MBIA to Raise $1 Billion, Slashes Dividend in Bid to Prevent Ratings Cut

MBIA Insurance Corp. said Wednesday morning that it will raise an additional $1 billion in a sale of notes and cut its dividend by more than 60 percent in an effort to raise capital and maintain its AAA credit rating.

The capital strengthening plan comes as the guarantor faces the prospect of a ratings downgrade; Fitch Ratings had warned on December 20 that MBIA had one month to raise an additional $1 billion in capital in order to maintain its high credit rating.

The dividend cut will reduce the quarterly payout from $.34 per share to $.13 per share, MBIA said, in a move that is expected to preserve approximately $80 million in capital per year.

In addition to a planned $1 billion debt issuance, MBIA said that it expected to purchase reinsurance that would reduce MBIA’s capital requirements by $50 million to $150 million.

Upon successful completion of its capital plan, and in conjunction with discussions with each of the major rating agencies, MBIA said in a press statement that it expected to meet or exceed the rating agencies’ current capital requirements for MBIA to retain its AAA ratings.

Concern that ‘worst is yet to come’
Investors, however, don’t appear convinced. MBIA shares had fallen more than 16 percent in morning trading Wednesday, reaching a new 52-week low at $11.60.

Part of investors’ uneasiness stemmed from the insurer’s disclosure that it expected a pre-tax mark-to-market loss of $3.3 billion during the fourth quarter on the value of insured derivatives, including CDO-squared credit impairment. Approximately $200 million represents estimated credit impairment related to three CDO-squared transactions that MBIA said it expected to pay future claims on — the rest, however, were losses that the insurer said it did not expect to be “predictive of future claims.”

Incurred losses for the fourth quarter are expected to be $737 million, MBIA said.

From Bloomberg:

“Most people don’t believe the worst is over and that the bond insurers will have to go back to the well again,” said Richard Larkin, a municipal bond analyst at J.B. Hanauer & Co.

MBIA also said the Securities and Exchange Commission and the New York Insurance Department have opened informal investigations into MBIA’s investor communications regarding the risks associated with its insured mortgage-related debt.

For more information, visit http://www.mbia.com.