AI
MBIA unveils plans to protect ratings
January 09, 2008: 03:22 PM EST
Jan. 9, 2008 (Thomson Financial delivered by Newstex) --
NEW YORK (AP) - MBIA Inc. plans to book more than $4 billion in losses, slash its dividend and sell $1 billion in bonds as part of a strategy unveiled Wednesday to shelter the bond insurer's crucial financial strength rating.
But analysts said investors doubted all of the bad news was out, and the shares fell sharply.
The Armonk, N.Y.-based insurer, under pressure from the ratings agencies to prove it has enough cash to pay potential insurance claims, will cut its quarterly dividend to 13 cents from 34 cents, saving an estimated $80 million a year. MBIA writes insurance policies that promise to reimburse bondholders when borrowers default.
The company will also sell $1 billion in bonds, and buy reinsurance to free up $50 million to $150 million of the company's cash.
Combined with a $1 billion investment from Warburg Pincus, MBIA said it believes these moves will mollify the major ratings agencies, allowing the company to maintain its 'AAA' financial strength ratings.
MBIA expects to reserve $737 million to pay claims for the fourth quarter, mainly because of anticipated losses on insured bonds backed by home equity lines of credit.
The company also said the market value of its portfolio of 'credit derivatives' -- or contracts protecting debt -- plunged $3.3 billion in the fourth quarter.
The dent in MBIA's credit derivatives portfolio is much higher than expected, Banc of America Securities analyst Tamara K. Kravec wrote in a client note. MBIA said the $3.3 billion in losses are only on paper; the company expects something like $200 million in actual losses on the portfolio.
Fitch Ratings, which on Dec. 20 gave MBIA six weeks to raise $1 billion or face a downgrade, said the planned $1 billion bond sale will be enough to protect the company's 'AAA' rating. The bonds are subordinated to all the company's other debt -- meaning if it becomes insolvent the bonds would not be repaid until the company paid off all other debt and claims.
Top-caliber ratings from the ratings agencies, which judge how likely MBIA is to cover all its insurance claims, are critical for a bond insurer. A downgrade from any of the major agencies would make it difficult for the company to win new business.
William Blair & Co. analyst Mark Lane said that while MBIA appears likely to sidestep a downgrade for now, people are still worried about what could be around the next bend.
'There's really no bottom in sight,' he said. 'People are thinking, 'Is another round going to happen in the next six to nine months?' The answer to that is, 'Who knows?''
Bond insurance has been one of the hardest-hit industries during the subprime mortgage crisis. Shares of MBIA, Ambac Financial Group Inc. (NYSE:AKT) (NYSE:AKF) (NYSE:ABK) , Security Capital Assurance Ltd. (NYSE:SCA) and ACA Capital Holdings Inc. (OOTC:ACAH) have all lost at least 75 percent of their value in the past year.
Seeking to capitalize on the disruption in the industry, Warren Buffett's Berkshire Hathaway Inc. (OOTC:HWYI) (NYSE:BRK A) established a bond insurer late last year to insure municipal bonds. The insurer at first will be capitalized with $105 million, which according to a Friedman Billings Ramsey report will enable the company to write $16 billion in business.
By comparison, Ambac and MBIA together insure $700 billion in municipal bonds, according to Friedman Billings Ramsey.
MBIA also said Wednesday that federal regulators have been probing how thoroughly the insurer disclosed the risks it faced.
In a filing with the Securities and Exchange Commission, MBIA said it furnished the SEC and the New York Insurance Department with information tied to the Warburg Pincus investment, as well as a disclosure to investors dated Dec. 10.
A deputy superintendent for the New York Insurance Department said it wanted to make sure the Warburg Pincus investment was still intact. The department is not investigating MBIA, he said. A spokesman for the SEC said the agency had no comment.
