"In addition, MBIA expects to be required to post approximately $4.5 billion in eligible collateral to satisfy potential collateral posting requirements under GIC's as a result of the downgrade. MBIA Inc." http://investor.mbia.com/phoenix.zhtml?c=88095&p=irol-newsArticle&ID=1168315&highlight= The mystery of why they were taking their time with sending the $900M down to the insurance subsidiary before any threat of downgrade is solved. more downgrades will mean more collateral posting, plus the is operating expenses cash burn
here's ackman's latest findings on MBIA's accouting. It looks like the downgrades alone are enough to make the common stock worthless, even without taking into account cdos,subprime or whatever. That is because the insurance company wont be able to send cash to the holding company, while the holding company is facing margin calls from GICs, they are selling assets from their SIVs to payoff and post collateral on the GICs. well the people from the SIVs know they might get screw so they will not roll over their debt, so when it comes due they will redeem, this will further force MBIA to sell assets to pay them off in a terrible enviroment. These assets are being sold at discounts which creates a 'liability' to shareholders and unsecured long-term debt holders(in the form of negative book value on the SIVs and GICs). he estimates they are in a $1.5b hole, all of this without factoring in a single CDO http://www.valueinvestingcongress.c...are.com/HowtoSavethePolicyholders-6-18-08.pdf
Ambac: Stock offering from March hasn't closed yet Bond insurer plans $50 million share buyback if offering goes through By Alistair Barr, MarketWatch Last update: 3:30 p.m. EDT July 3, 2008 SAN FRANCISCO (MarketWatch) -- Ambac Financial said on Thursday that an offering of new shares that was supposed to raise more than $1 billion in March hasn't closed yet. The bond insurer announced a $50 million share buyback but said that the repurchase plan will only happen when the underwriters of its March offering -- led by Credit Suisse , Citigroup and UBS -- complete the transaction. "We are unable to predict when the offering will be completed," Ambac added in a statement. In early March, Ambac said it priced an offering of more than 171 million shares at $6.75 each, to raise $1.155 billion. Ambac shares have slumped since then and now trade at $1.33. End of Story Alistair Barr is a reporter for MarketWatch in San Francisco.
Insolvency risk low for most bond insurers-Moody's Wed Jul 9, 2008 12:14pm EDT NEW YORK, July 9 (Reuters) - Insolvency risk is low for most bond insurers, making it unlikely that they would have to make large payments to terminate credit default swap contracts, Moody's Investors Service said on Wednesday. Most bond insurers have capital cushions well above minimum levels, and for struggling insurers, regulators are unlikely to take preemptory action that might worsen their financial condition, Moody's said in a report. Investors have fretted that bond insurers at risk of falling below minimum capital requirements could be seized by regulators, triggering payments on credit derivatives, which could wipe out their claims-paying ability at the expense of holders of municipal bond insurance. Moody's has cut its ratings on bond insurers FGIC, CIFG and XL Capital Assurance, part of Security Capital Assurance (SCA.N: Quote, Profile, Research, Stock Buzz), into junk territory because their cash cushions have dwindled to levels close to the regulatory minimums they are required to hold. FGIC's owners include mortgage insurer PMI Group Inc (PMI.N: Quote, Profile, Research, Stock Buzz) and private equity firms Blackstone, Cypress Group and CIVC Partners LP. CIFG is owned by Banque Populaire and Caisse d'Epargne, which together own French bank Natixis (CNAT.PA: Quote, Profile, Research, Stock Buzz) "While there could be differing views about what constitutes insolvency, Moody's believes that regulators - and regulatory action - could be expected to play a significant role in that determination," Moody's said. "Moody's believes that a regulator would be reluctant to take preemptory action that might have the effect of worsening the financial condition of the insurer and reducing resources available for prospective claimants," the rating agency said in a report. The ability of bond insurers to raise new capital has been constrained by their plummeting share prices and soaring debt yields, due to concerns about losses the companies are expected to take from insurance they sold on risky mortgage-backed debt with credit default swaps. The companies are required to record the value of the credit default swap insurance to their market value, which has plunged, leaving bond insurers with large losses on paper Valuations in the credit default swaps likely overstate the actual losses bond insurers are expected to take from bad mortgage debt and do not directly affect the companies' claims paying resources, Moody's said. "Yet, a large mark-to-market loss is not necessarily only noise either, as it conveys the fact that the market would require additional premium to insure the same exposures today," the rating agency added. Losses from marking the credit default swaps to their market value have constrained the financial flexibility of bond insurers, and as they adversely affect customer perceptions of a company, they impact future business prospects, Moody's said. (Reporting by Karen Brettell; Editing by Andrea Ricci)
