Once again, the market breathed a sigh of relief Thursday as two major bond insurers improved their shaky financial position. Leading bond insurer MBIA Inc., which recently lost its AAA credit rating,
agreed to reinsure $184 billion in municipal bonds for Financial Guaranty Insurance Co., the companies said in separate statements Wednesday.
Armonk, N.Y.-based MBIA, which is backed by the private equity shop Warburg Pincus, said it will receive immediate premiums of about $741 million as part of the transaction. The deal is also seen a means of reducing the risk profile of New York-based FGIC, which is owned by Blackstone Group LP and PMI Group Inc.
It was a smidgen of good news for MBIA after the insurer's stock has lost about 80% of its value in the past year due to the lingering credit turmoil. The problem has mainly been that the company diversified from its core business of backing municipal bonds to guaranteeing collateralized debt obligations, which plunged in value during the subprime mortgage crisis.
MBIA climbed 18.4% to $14.18 in early trading.
The deal was brokered by New York State Insurance Superintendent Eric Dinallo, who has been working this year to ensure that the bond insurers survive the current turbulence.
Having lost $706 million in the first half of 2008, MBIA now has a credit rating of A2 at Moody's Investors Service and AA at Standard & Poor's. S&P affirmed MBIA's rating on Aug. 15 and said bond insurers are making moves to improve their business. - Peter Moreira
See Bloomberg story on MBIA-FGIC
See Reuters story on the deal
See TheDeal.com story on Warburg's loss on MBIA
