Bond insurer FGIC Corp. could be looking at a good-book-goes, bad-book-stays scenario as part of its
review of strategic alternatives announced Tuesday. FGIC, parent of monoline Financial Guaranty Insurance Corp., has hired Goldman, Sachs & Co. to kick-off a strategic review, which could include the sale of all or part of the company and a "bulk reinsurance transaction on all or parts of FGIC's in-force business to a third party," the company stated.
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It specifically outlined one option, which might include raising capital for a newly established AAA-rated guarantor exclusive focusing on existing and new public finance wraps. However, a sale of all of the company may be wishful thinking as that "all" would include its high-risk structured finance business, which could only bring future losses.
A muni business sale might be FGIC's only answer in terms of shoring up more capital to protect against expected structured finance losses, especially given that its part-owner PMI Group Inc. on March 3 stated that is does not intend to make further capital contributions to the monoline. PMI owns 42% of FGIC; private equity firms Blackstone Group LP and Cypress Group LLC own 23%; and CIVC Partners LP holds 7%.
But wait, the structured finance business might be in better shape than it looks if FGIC wins a suit filed March 10 against German state-owned bank IKB Deutsche Industriebank AG, alleging that it misled FGIC into ensuring obligations of an off-balance sheet conduit vehicle IKB set up that collapsed less than a month after its formation. The potential IKB exposure accounts for fully 75% of FGIC's loss reserves.
Why not wait for a judges ruling before going on the block? Time may be limited to obtain capital as FGIC's exposures to mortgage losses exceed legal risk limits required by New York state insurance law. - Michael Rudnick
See story about review from TheDeal.com
See story about lawsuit from TheDeal.com