Muni bond insurance may trump CDS policies Tue Jul 15, 2008 4:57pm EDT NEW YORK, July 15 (Reuters) - Protection sold by bond insurers in credit default swap form may be considered more junior than municipal bond insurance if an insurer is taken over by regulators, in spite of language in the documentation that states the two types of guarantees should be equal. As a result, holders of protection in credit default swap form may be motivated to seek payments before any possible regulatory intervention occurs, which would be at the expense of municipal bond policyholders, analysts at CreditSights said. And with the interests of municipal policyholders and holders of credit default swap guarantees seemingly diametrically opposed, litigation is likely to ensue. "The implications of CDS not qualifying as insurance are massive and we do not believe that they are fully understood by the markets or the regulators," analysts Rob Haines, Brian Yelvington and Craig Guttenplan said on Tuesday in a report. Bond insurers sold guarantees on structured products backed by mortgage and other debt, mainly to banks, in the form of credit default swaps. This differs from insurance wraps the companies also sold on municipal debt. Rating agencies have cited insurers FGIC, CIFG and XL Capital Assurance, part of Security Capital Assurance (SCA.N: Quote, Profile, Research, Stock Buzz), as being at risk of falling below regulatory minimums that could result in regulatory seizure. FGIC's owners include mortgage insurer PMI Group Inc (PMI.N: Quote, Profile, Research, Stock Buzz) and private equity firms Blackstone, Cypress Group and CIVC Partners LP. CIFG is owned by Banque Populaire and Caisse d'Epargne, which together own French bank Natixis (CNAT.PA: Quote, Profile, Research, Stock Buzz). If the companies are take under regulatory control then credit default swap claims would be considered subordinated to claims by municipal policyholders under New York State law, in spite of terms in the contracts that state they should be ranked equally, CreditSights said. Terms in the credit default swaps also state that a regulatory seizure of a bond insurer, also known as a monoline, would trigger the immediate payment of the protection. However, because the law would subordinate their claims, payments would instead be delayed by as much as 30 years as the municipal insurance matures. "Absent some action by state regulators to classify CDS as insurance, which seems unlikely at the moment, recovery under a rehab event could be as low as zero," CreditSights said. "We think a run on a bank scenario at many of the monolines is possible as structured investors try to queue up ahead of the municipal policies," they added. SECURITY OR INSURANCE? "The regulator has indicated that he would likely pursue a strategy that would be more sympathetic to muni bondholders, rather than structured finance," in the event he takes supervisory control of an insurer, said David Havens, credit analyst at UBS. " But it's not clear that that's going to be legally a successful strategy," Havens said. "In this case you've got what were sought to be iron clad contracts that explicitly rank financial guarantee holders executed in CDS form on the same footing as other holders, so there would be litigation," he added. Before it gets that far, however, there is still the opportunity for banks holding credit default swap protection and bond insurers to negotiate "commutations," or terminations, of some contracts. "Regulators are talking to banks and bond insurers about commuting some contracts, with the intention of relieving the insurance companies of the riskiest liabilities and allowing banks to mark their monolines positions with some degree of certainty," Havens said. Regulators are also understood to be considering changing credit default swaps used by insurers to guarantee securities into insurance policies under the law. New York insurance superintendent Eric Dinallo said in May that it may make sense to regulate segments of the credit derivatives market as if they were insurance products. "We have heard from a few sources that New York State is considering amending the current insurance law in order to define CDS as insurance," CreditSights said. "If successful, CDS would be considered insurance and there would be no acceleration in the event of a regulatory seizure, thus avoiding the doomsday scenario."
