MBIA Sells $1B Stake to Warburg Pincus, Sees Further Writedowns

Includes: AMBC, MBI
by: Judith Levy

Shares of MBIA (NYSE:MBI) surged 25% before closing up 13% at $33.95 Monday after the monoline bond insurer announced it will sell a $1 billion stake to buyout firm Warburg Pincus. The company also said it will take an additional writedown on its securities portfolio that is "significantly greater" than the $352.4 million writedown taken in Q3. The sale to Warburg will consist of $500 million of common stock and $500 million in a rights offering to be held next quarter. Last Wednesday, Moody's said MBIA was "somewhat likely" to experience a capital shortfall, a scenario that could lead to a downgrade (full story).

The loss of MBIA's AAA rating would threaten the $652 billion of state, municipal and structured finance bonds it insures. The capital infusion from Warburg will avert that threat, at least in the short term. "[W]hether it is enough is the big unknown at this time," said Jim Ryan of Morningstar. Jonathan Weil of Bloomberg believes MBIA is no longer entitled to its AAA rating. "If MBIA is a AAA credit, then Britney Spears is fit to rejoin the Mousketeers," he said. "This horse isn't just out of the barn. It crossed the county line last Christmas and got itself killed trying to dodge traffic." Shares of fellow monoline insurer Ambac Financial (ABK), which is also under review for downgrade, rose 9.6% to close at $29.42.

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