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MBIA to Split Off Bond Business

Posted on 18 Feb 2009

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Bond insurer MBIA Inc. is splitting its municipal bond insurance business from the mortgage-related debt guarantees that led to the loss of its top credit ratings.

MBIA, based in Armonk, New York, transferred guarantees on about $537 billion of municipal bonds to MBIA Insurance Corp. of Illinois, which it plans to move to New York and rename as National Public Finance Guarantee Corp. It also paid the new entity $4.98 billion in premiums and dividends, MBIA said today in a statement.

MBIA is seeking to revive its core business after guarantees on complex mortgage-backed securities and other debt saddled it with potential losses as U.S. home foreclosures soared and the market for the securities froze. The loss of its AAA ratings last year crippled its ability to write new muni-bond insurance, creating an opportunity for rivals to take market share.

"It’s a positive but it’s a small positive," said Robert Haines, an analyst at CreditSights Inc. in New York. “We’re going to need to see further steps and the further steps are much more challenging than the step they took today.”

MBIA also said today it has had discussions with the U.S. Treasury about additional capital, which it will need to win back its top ratings, suggesting the company may seek funds from the government’s Troubled Asset Relief Program.

Standard & Poor's today lowered its financial-strength ratings on the MBIA Illinois unit, acquired in 1989, one level to AA- from AA, saying its capital so far is “marginally below our ‘AA’ standard.” S&P also said the unit was downgraded because of “uncertain business prospects.”

Chief Executive Officer Jay Brown told MBIA shareholders in a letter today that the municipal bond insurance business “will not subsidize our structured business.”

The mortgage-debt and other guarantees that plunged in value amid the housing and credit-market crisis “remain in an entity with ample claims-paying resources to meet any expected claims,” Brown said.

“Municipalities and authorities have been searching for bond insurance in a marketplace where only one insurer is currently active,” New York Insurance Superintendent Eric Dinallo said in a statement. “With the return of a solidly capitalized insurer with more than 30 years of experience, we hope this will help reinvigorate the municipal bond market and help public entities get easier, less costly access to credit.”


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