from the amortization of existing insured obligations, some of which exhaust a material amount of targeted capital.

Favorably, Fitch notes that SCA's maintains solid liquidity, as the company would not be expected to pay a majority of its claims, particularly on SF CDOs, for many years into the future. In addition, SCA is not subject to any notable collateral posting or termination provisions that could effectively accelerate the draw on its existing capital resources.

Going forward, Fitch believes that it will be very difficult to stabilize the ratings of SCA until the company can both raise external capital and more effectively limit the downside risk from its SF CDOs through reinsurance or other risk mitigation initiatives. Fitch does not anticipate removing the Negative Rating Outlook over the near-to-intermediate-term until the risk of loss on the SF CDOs portfolio can be more definitively quantified.

SCA's claims paying resources as of Dec. 31, 2007 of $4.2 billion includes the benefits from a $500 million reinsurance policy it maintains with a subsidiary of XL Capital Ltd., the former majority owner of SCA that now owns 46% of SCA. Fitch believes SCA's current claims paying resources (including benefit of the reinsurance contract) fall below the agency's targeted 'AAA', 'AA', 'A' and 'BBB' IFS rating ranges by the following amounts:

--'AAA' capital shortfall of $5.6 to $5.9 billion;

--'AA' capital shortfall of $3.9 to $4.5 billion;

--'A' capital shortfall of $1.3 to $2.5 billion;

--'BBB' capital shortfall of $600 million to $1.2 billion.

Fitch's analysis of expected losses includes an assumption that underlying cumulative loss rates on residential mortgages supporting outstanding subprime residential mortgage-backed securities (RMBS) pools will average 21% in the 2006 vintage year and 26% for the 2007 vintage year. These assumed cumulative loss rates are consistent with those currently used by Fitch for its ratings of outstanding RMBS transactions. In order to address the necessary level of capital to support a financial guarantor at the highest rating levels, expected losses are further stressed to arrive at 'AA' and 'AAA' capital thresholds. This is done to capture the risk that losses could grow higher than expected due to a more severe downturn in the economy, sharper than expected declines in home prices, higher than expected loan defaults, or other adverse developments beyond expectations.

The majority of SCA's insured SF CDO transactions were underwritten in the problematic 2006 and 2007 vintage years, and $3.6 billion of these exposures were underwritten to non-senior tranches of the high-grade CDOs. A majority of these non-senior transactions have experienced noticeable credit deterioration and Fitch expects they will ultimately suffer high loss given defaults, and make up a disproportionate share of SCA's future expected SF CDO losses. All of these non-senior transactions are part of the aforementioned MLI contracts.

Fitch's assessment of SCA's capital adequacy also incorporates existing deterioration to the company's insured RMBS portfolio, particularly transactions backed by prime second-lien mortgages, which totaled approximately $4.5 billion as of Dec. 31, 2007 and subprime RMBS transactions. Given current market conditions, many of these transactions have come under considerable ratings pressure, which increases capital requirements, and SCA is expected to pay claims on several transactions in the future. Stress related to permanent credit impairment from both SF CDOs and RMBS portfolios were largely responsible for SCA posting case basis loss reserves of $699.4 million in 2007.

The downgrade of the holding company debt ratings reflects greater uncertainties surrounding SCA's future earnings and ability to pay dividends on its $250 million fixed/floating series A perpetual non-cumulative preference shares. As the company announced, SCA deferred the dividend payment on this security in March 2008.

Fitch will comment on the impact of the downgrade of XLCA's IFS rating on the ratings of securities insured by XLCA in a separate release.

SCA is a Bermuda domiciled holding company whose primary operating subsidiaries, XLCA and XLFA, provide insurance, reinsurance, and financial products and services throughout the United States and internationally. For Dec. 31, 2007, the company reported consolidated GAAP assets of $3.6 billion and shareholders equity of approximately $427 million. On an aggregated basis net par outstanding totaled $165 billion as of Dec. 31, 2007.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.