"The ratings agency noted that Ambac's exposure is relatively limited, compared with its competitors." 4:10 PM ET 7/17/08 | Dow Jones In a special report on financial guarantors, Fitch Ratings said that worse it yet to come for companies that insured mortgage-backed securities. The ratings agency said it expects industry losses of $15 billion to $21 billion on structured finance collateralized debt obligations - and that only $6 billion has been taken so far by the four biggest subprime-exposed guarantors: Ambac Financial Group Inc. (ABK), Security Capital Assurance Ltd. (SCA), MBIA Insurance Corp. (MBI) and Financial Guaranty Insurance Corp. The ratings agency noted that Ambac's exposure is relatively limited, compared with its competitors. According to Fitch, Ambac and MBIA "maintain enough capital to adequately support policy holder obligations with a reasonable margin of safety," while the futures of FGIC and SCA are "uncertain." In the short term, Fitch's view on the industry is negative, saying losses could wipe out mandatory capital reserves leading to a "ratings cliff." In the medium term, it expects the industry's tarnished reputation, uncertainties in the structured finance business and declining participation from municipal bond issuers to hamper results. -By Andrew Edwards, Dow Jones Newswires; 201-938-5973; andrew.edwards@dowjones.com
Security Capital pact may herald similar deals Merrill says it's negotiating to end guarantees with MBIA, other bond insurers By Alistair Barr, MarketWatch Last update: 8:25 p.m. EDT July 28, 2008 SAN FRANCISCO (MarketWatch) -- A deal to cut the obligations of Security Capital Assurance may become a template to resolve similar problems plaguing the rest of the bond-insurance industry, a leading regulator said Monday. Security Capital agreed to pay Merrill Lynch & Co. $500 million late Monday. In return, the investment bank said it will commute, or rip up, guarantees it had purchased from the bond insurer. The pact, which was shepherded and approved by the New York State Insurance Department, could be a "good template" for other bond insurers stuck in similar situations, Commissioner Eric Dinallo said in a conference call with reporters late Monday. "That's how you come out of the rut," he added. Indeed, Merrill announced late Monday that it's negotiating an end to some of its guarantees on debt securities that were bought from MBIA Inc. and other lower-rated bond insurers. Security Capital Chief Executive Paul Giordano said that the company will start talking with its other counterparties to terminate similar agreements. During the real-estate boom, bond insurers including Security Capital and bigger rivals such as MBIA and Ambac Financial Group sold lots of guarantees on mortgage-backed securities and more complex mortgage-related securities known as collateralized debt obligations, or CDOs. 'There's no more debate about the value of these [credit-default swap] exposures.' â Eric Dinallo, New York State Insurance Department Now that house prices are slumping and foreclosures are surging, many of these same securities have soured, triggering some payments on guarantees. That left Security Capital insolvent at the end of June and has put MBIA and Ambac under severe financial pressure. It's uncertain how much bond insurers may ultimately owe policy-holders such as Merrill Lynch and other big brokers and banks. However, if more policy-holders agree to rip up their contracts and if bond insurers can come up with some money to pay them for doing that, it may calm some of the worries hanging over the industry. The New York State Insurance Department is working on other, similar situations, Dinallo said Monday. He noted that some progress has been made in resolving the problems of Financial Guaranty Insurance Company, another bond insurer that's been hit hard by the mortgage meltdown. Dinallo declined to be more specific. Security Capital has 27 counterparties that bought guarantees in the form of credit default swaps, a form of derivative protection against default. Almost half of these -- 13 -- have agreed on a way of calculating the value of these exposures. This does not include Merrill. The 13 represent roughly 80% of the notional value of securities that were guaranteed in this way by Security Capital, Dinallo and his fellow insurance regulators said Monday. This is an important step because such contracts can't be ripped up until each side agrees on the value of the paper. "There's no more debate about the value of these exposures," according to Dinallo. Settlements like these may allow Wall Street banks and brokerage firms to negotiate a fair settlement of their policies, while helping bond insurers get higher ratings and freeing them up to guarantee more stable municipal debt, he said. After Security Capital's agreements go through, the insurer may be able to garner a "high investment-grade" rating, Dinallo added. Security Capital was cut to junk status earlier this year. End of Story Alistair Barr is a reporter for MarketWatch in San Francisco.
