NEW YORK (Bloomberg) Bermuda-based bond insurer Assured Guaranty Ltd, which faces a potential cut in its credit ratings under proposed changes by Standard & Poor’s, said it may sell debt to bolster capital if doing so would prevent a downgrade.The company, the nation’s lone municipal bond insurer since rivals including MBIA Inc were shut out of the market, would first seek to terminate financial guarantees that require high levels of capital, chief executive officer Dominic Frederico said on Friday in a conference call. Those could include guarantees tied to commercial mortgage-backed securities or infrastructure financing outside the US, he said.After that, the company “would have to test debt markets to see if there is an economic or efficient way of providing capital,” Frederico said. The last preference would be to raise common equity, he said.A new leverage test S&P is proposing to add to its ratings criteria would leave Assured units short of about $1.9 billion of capital needed to maintain a rating in the AA tier, Frederico said this month in a separate conference call criticising the plan. Another proposed modification in modelling how a company would hold up under economic stress could leave Assured between $1 billion and $1.5 billion short, he said.S&P, which is accepting comments and considering whether to alter the proposal, is changing its ratings criteria after the two biggest bond insurers, MBIA and Ambac Financial Group Inc., and most others lost their top AAA ratings in 2008 and were cut to below investment-grade within a year. The capital needed to win “high investment-grade ratings will increase significantly under the proposed criteria”, S&P said last month.Among the biggest changes is the leverage test, which assesses a bond insurer’s risk from guaranteeing debt relative to how much capital it holds. The new criteria would act as a “weak-link filter” to identify potential problems that aren’t picked up under other reviews, according to S&P.Assured shares dropped the most in a month on Friday after the company reported a net fourth-quarter loss of $157.5 million attributed largely to the performance of debt backed by home loans. The stock declined 83 cents, or 5.5 percent, to $14.55 in New York Stock Exchange composite trading. It’s down 18 percent this year.The loss came in part because the pace of declines in home-loan delinquencies slowed. In addition, the severity of losses associated with defaulted subprime mortgages increased, the company said in a statement. Those items plus a narrowing of the gap between what the company pays out on insured securities and what the underlying mortgages pay in interest, increased losses by about $270 million, chief financial officer Robert Mills said on the call.“As we look at our sub-prime book, first-lien severities are scary,” Frederico said on the call, attributing it to expenses that exceed the cost of certain individual loans. Assured has seen about 200 loans where losses were between 130 and 150 percent of the underlying mortgage, Frederico said, including a $187,000 loan on which the insurer was charged a $293,000 loss.