MBIA Infusion Restores Confidence But Will It Be Enough?

MBIA yesterday reached agreement with private equity firm Warburg Pincus for an immediate $500 million investment ($31.00 per share), with an additional $500 million to come from a rights offering at $40 per share sometime in the first quarter.

The Company indicated that it would establish loss reserves of between $500-800 million in the current quarter, to offset exposure to residential mortgage-backed securities and CDOs.

The move was triggered largely by Moody’s adjustment of MBIA’s risk profile last week, an action described by CreditSights as the ratings agency’s equivalent of “super secret probation”.

Deutsche Bank’s Darren Arita sees this as a vote of confidence in MBIA and the industry, stating “The capital infusion suggests to us that investors may believe MBIA has a viable business model, supported by the fact that Warburg Pincus was willing to invest at a premium to MBIA’s previous closing price of $30 and receive warrants that are not yet in the money.”

Gary Ransom, at Fox Pitt Kelton anticipates similar moves from others in the financial guaranty market. “We expect more actions to be coming in the near future, particularly from Ambac (ABK) and Security Capital Assurance (SCA).”

CreditSights analyst Rob Haines expects the investment to keep the wolves at bay in the near-term, but sees the need for further shoring up of their capital position:

While the capital injection is not necessarily a magic bullet and will probably not be the last capital that the company will need to raise to cover its massive insured portfolio, it should in the very least stave off near term ratings pressure. What the capital injection does is prove to the markets that MBIA was able to get a deal done in short order.

CreditSights continues to express concern for the monoline industry as a whole, as there is significant interest in preserving that model. “Does this mean that there could be some form of superfund bailout for the industry? At this point, chatter of this possibility has been limited but it does seem to us that the markets have a vested interest in preventing the industry from imploding.”

The CreditSights report, MBIA: New Capital a Positive, But is it Enough?, is available for purchase.

Technorati Tags: (MBI), MBIA, monoline-insurers, subprime-mortgage, Warburg-Pincus

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Tuesday, December 11th, 2007 : Credit Research, Equity Research : 1 Comment

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