MBIA to Raise $750M, Annoucement Comes after Fitch’s Downgrade Warning
On the heels rating agency Fitch's warning that it may downgrade the bond insurance unit of MBIA Inc, the largest US bond insurer said on Wednesday that it would raise $750 million by issuing new shares in an attempt to boost its capital to retain the top credit ratings crucial for its business.
However, the MBIA is facing such big potential losses after guaranteeing repackaged sub-prime debt and other complex assets that the additional capital may not help its rating with Fitch.
Selling the 50.3 million common shares it aims to issue in the public market will not be easy for MBIA. But Warburg Pincus, a private equity firm that invested $500 million in MBIA last month, has agreed to make up for any shortfall in MBIA's target of raising $750 million of capital in public markets.
Selling the securities in the public market may not be easy, but it may be possible, said James Ellman, president of Seacliff Capital in San Francisco, which does not have a position in MBIA.
"They don't have to convince everybody to buy the deal, they only have to convince enough people to buy $750 million shares," Ellman said.
JP Morgan Securities and Lehman Brothers are joint book-runners on the stock offering.
New York State Insurance Superintendent Eric Dinallo, who has been working with banks to organize rescues for some of the bond insurers, praised the deal. "This is good progress," he said in a statement. "It's the kind of transaction we've been discussing and encouraging."
Published on February 7, 2008
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