2nd UPDATE:Wilbur Ross To Invest Up To $1B In Assured Guaranty

Last Update: 2/29/2008 7:38:17 AM

(Adds further context, comments from CNBC interview with Wilbur Ross.)

DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Fund manager Wilbur Ross, who specializes in distressed
sectors, will invest up to $1 billion in bond insurer Assured Guaranty Ltd.
(AGO), opting to bet on one of the industry’s most stable names rather than try
to shore up one of its bigger but struggling companies.

The move, announced Friday by Assured Guaranty, is a blow to industry leaders
MBIA Inc. (MBI) and in particular Ambac Financial Group Inc. (ABK), which had
been seen as a possible partner for Ross.

The decision to go with Assured Guaranty takes away for now one possible source
of fresh capital for Ambac and a potential vote of confidence in the embattled
insurer’s prospects. It also means Ambac and MBIA - already coping with the entry
of Warren Buffett’s Berkshire Hathaway (BRKA,BRKB) into the bond insurance
business - will face a better capitalized competitor in Assured Guaranty as well.

Ross, in an interview on CNBC, said he remains in talks with other companies in
the sector and could end up investing in companies like Ambac through Assured
Guaranty. But he also made clear that he’s decided the best way to get into the
sector is to bet on a solid name that can take business away from struggling
competitors.

“The other ones by and large need capital simply to preserve their rating
status,” Ross said on CNBC. “Assured is one of the very few that’s ranked as a
strong, stable AAA even without our capital. So unlike the other situations where
you would put in capital mainly to fill a hole, in the case of Assured, the
capital is going in gradually over the next year to help him propel himself to a
new level. That is opportunity capital rather than damage-curing capital.”

Ross will also get a seat on Assured Guaranty’s board. The company’s shares
closed at $22.78 Thursday, and Ambac’s closed at $11.80. There was no premarket
trading in either.

Assured Guaranty is one of only two companies in the sector who’s bond insurer
ratings carry stable outlooks from all three main ratings companies. That’s
because the company has largely stayed away from insuring complex,
mortgage-backed securities like collateralized debt obligations that have plunged
in value as the housing slump worsens. Assured Guaranty hasn’t written coverage
on asset-backed CDOs since 2003.

MBIA, Ambac and others piled into that lucrative business, however, and now face
concerns about their ability to win new business and support their top-tier
credit ratings. Standard & Poor’s and Moody’s Investors Service have affirmed
MBIA’s AAA insurer ratings, and S&P affirmed Ambac as well, though Moody’s has
yet to weigh in.

On Friday, Assured Guaranty said Ross will buy $250 million in stock and could
purchase another $750 million at Assured Guaranty’s option over the next year.

The per-share purchase price for the initial investment by Ross’ firm, WL Ross &
Co. LLC, will be the higher of two options - 97% of the average closing price on
Feb. 22 and 29, or 97% of the $22.43 closing price on Feb. 22. The additional
$750 million investment, if made, would require shareholder approval.

Assured Guaranty is in a good position to pick off business from its competitors,
and Ross said on CNBC it may offer reinsurance, buy parts of its competitors’
municipal bond portfolios or try to buy other companies outright. But it does
face competition from the entrance of Buffett’s Berkshire Hathaway.

In late December, Berkshire announced plans to provide insurance for municipal
bonds and has started to do some business. But it must go state by state to get
licenses and is starting from scratch. Ross told CNBC he thought investing in an
established name was a better course.

Assured assumed $29 billion of Ambac Financial Group Inc.’s (ABK) policies in
December and sold 12.5 million shares of its stock to raise money so it could
sell more reinsurance.

The industry’s struggling competitors will have trouble raising fresh capital,
Ross said. Meanwhile, Assured Guaranty is writing new business “at a very rapid
rate,” including insuring bonds that have already been insured by other, troubled
insurers, he said.

“This is, we think, the most efficient way for us to participate in the
rehabilitation and consolidation of the industry,” Ross said on CNBC.

-By John Flowers, Dow Jones Newswires; 201-938-5964; john.flowers@dowjones.com

(Lavonne Kuykendall, Mark Long and Rebecca Townsend contributed to this story.)

(END) Dow Jones Newswires

February 29, 2008 07:38 ET (12:38 GMT)

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