Bond Insurer Dodges Another Bullet
MBIA Inc., one of the largest companies in the beleaguered bond insurance industry had it’s top rating reaffirmed by both Moody’s and Standard & Poors over the last two days. A downgrade would of meant a devaluation of the $673 Billion in debt that MBIA guarantees.
This would have created havoc in the already troubled credit markets as banks and other institutions would have had to write down these losses to their asset backed portfolios. This news as well as the reported Ambac bailout plan eases somewhat the dark cloud that has been hanging over the entire financial sector.
MBIA had been scrambling over the past few months to raise capital to stave off the downgrade, which would of effectively ended any chance of new business for the firm. The company also announced that it would stop writing polices for collateralized debt for the next six months.
While this does give a slight reprieve to the company, it’s not out of the woods yet. Moody’s, while it confirmed MBIA’s rating still has a negative outlook for the company. The firm still has a large exposure to sub prime debt and is expected to take at least another $4 Billion in losses in the upcoming months which is approximately 25% of it’s claims paying ability.
MBIA made it’s fortunes over the past two decades from insuring the relatively safe municipal bond market. The company plans to separate it’s asset backed division from it’s municipal division in the next few years.
