Investors Are Overlooking MBIA's Value - Barron's

Includes: AMBC, MBI
by: Judy Weil
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Leading bond insurer MBIA (NYSE:MBI) has been unfairly hurt by industry fallout, Barron's says. Shares fell 50% last week alone, completing a drop from $76 last year to $8.55 currently. Fearful investors sank MBIA note values issued recently and credit default swaps on MBIA debt have soared, indicating 70%+ bets that it will default on debt within five years. Investors don't think MBIA's $8 billion capital base can cover potential losses on its $652B portfolio, especially after Fitch downgraded rival Ambac's (ABK) credit rating from AAA to AA on Friday.

But Barron's says the declines are excessive: MBIA, unlike Ambac, has already raised the capital that ratings agencies required to shore up capital. MBIA could even reap from Ambac's fall. Potential losses are overstated because bond insurers only guarantee loan payments and interest over the life of the debt, so any losses over the 20, 30 and even 50-year lifetime of loans will be relatively small. Major investor Warburg-Pincus foresees just $250 million in potential losses. This pales next to MBIA's annual revenues of $1.3-$1.4B. Other big, recent investors include Third Avenue Fund and Davis Selected Advisers, but Warburg says it would buy MBIA outright, based on its asset values alone. If all else fails, Barron's says MBIA's liquidation value is $30-$40/share.