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Buffett Offers Bond Bailout

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Bloomberg News

Published: February 13, 2008

Billionaire investor Warren Buffett said he offered to shore up $800 billion of municipal bonds guaranteed by troubled MBIA Inc., Ambac Financial Group Inc. and FGIC Corp. in a bid to gain 33 percent of the debt insurance market.

Buffett's Berkshire Hathaway Inc., based in Omaha, Neb., would assume the risk of the debt from MBIA and Ambac in exchange for charging a fee of $4.5 billion each, according to a letter to MBIA's advisers that was obtained by Bloomberg News and confirmed by Berkshire Hathaway spokeswoman Jackie Wilson.

The offer drove U.S. stocks higher on optimism the plan would help calm credit markets and prevent a slump in the value of municipal debt.
MBIA and Ambac dropped on concern Buffett's proposal would leave them with mortgage securities that caused more than $5 billion of losses last quarter, while Berkshire would gain a municipal guaranty business that has generated profit for more than 14 years.

One company already has rebuffed the proposal and the two others haven't responded, Buffett said.

Berkshire would put up $5 billion as capital for the plan and is offering to insure the municipal debt for 1.5 times the premium charged by the bond insurers to take on the guarantee. The insurers could accept the offer and back out within 30 days for a fee, Buffett said.

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