MBIA Scores Big Investment

"Deterioration in the underlying credit portfolios related to prime second-lien mortgages has further increased the risk profile and capital requirements for MBIA and several other players in the financial guaranty industry," Fitch said in a statement. "Fitch notes that [Mon]day's announcement by MBIA demonstrates a proactive step by management to augment its capital position in light of the deterioration in several asset classes within its insured portfolio."

Monoline insurers, which use their high credit rating to provide insurance on debt issued by corporations and municipalities, have experienced capital concerns because many moved away from the staid business of enhancing the credit rating of insuring government bonds and corporate debt to insuring esoteric mortgage-related securities such as collateralized debt obligations.

Under the terms of the MBIA agreement, Warburg will make an initial investment of $500 million in MBIA through the acquisition of 16.1 million shares of MBIA common stock at a price of $31 per share -- a 3% premium to the $30 closing price on Friday.

Warburg also will support a shareholder rights offering of up to $500 million that MBIA expects to undertake during the first quarter of 2008. In connection with the rights offering, Warburg will receive seven-year warrants to purchase 8.7 million shares of MBIA common stock at a price of $40 per share and "B" warrants, which, upon obtaining certain approvals, will become exercisable to purchase 7.4 million shares of MBIA shares at $40 per share.

Moody's, as well as Fitch Ratings and Standard & Poor's, have been reviewing whether debt insurers such as Ambac Financial (ABK Quote) and Financial Guaranty Insurance Co. have sufficient funds to handle the likelihood of increasing defaults of the debt that they insure in an a deteriorating housing market environment.