a run on bond insurers?they could be thinking 'lets at least get something now because when they get clobbered we might get nothing' or maybe it was just a legal headache they wanted to avoid
Ambac Financial Group reduces CDO exposure Ambac to pay $850 million to end exposure to $1.4 billion collateralized debt obligation August 01, 2008: 12:35 PM EST NEW YORK (Associated Press) - Bond insurer Ambac Financial Group Inc. said Friday it settled one of its largest exposures to risky collateralized debt obligations. Ambac agreed to pay $850 million to end an insurance agreement covering a $1.4 billion CDO transaction. So-called CDOs are complex financial instruments that combine various slices of debt. Shares of Ambac rose $1.02, or 40.5 percent, to $3.54 in midday trading. As credit markets deteriorated over the past year, CDOs have been considered one of the riskiest types of debt, with investors and ratings agencies worried they would increasingly default, leading to a spike in claims payments for bond insurers. Many CDOs include portions of mortgage-backed securities, whose defaults are likely because of rising defaults among underlying mortgages. Uncertainty surrounding ultimate losses on products like CDOs has led ratings agencies to slash bond insurers' critical financial strength ratings and sent their stock prices plummeting. "The primary benefit of this agreement is that it eliminates uncertainty with respect to future losses related to this transaction," Michael Callen, Ambac's chairman and chief executive, said in a statement. "We view the final outcome as favorable in light of the numerous widely circulated models that assumed a 100 percent write-off for this transaction." Ambac had already written down the value of the CDO by $1 billion _ more than what turned out to be Ambac's actual loss on the transaction. Because it canceled the contract at an actual loss of $850 million, Ambac will record a positive pretax adjustment of $150 million to offset the previously recorded write-down. Goldman Sachs Group Inc. analysts Monica Gabel and Daniel Zimmerman said the cost to end the transaction _ about 61 cents on the dollar _ is cheaper than losses than Ambac would have incurred had it continued with the insurance agreement. Gabel and Zimmerman said similar CDOs will likely lose 75 cents to 95 cents on the dollar if insurers hold them until maturity or they default. The trend of making payments to cancel insurance agreements could be growing. "We believe that the financial guarantors will continue to make efforts to reduce their exposure to risky assets, with special focus on the larger and more volatile deals where ultimate losses are highly anticipated and principal payments can be accelerated," Gabel and Zimmerman wrote in a research note. Earlier this week, another bond insurer, Security Capital Assurance Ltd., reached an agreement with Merrill Lynch & Co. to reduce its exposure to risky debt as well. Security Capital agreed to a deal to cancel eight derivatives agreements with Merrill Lynch. Merrill Lynch will receive $500 million in exchange for canceling $3.74 billion in agreements. Security Capital shares have more than quintupled in value since the company announced the deal with Merrill Lynch. Security Capital shares rose 83 cents or 43.7 percent, to $2.73. Top of page
MBIA Rises Most in 4 Weeks on Dinallo-Brokered Reinsurance Deal By Christine Richard Aug. 28 (Bloomberg) -- MBIA Inc. rose the most in four weeks after New York State Insurance Superintendent Eric Dinallo helped broker an agreement for the company to reinsure $184 billion in municipal bonds for Financial Guaranty Insurance Co., winning new business after losing its top AAA rating. The world's largest bond insurer jumped as much as 20 percent in New York Stock Exchange composite trading after the Armonk, New York-based company said yesterday it will receive premiums of about $741 million as part of the contract. ``MBIA wouldn't do the deal unless they thought they were going to make money,'' said Timothy Graham, who helped Bermuda- based reinsurer LaSalle Re Ltd. avoid insolvency as its chief restructuring officer. ``So, they probably got a pretty good deal.'' The company, which slid 79 percent in New York in the past 12 months, is showing it can survive without the top AAA rating it held since 1990. MBIA