MBIA blasts Ackerman's bond insurer plan

William Ackman, head of Pershing Square Capital Management LLC, has come up with a solution for the troubled bond insurers, but the plan is meeting with stiff opposition, according to published reports. The activist investor pitched his plan to the New York State Insurance Department on Tuesday. The proposal was to divide the bond insurers into two divisions, keeping the municipal bond insurance unit separate from the structured finance division. The structured finance division would own the muni insurance business, allowing premiums to move from one entity to the other, the Financial Times said. A standalone muni insurer that can write business and grow capital would end up aiding structured finance policy holders, thereby creating immediate value, according to the plan. Both entities would also have separate boards of directors, with policyholders included as members. The muni insurer would pay the dividends to the structured finance parent only if the board members felt the unit would remain AAA-rated, according to Bloomberg. Meanwhile, the structured finance insurer would pay its dividends to the holding company after its board decided that the money wasn’t needed to pay for claims. Mr. Ackman’s plan raised the ire of MBIA Inc., which said the proposal “contain[ed] half truths, innuendo and faulty analysis” and that he was on a campaign to profit from his short positions in the bond insurers. “We believe his proposed structure is also an attempt to find some way to make true his predictions that the holding companies are or will soon become insolvent,” the Armonk, N.Y.-based insurer said in a statement. The plan would lead to a substantial downgrade for the structured finance side. The New York State Insurance Department also reproached the plan, arguing that it would be “bad for the banks,” insurance department spokesman David Neustadt according to Bloomberg. The department prefers a plan that maintains AAA rating on everything, he said.