Displaying items by tag: Current Affairs

Surplus notes, unique to insurers, can bolster MBIA's balance sheet since they can be classified as equity. Pricing on the issue, initially expected this week, is uncertain, said another investor, who declined to be named. Delayed pricing may be due to negotiations over protections demanded by some large investors against a five-year call feature, he said.

Not mentioned here is the risk of MBIA tripping its net worh covenants, due to the drawdown caused by marking to market. I warned of this at least two months ago, but I am not going to say I told you so. Specifically, Ambac is at risk with their Citibank $400 million credit line, and MBIA with their $500 million credit line.

From Marketwatch:

A general pricing guideline for surplus notes would be 100 basis points higher than the spread of an existing bond from the company with a similar maturity. MBIA's 7.15% issue due 2027 is being traded at 488 basis points over Treasurys, according to data from MarketAxess.

From Dow Jones:

MBIA Inc. (MBI) faces a purported class-action lawsuit for violating federal securities law from Jan. 30, 2007 through Jan. 9, 2008, according to the law firm Bernstein Litowitz Berger & Grossman LLP.

Representatives from MBIA couldn't be immediately reached for comment.

The Armonk, N.Y., financial services company is alleged to have issued false and misleading press releases, financial statements, filings with the Securities and Exchange Commission and statements during investor conference calls regarding its expose to losses stemming from MBIA's insurance of residential mortgage-backed securities. I am not going to say I told you so, am I?.

The suit alleges that in doing so, MBIA violated section 10b of the Securities Exchange Act of 1934 and rule 10b-5.

MBIA's chief executive and financial chief were also named in the suit.

From Bloomberg:

MBIA Inc., the largest bond insurer, is offering to pay a yield of about 14 percent on its $1 billion of AA rated notes, a rate usually charged to the lowest-ranked borrowers.

The yield would be 3.125 percent higher than what Greenwood Village, Colorado-based First Data Corp. paid in October when it sold $2.2 billion of bonds to finance its leveraged buyout by Kohlberg, Kravis Roberts & Co., according to Merrill Lynch & Co. index data. It is also more than a 140% (or 840 basis points) premium over B of A's AA notes, indicating AA can mean a lot of different things to a lot of different people. If surplus notes normally demand a 100 point spread, we are in uncharted territory here. I know Moody's and I have two dstinct interpetations "investment grade". I think the market differs with Moody's on this one as well. But hey, I am not a fixed income guy so I don't know this stuff that well. I'm rather well endowed in the good 'ole common sense department, though.

Short interest in MBIA was 46 million shares as of Dec. 31, more than double that of a year earlier as hedge funds including William Ackman's Pershing Square Capital Management bet the stock will decline further. Short sellers sell borrowed stock in the hope of profiting by repurchasing the securities later at a lower price and returning them to the holder. Credit-default swaps on MBIA rose to distressed levels as investors demanded 12 percentage points upfront and 5 percentage points a year to protect MBIA bonds from default for five years, according to broker Phoenix Partners Group in New York. The price means it costs $1.2 million upfront and $500,000 a year to protect MBIA bonds from default for five years. So, Moody's/Fitch and the market are at least 500 basis points in disagreement. Somebody's wrong. Fitch admitted that they factored into their investment grade modeling HPA (housing price appreciation) that would go on in perpetuity- that is that housing prices would never go down. Taking this into consideration, my bet is against the ratings agencies.

CDO Losses - MBIA, which gets 90 percent of its revenue from insuring state, municipal and structured finance bonds, reported profits every year for at least the past 16 years. Net income in 2006 rose 15 percent to $819 million. But they are taking unprecedented losses now. The $737 million expense includes $614 million set aside to cover losses on home-equity loans, MBIA said today. The value of CDOs the company insures has slumped by $3.3 billion before tax, MBIA said. That includes about $200 million that MBIA expects to pay claims on. I'm not going to say I told you so.

The losses forced MBIA to ask Barclay's Bank Plc to change terms of a credit agreement to help it avoid breaching a net- worth condition because of the losses, according to a regulatory filing today. I'm still not going to say I told you so.

The company said the losses aren't ``predictive'' of future claims. He's right. Future claims are probably going to be worse...