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MBIA Gets Added Boost From Moody's

Laurie Kulikowski

MBIA(MBI - Cramer's Take - Stockpickr) surged as much as 6% in trading Tuesday after Moody's Investor Services confirmed the financial guarantor's triple-A rating.

The action comes a day after Standard & Poor's did the same, taking considerable pressure from the ratings agencies off the company. Like rivals Ambac Financial(ABK - Cramer's Take - Stockpickr), closely held Financial Guarantee Insurance Co. and other guarantors, MBIA has been pressed to shore up capital in the face of potential defaults on the debt it insures. Failing to do so meant potentially losing its pristine ratings, impairing its ability to win new business.

"Over the past two months, MBIA has completed transactions to raise $1.6 billion in equity and $1 billion in surplus notes, demonstrating a strong commitment to its policyholders," Moody's said in a note. "MBIA is considering a number of initiatives that should enable it to meet the [triple-A] target threshold over the next six to 12 months."

Moody's also noted that MBIA's decision Monday to eliminate its dividend and six-month suspension of new structured finance underwriting, among other factors "should significantly contribute to that objective."

Moody's also confirmed its rating of "Aa2" on surplus notes issued by the company's subsidiary, MBIA Insurance Corp., and a senior unsecured rating of "Aa3" on the Armonk, N.Y.-based parent company.

Still the ratings agency has a negative outlook on MBIA to reflect "uncertainties as the company finalizes its capital plan and implements its strategy," it said. Moody's said the outlook could improve as "visibility improves on the firm's likely losses from mortgage-related exposures, and as the details and effectiveness of MBIA's strategies become more apparent."

In addition to removing MBIA's triple-A rating from review for downgrade Monday, Standard & Poor's reaffirmed Ambac's triple-A rating, among other companies. S&P also cited MBIA's success in raising $2.6 billion of debt and equity capital but placed negative outlooks on both MBIA and Ambac.

S&P said that MBIA's removal reflect the firm's "success in accessing $2.6 billion of additional claims-paying resources, which, in our view, is a strong statement of management's ability to address the concerns relating to the capital adequacy of the company."

MBIA Chairman and CEO Jay Brown said in a statement Tuesday that he was pleased with both agencies' rating affirmations, which are "a major step in our five-year transformation plan." The company has raised its $2.6 billion from private equity firm Warburg Pincus and public investors.

"MBIA's claims paying resources are many multiples of our estimated loss exposure," Brown said. "In fact, the entire U.S. mortgage market would have to realize ultimate losses many times greater than any credible prediction before MBIA's ability to meet its policyholder obligations would be compromised."

"MBIA is committed to the millions of investors, municipalities and other stakeholders that rely on our insurance products for better bond markets and peace of mind," Brown said.

Separately, CNBC reported on Tuesday that the consortium working to finalize a plan that would provide Ambac with some $3 billion in liquidity includes not only large banks such as Citigroup(C - Cramer's Take - Stockpickr) and Wachovia(WB - Cramer's Take - Stockpickr) but private equity firms and other financial services companies that have no exposure to the troubled bond insurer.

Shares of MBIA closed up 70 cents to $15.28, while Ambac fell 22 cents to $12.19.