MBIA Scores Big Investment

Updated from 11:13 a.m. EST

Bond insurer MBIAMBI will receive a $1 billion in capital from the private-equity firm Warburg Pincus.

The cash infusion will come in the form of a direct purchase of MBIA common stock by Warburg and a backstop for a shareholder rights offering, the company said in a released statement Monday morning.

"We believe this investment in our common stock by Warburg Pincus, one of the most respected and successful private equity firms, is a validation of the strength and integrity of our business," said MBIA CEO Gary Dunton in the release.

Dunton said that the Warburg investment might allow the company to work with an investor that "shares our vision for growing our business profitably." MBIA did not rule out the possibility that it may seek additional capital via other options, including reinsurance, issuance of debt and the issuance of hybrid securities.

An external MBIA spokesman declined to comment beyond the release.

MBIA also increased reserves for losses in the fourth quarter to between $500 million and $800 million, noting that increasing shakiness in the mortgage market was causing a deterioration in values. It expects to face a further loss in the fourth quarter.

An external MBIA spokesman declined to comment beyond the release.

Monday's action comes on the heels of a statement from rating agency Moody's Investors Service, which last week said MBIA may be at a greater risk for facing a capital shortfall than the agency had a previously estimated.

MBIA responded publicly by saying that it was working on a plan to shore up its balance sheet rather than risk losing its triple-A credit rating.

Fitch Ratings on Monday said the cash infusion improved MBIA's overall financial position, but said it was "disappointed" with the size of the reserves and the charge expected to be taken by the company. The ratings agency last month launched a review of collateralized debt obligations insured by financial guarantors with an eye on how subprime mortgage-backed securities could impact each insurer's capital position and rating.

The ratings agency, however, noted it does not expect MBIA to be alone among monoline insurers with assets exposed to U.S. subprime mortgages.