MBIA shares fell 5.9 percent to $13.16. At one point on the day the stock reached $11.11, its lowest trade since 1991.
http://money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-22142847.htm
January 09, 2008: 03:22 PM EST
Jan. 9, 2008 (Thomson Financial delivered by Newstex) --
NEW YORK (AP) - MBIA Inc. plans to book more than $4 billion in losses, slash its dividend and sell $1 billion in bonds as part of a strategy unveiled Wednesday to shelter the bond insurer's crucial financial strength rating.
But analysts said investors doubted all of the bad news was out, and the shares fell sharply.
The Armonk, N.Y.-based insurer, under pressure from the ratings agencies to prove it has enough cash to pay potential insurance claims, will cut its quarterly dividend to 13 cents from 34 cents, saving an estimated $80 million a year. MBIA writes insurance policies that promise to reimburse bondholders when borrowers default.
The company will also sell $1 billion in bonds, and buy reinsurance to free up $50 million to $150 million of the company's cash.
Combined with a $1 billion investment from Warburg Pincus, MBIA said it believes these moves will mollify the major ratings agencies, allowing the company to maintain its 'AAA' financial strength ratings.
MBIA expects to reserve $737 million to pay claims for the fourth quarter, mainly because of anticipated losses on insured bonds backed by home equity lines of credit.
The company also said the market value of its portfolio of 'credit derivatives' -- or contracts protecting debt -- plunged $3.3 billion in the fourth quarter.
The dent in MBIA's credit derivatives portfolio is much higher than expected, Banc of America Securities analyst Tamara K. Kravec wrote in a client note. MBIA said the $3.3 billion in losses are only on paper; the company expects something like $200 million in actual losses on the portfolio.
Fitch Ratings, which on Dec. 20 gave MBIA six weeks to raise $1 billion or face a downgrade, said the planned $1 billion bond sale will be enough to protect the company's 'AAA' rating. The bonds are subordinated to all the company's other debt -- meaning if it becomes insolvent the bonds would not be repaid until the company paid off all other debt and claims.
Top-caliber ratings from the ratings agencies, which judge how likely MBIA is to cover all its insurance claims, are critical for a bond insurer. A downgrade from any of the major agencies would make it difficult for the company to win new business.
William Blair & Co. analyst Mark Lane said that while MBIA appears likely to sidestep a downgrade for now, people are still worried about what could be around the next bend.
'There's really no bottom in sight,' he said. 'People are thinking, 'Is another round going to happen in the next six to nine months?' The answer to that is, 'Who knows?''
Bond insurance has been one of the hardest-hit industries during the subprime mortgage crisis. Shares of MBIA, Ambac Financial Group Inc. (NYSE:AKT) (NYSE:AKF) (NYSE:ABK) , Security Capital Assurance Ltd. (NYSE:SCA) and ACA Capital Holdings Inc. (OOTC:ACAH) have all lost at least 75 percent of their value in the past year.
Seeking to capitalize on the disruption in the industry, Warren Buffett's Berkshire Hathaway Inc. (OOTC:HWYI) (NYSE:BRK A) established a bond insurer late last year to insure municipal bonds. The insurer at first will be capitalized with $105 million, which according to a Friedman Billings Ramsey report will enable the company to write $16 billion in business.
By comparison, Ambac and MBIA together insure $700 billion in municipal bonds, according to Friedman Billings Ramsey.
MBIA also said Wednesday that federal regulators have been probing how thoroughly the insurer disclosed the risks it faced.
In a filing with the Securities and Exchange Commission, MBIA said it furnished the SEC and the New York Insurance Department with information tied to the Warburg Pincus investment, as well as a disclosure to investors dated Dec. 10.
A deputy superintendent for the New York Insurance Department said it wanted to make sure the Warburg Pincus investment was still intact. The department is not investigating MBIA, he said. A spokesman for the SEC said the agency had no comment.
MBIA shares fell 5.9 percent to $13.16. At one point on the day the stock reached $11.11, its lowest trade since 1991.
http://money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-22142847.htm
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