is facing competition from the new insurance unit of Warren Buffett's Berkshire Hathaway Inc. as well as Assured Guaranty Ltd. and Financial Security Assurance Inc. MBIA led bond insurers posting record losses after straying from the business of backing municipal bonds to guaranteeing collateralized debt obligations that have tumbled in value. Stock Trading MBIA climbed $2.27, or 19 percent, to $14.25 at 9:36 a.m. in New York trading after reaching $14.40 earlier in the day. The stock is up from the low this year of $3.90 on July 11. ``They're bringing on a huge surplus of unearned premiums,'' Dinallo said yesterday during a conference call announcing the agreement as part of an effort to restore confidence in the bond insurers. The agreement may boost MBIA's credit rating, he said. FGIC Corp., the parent of Financial Guaranty, has been among the worst hit of the bond insurers over recent months. The New York-based company, owned by Blackstone Group LP and PMI Group Inc., was downgraded from a top AAA insurance rating to being ranked below investment grade by the three main rating companies. MBIA is rated A2 by Moody's Investors Service, five grades below Aaa, and AA at Standard & Poor's, two below AAA. S&P affirmed the company's credit rating on Aug. 15 and said bond insurers are taking steps to shore up their businesses. The agreement followed a ``competitive process'' overseen by Dinallo's office and the specifics of the transaction must still be submitted for approval, the statement said. Discussions took 90 days, Dinallo said today in an interview on CNBC. Could be `Invaluable' MBIA is in competition with the FGIC municipal business for about 80 percent of the unearned premiums. Buffett said in February he would take on municipal bond obligations for MBIA, FGIC and Ambac Financial Group Inc. for 150 percent of the premiums. Buffett's backing would have given the debt an AAA rating. MBIA is ranked five grades lower. MBIA's reinsurance may give FGIC's municipal bondholders a higher credit rating, Dinallo said. So-called cut-through insurance ``could prove invaluable in helping lift the ratings of municipal bonds,'' he said. The cut-through reinsurance allows a policyholder to file a claim directly with either FGIC or MBIA and means bondholders can avoid delays in payment if FGIC becomes bankrupt. `Same Bucket' The accord may not raise the price of municipal bonds because investors place little value on some insurance guarantees, said Kenneth Naehu, who oversees fixed income investments for Bel Air Investment Advisors LLC in Los Angeles, which manages $5 billion. ``MBIA, Ambac and FGIC, all three are being thrown in the same bucket,'' Naehu said. ``The bonds are trading as if they don't exist, as if there is no insurance.'' FGIC also said it settled an agreement to provide $1.875 billion of insurance on mortgage-tied CDOs and will pay $200 million to Credit Agricole SA's Calyon unit. Ambac and Security Capital Assurance Ltd. over the past two months have extricated themselves from guarantees on $5.1 billion of CDOs with $1.35 billion of payments to Merrill Lynch & Co. and Citigroup Inc. CDOs package pools of securities, including those backed by subprime mortgages, and slice them into pieces of varying risk. Moody's said in June said its new B1 rating on Financial Guaranty reflects the unit's ``severely impaired financial flexibility and the company's proximity to minimum regulatory requirements.'' FGIC has set up loss reserves to pay expected claims of $1.8 billion mainly on securities backed by home loans, according to Moody's. The two transactions may be enough to prevent regulators from having to step in and take over FGIC, Dinallo said. FGIC focused on the municipal bond market until it was sold by General Electric Co. in 2003. Under its new owners, the company began insuring securities tied to assets such as consumer loans and mortgages, according to the company's Web site. The bond insurance industry is beginning to ``stabilize,'' Dinallo said on CNBC. ``People are still trying to get comfortable with which parts of the bond market require insurance,'' he said. Bond insurance remains the ``only option'' for many issuers, he said. To contact the reporter on this story: Christine Richard in New York at crichard5@bloomberg.net Last Updated: August 28, 2008 09:43 EDT