Aug. 28 (Bloomberg) -- MBIA Inc. rose in Europe after the company agreed to reinsure $184 billion in municipal bonds for Financial Guaranty Insurance Co., winning new business after losing its top AAA rating...
``MBIA wouldn't do the deal unless they thought they were going to make money,'' said Timothy Graham, who helped Bermuda- based reinsurer LaSalle Re Ltd. avoid insolvency as its chief restructuring officer. ``So, they probably got a pretty good deal.''
MBIA, which slid 79 percent in New York in the past 12 months, is showing it can survive without the top AAA rating. The company is facing competition from the new insurance unit of Warren Buffett's Berkshire Hathaway Inc. as well as Assured Guaranty Ltd. and Financial Security Assurance Inc. MBIA led bond insurers posting record losses after straying from the business of backing municipal bonds to guaranteeing collateralized debt obligations that have tumbled in value.
MBIA agreed on Wednesday to take control of nearly $200 billion of municipal bonds currently backed by a rival bond insurer, the FGIC Corporation, in a move that could help its competitor avoid bankruptcy.
The agreement between the two companies calls for the municipal bond issuers to pay their premiums in advance, transferring $741 million to MBIA. In exchange, MBIA will pay FGIC a commission worth nearly $200 million.
In February, Warren E. Buffett, the billionaire investor, said he had offered to reinsure some $800 billion worth of municipal bonds guaranteed by MBIA, Ambac Financial and FGIC. His investment vehicle, Berkshire Hathaway, proposed that it would invest up to $5 billion as capital.
However, all three insurers rejected the plan.
So MBI was not supposed to get any new business? I guess this transaction wasn't in the shorts models!