NEW YORK (Associated Press) - A recent ratings downgrade for Bermuda-based Assured Guaranty Ltd. and its affiliates will make it difficult for the bond insurer to generate new business, a Deutsche Bank analyst said.

Moody's Investors Service made the ratings cuts late onFriday, and Deutsche Bank analyst Darin Arita reduced his target price to $7 from $13 for the bond insurer's shares, saying its stock is likely to trade at a discount.

Arita maintained a "Hold" rating on the stock.

Moody's cut the company's issuer rating and the senior unsecured rating of its US holding company two notches to "A2" from "Aa3." It also cut the insurance financial strength rating of its reinsurance subsidiary and affiliated operating companies to "Aa3" from "Aa2." All the ratings are considered investment grade.

The credit rating agency attributed the cuts to greater weakness in the company's business model.

"Assured Guaranty should consider radically changing its business model to one that is less dependent on the existing rating agencies," Arita wrote in a research note to clients.

One approach, he added, would be to become a municipal bond rating agency that stands behind its ratings with real capital.

"If the company cannot develop a new model that generates an adequate return on capital, management should strongly consider returning as much capital as possible to shareholders on an accelerated basis," Arita wrote.

Also on Friday, Moody's downgraded the senior unsecured rating of Financial Security Assurance Holdings Ltd., which Assured plans to acquire its insurance business unit for $722 million, to "A3" from "Aa2." It also cut the insurance financial strength rating of Financial Security Assurance Inc. and supporting insurance companies to "Aa3" from "Aaa." The downgrade reflects Financial Security's diminished business and financial profile resulting from the company's exposure to losses on US mortgage risks, Moody's said.

Assured Guaranty has said it expects the deal, announced earlier this month, to "provide investors with better risk diversification, greater claims paying resources and a larger capital base". William Blair & Co. analyst Mark Lane said the downgrades shouldn't impact the acquisition, given the company's right to back out of the deal upon any negative ratings fallout driven by the acquisition.

"We still believe the acquisition creates immediate economic value for shareholders and potentially strategic value," Lane wrote in a research note to clients yesterday.