MBIA shares rise; bond insurer says it will keep AAA rating

Jan.31, 2008 in Market Outlook

MBIA shares rise; says it will keep AAA rating

CFO says bond insurer won’t go bankrupt, highlights liquidity

By Alistair Barr, MarketWatch

Last Update: 4:11 PM ET Jan 31, 2008

SAN FRANCISCO (MarketWatch) — MBIA Inc. shares rose Thursday as the bond insurer
tried to assure investors and analysts that it can ride out the meltdown in the
mortgage market while keeping its crucial AAA rating.

The company said in a presentation that it had more than $1.5 billion of
liquidity at the end of 2007. That includes cash and investments, revolving bank
credit and dividends from its insurance units and investments.

MBIA (MBI) projected that it will have to use about $229 million of that
liquidity, leaving it with more than $1.3 billion, according to the presentation.

Shares of MBIA climbed 7.3% to $14.98 during afternoon trading. Rival Ambac
Financial Group (ABK) advanced 9% to $11.81.

Bond insurers agree to pay principal and interest when due in a timely manner in
the event of a default — a $2.4 trillion business that offers a credit-rating
boost to municipalities and other issuers that don’t have AAA ratings. Without
those top ratings, insurers’ business models may be imperiled.

The companies expanded in recent years by selling guarantees on billions of
dollars worth of mortgage-related securities such as collateralized debt
obligations (CDOs). Those exposures have begun to trigger losses as the mortgage
market deteriorates.

Some bond insurers, including Ambac, FGIC and Security Capital Assurance (SCA),
have already lost their AAA ratings from Fitch Ratings. Moody’s warned earlier in
January that it may downgrade MBIA’s AAA ratings.

But Chuck Chaplin, chief financial officer of MBIA, tried to calm concerns about
the company’s rating on Thursday.

“We’re working with Moody’s pretty assertively every day,” he said during a
conference call with investors and analysts. “We’re trying to get them and our
rating back to AAA stable. We believe that is where this is going to go
ultimately.”

MBIA’s capital levels exceeded the requirements of ratings agencies like Moody’s
by between $750 million and $1 billion at the end of 2007, he noted.

Given the decline in MBIA’s new business in January and in future months, the
company’s excess capital levels should grow more over time, he added.

“We have established a robust capital position; one that is able to withstand
things that go bump in the night,” Chaplin said.

The CFO also tried to rebuff speculation that MBIA might go bankrupt as
subprime-related claims mount.

“Rumors that the holding company would be insolvent in the near term, we believe,
are without merit,” he said. “Our holding-company assets and our bank lines
provide substantial coverage of actual expenses at MBIA Inc. in the holding
company.”

“The cash on the balance sheet, then, gives us almost two years worth of
coverage. Maximum insurance-company dividends add another two years of coverage.
The banks’ facility adds another two years of coverage. So that is six years in
total,” he remarked, according to a transcript of the call.

“Of course, we haven’t considered changing the dividend rate, which we have shown
that we will do to the extent that the company comes under stress,” Chaplin said.

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