MBIA Tries Yelling All Clear (MBI)

MBIA Inc. (NYSE: MBI) decided to speak out against some recent speculation and some recent reporting on its overall health.  The company has said that as a result of Moody’s downgrade of MBIA Insurance Corporation’s insurance financial strength rating from Aaa to A2, it expected that it would be required to post additional eligible collateral and fund potential termination payments under its outstanding Guaranteed Investment Contracts (GICs).

The company announced that sales of approximately $4 billion of investment assets during the second quarter has given it sufficient eligible collateral and cash to satisfy these additional requirements.  As part of this, its entire remaining GIC portfolio will be fully collateralized (subject to exercise rights).  The repositioning activity in the portfolio did not include the broad sale of municipal securities.

MBIA taking this a step further by saying it "is not in a tenuous situation” and that the holders of insurance policies, GICs, medium-term notes and other debt instruments can rest assured that MBIA will meet its obligations "on time and in full."

It has also broken down some portfolio numbers.  ALM portfolio liabilities declined from $25.1 billion at March 31, 2008 to $24.1 billion at June 27, 2008 through normal amortization of the portfolio. The $24.1 billion balance at June 27 consists of $15.8 billion in GICs ($8.3 billion were collateralized prior to Moody’s downgrade), $7.3 billion in medium-term notes (MTNs) issued by MBIA Global Funding, LLC, and $1.0 billion in fixed term collateralized repurchase agreements.

Of the remaining $7.5 billion in previously uncollateralized GICs, $3.9 billion are now being collateralized and $3.6 billion are now being terminated.  The $7.3 billion in outstanding MTNs do not require collateral posting and are not subject to termination upon any downgrades; they mature over 34 years and have an average life of approximately 5.3 years.

Based upon the sales, MBIA estimates that it will record pre-tax net realized losses on its second quarter income statement of approximately $300 million and the sale of assets is not expected to have a material impact on shareholders’ equity.  MBIA saids it also continues to hold approximately $1.4 billion in cash at the holding company level.

MBIA shares had been trading down some 10% on all of these liquidity concerns.  Shares are now down 5% at $3.94 on the day.  Unfortunately, if this level holds, it will mark a new 52-week low close as the prior 52-week trading range was $4.03 to $68.98.

Unfortunately, this baseball game is still in the beginning innings, and it looks like it might easily be a low-scoring game that could go into extra innings.

Jon C. Ogg
June 30, 2008