MBIA gets $1 billion lifeline from Warburg Pincus

Posted Dec 10th 2007 2:38PM by Jonathan Berr
Filed under: Major Movement, Private Equity, Economic Data, Housing, Federal Reserve

Shares of MBIA Inc. (NYSE: MBI) soared almost 30% after the world's largest bond insurer got a $1 billion cash infusion from Warburg Pincus LLC, a private equity firm.

The money couldn't have come at a better time for Armonk, N.Y.-based MBIA, which faced a potentially crippling downgrade from the credit rating agencies As Bloomberg News notes, "MBIA's AAA ranking stands behind $652 billion of state, municipal and structured finance bonds, and losing the AAA credit rating would endanger MBIA's ability to guarantee debt, its main source of revenue."

Under the terms of the agreement, Warburg Pincus will make an initial investment of $500 million through the acquisition of 16.1 million shares at $31 per share, a slight premium over Friday's closing. The investor will also backstop a shareholder rights offering of up to $500 million that MBIA expects to make next year. In addition, Warburg will receive warrants to purchase 8.7 million shares of MBIA common stock at a price of $40, and "B" warrants, which, upon obtaining certain approvals, will become exercisable to purchase 7.4 million shares of stock at $40.

In the press release, MBIA Chief Executive Gary Dunton sounds like he just won the lottery. "We believe this investment by Warburg Pincus represents an ideal outcome, as it not only provides additional capital, but also allows us to join forces with a growth-oriented, long-term investor that understands the business model and shares our vision for growing our business profitably," he said.

Further down in that same statement, MBIA notes that "in the fourth quarter of 2007, the company has observed a further widening of market spreads and credit ratings downgrades of collateral underlying certain MBIA-insured CDO tranches. As of October 31, 2007, the pre-tax change in fair value of insured derivatives ("mark-to-market") from September 30, 2007 was approximately $850 million."

So, maybe it's not time to uncork the champagne quite yet.

Tags: inthenews, MBI, MBIA, private equity, PrivateEquity, Warburg Pincus, WarburgPincus