MBIA shares boosted by $1B investment

Shares of MBIA surged today after the bond insurer said that a private equity firm would inject up to $1 billion of fresh capital into the struggling company.
DEC 10, 2007
Shares of MBIA Inc. surged today after the bond insurer said that private equity firm Warburg Pincus would inject up to $1 billion of fresh capital into the struggling company, according to Crain's New York Business. The investment provides a much-needed reprieve for Armonk, N.Y.-based MBIA, which saw it shares plummet 17.8% last week after Moody’s Investors Services warned that mortgage-related losses could leave the company without enough capital to maintain its AAA credit rating. Under Monday’s arrangement, Warburg Pincus will buy $500 million of MBIA common stock at a price of $31 a share, which represents a 3% premium over the stock’s closing price on Dec. 7. The private-equity firm will also backstop a shareholder rights offering of up to $500 million next year. “We believe this investment … is a validation of the strength and integrity of our business,” MBIA Chief Executive Gary Dunton said in a statement, noting that MBIA will continue seeking additional ways to increase capital. Losing its AAA rating would be a veritable death sentence for MBIA, casting doubt over the ratings of $652 billion in state, municipal and structured finance bonds that the company guarantees. MBIA warned Monday that its mark-to-market losses for the fourth quarter would still be “significantly” higher than the third-quarter, due primarily to the plummeting value of its guaranteed securities. Despite future worries, investors cheered Monday’s news, sending shares of MBIA up as much as 27.3% to $38.19 in morning trading. Prior to Monday’s run-up, the stock has declined 59% from the start of the year. Other bond insurers also strode higher. Shares of Ambac, down 69.9% for the year, climbed as much as 20.3% to $32.28 Monday.

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