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Private equity firms have been victims of the credit crunch more often than opportunists as they watched targets stumble and saw their financing dry up. Meanwhile, their bids to buy up LBO debt on the cheap seem to have come to naught. But Warburg Pincus has found a way to capitalize on the crisis, announcing a deal Monday morning to invest up to $1 billion in MBIA Inc., the parent of MBIA Insurance Corp., which has written billions of coverage on various securitized debt offerings.
Warburg Pincus has agreed to inject $500 million of new capital for 16.1 million shares at $31 a piece—$1 over MBIA's closing price Friday. The stock traded in the high $60s as recently as October but plummeted on concerns that the defaults on home mortgages would eventually cause defaults on even the investment-grade tranches of securitized products that MBIA has backed. Moody's Investors Services said earlier this month that it was possible MBIA would loose its Triple A rating, which would severely damage the company's business. MBIA has relatively little exposure to subprime loans but has backed many home equity loan products and invested in collateralized corporate debt products that have plummeted in value. MBIA had said last week that it was developing a capital buttressing contingency plan. That brought its stock back up from a low of less than $26, and the shares soared past $35 for a while Monday on news of the infusion before settling back a bit. That rebound came despite MBIA's announcement Monday that it was establishing reserves of $500 million to $800 million to cover losses, and that on a marked-to-market basis, it had seen a $850 million loss on securities in its portfolio in October alone. In addition to the immediate investment, Warburg Pincus has agreed to backstop a shareholders rights offering next year for up to $500 million, stepping in if other shareholders don't take up the offer to buy new shares. Warburg will also receive seven-year warrants exercisable at $40. Management is also investing $2 million at $31 a share. Additional coverage will come later in The Daily Deal and on TheDeal.com. — John E. Morris See press release from MBIA CategoriesPrivate capital video
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