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MBIA Cuts Dividend, Raises Funds To Strengthen Capital

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By DAN SEYMOUR, The Associated Press

Published: January 10, 2008

NEW YORK - MBIA Inc. plans to book more than $4 billion in losses, slash its dividend and sell $1 billion in bonds as part of a strategy unveiled Wednesday to shelter the bond insurer's crucial financial strength rating.

But analysts said investors doubted all of the bad news was out, and the shares fell sharply.

The Armonk, N.Y.-based insurer, under pressure from the ratings agencies to prove it has enough cash to pay potential insurance claims, will cut its quarterly dividend to 13 cents from 34 cents, saving an estimated $80 million a year. MBIA writes insurance policies that promise to reimburse bondholders when borrowers default.

The company will also sell $1 billion in bonds, and buy reinsurance to free up $50 million to $150 million of the company's cash.

Combined with a $1 billion investment from Warburg Pincus, MBIA said it believes the moves will mollify the major ratings agencies, allowing the company to maintain its "AAA" financial strength ratings.
MBIA expects to reserve $737 million to pay claims for the fourth quarter, mainly because of anticipated losses on insured bonds backed by home equity lines of credit.

The company also said the market value of its portfolio of "credit derivatives" - or contracts protecting debt - plunged $3.3 billion in the fourth quarter.

The dent in MBIA's credit derivatives portfolio is much higher than expected, Banc of America Securities analyst Tamara K. Kravec wrote in a client note. MBIA said the $3.3 billion in losses are only on paper; the company expects something like $200 million in actual losses on the portfolio.

Fitch Ratings, which on Dec. 20 gave MBIA six weeks to raise $1 billion or face a downgrade, said the planned $1 billion bond sale will be enough to protect the company's "AAA" rating. The bonds are subordinated to all the company's other debt - meaning if it becomes insolvent the bonds would not be repaid until the company paid off all other debt and claims.

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