What a joke! There are stories this morning that the private equity folks are mulling starting their own bond insurance business. Wrong. It will never happen.
They only can come in and pick up an existing monoline like Wilbur Ross is trying to do with AmBac (ABK 11.33), which could be taken over by next weekend.
Does anybody think the other jokers in private equity actually want to insure bonds in a new business? Are you kidding me? We had a downturn in the economy, and private equity just about walked away from every equity deal that they were going committed to do. Now you think these instant gratification clowns are going to get into a business where the payoff is over a 30 year period?? I'll say it again: It will never happen.
What could happen, is that they may want to buy an existing business that is mispriced. Those business already have the residual stream from the bonds, and private equity only exists to buy companies where the instant gratification is in the mis-pricing of it. And only in this environment, when there is this much stress in the system, could private equity even be talked about in the papers as being insurers!
Everyone knows the rate that the monolines had to pay to get cash. But consider this: If there were credit default swaps guaranteeing a deal's price in case private equity would walk away from it, what do you think it would trade at? The upfront payment would be as much as the premium on the deal!
Wilbur Ross, however, is a different story. Let him takeover ABK and inject cash. At least his word his good.
But for heavens sake, don't believe the idea that the other clowns in private equity are going to start a new monoline business.
It will never happen.