FGIC mulls raising capital for new AAA bond insurance business

FGIC mulls starting new AAA bond insurance biz

Company says it’s talking with potential investors about strategic alternatives

By Alistair Barr, MarketWatch

Last Update: 5:36 PM ET Apr 14, 2008

SAN FRANCISCO (MarketWatch) — FGIC Corp. said late Monday that it’s considering
strategic options including raising capital to start a new AAA-rated bond
insurance business.

The company, parent of struggling bond insurer Financial Guaranty Insurance Co.,
said it’s started talking with potential investors about strategic alternatives,
including launching a new business that would focus on the global municipal bond
market.

This new company would also assume FGIC’s existing muni bond and international
infrastructure business, it added.

“With a high-quality and diversified portfolio, coupled with a focused business
strategy, the new company would have a unique platform to deliver superior value
to its clients and investors in the securities it insures,” an FGIC spokesman
said in a statement.

“Other alternatives include, but are not limited to, 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,” he added.

The $2.4 trillion bond insurance business, led by Ambac Financial (ABK), MBIA
Inc. (MBI) and FGIC, has been hit hard by the mortgage crisis. There’s concern
that bond insurers will have to pay big claims on guarantees they sold on
mortgage-backed securities and CDOs.

Several bond insurers have already lost AAA ratings, imperiling their business
models. FGIC was cut to A3 by Moody’s Investors Service in February.

Soon after being downgraded, FGIC unveiled plans to split in two, separating its
more stable muni bond business from more troubled structured finance exposures
that have been hit hard by the mortgage crisis.

FGIC, partly owned by private-equity giant Blackstone Group (BX) and mortgage
insurer PMI Group (PMI), filed a request with the New York State Insurance
Department to open a new bond insurance unit at around the same time.

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