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MBIA May Return to Municipal Bond Market After 2008 Crisis

Updated from Tuesday to correct timing of MBIA commutations and spelling of NPFG

NEW YORK (TheStreet) - A Standard & Poor's upgrade of the credit rating of MBIA's (MBI - Get Report) municipal bond insurance unit may allow the company to write new business five years after the financial crisis put the firm on the verge of collapse.

On Tuesday S&P upgraded National Public Finance Guarantee, MBIA's municipal bond insurance division, to a rating of 'AA-' from 'A,' putting the unit in a position to write new insurance policies for issuers in the municipal bond market, according to BTIG analyst Mark Palmer. That upgrade and the prospect of a return of MBIA to the municipal bond insurance market would mark a significant step in the company's recovery from the financial crisis and could lead to new revenue streams.

"MBI is poised to join buy-rated Assured Guaranty ( (AGO - Get Report)) and Build America Mutual ( (BAM)) as the only active bond insurers... The news of the upgrade should come as a relief to some investors who had been concerned that the absence of an announcement to this point did not bode well for MBI's chances of a positive outcome from S&P," Palmer wrote in a note to clients.

S&P's upgrade of National Public Finance Guarantee may be a tailwind for MBIA and its stockholders. However, the municipal bond insurance market is far where it was when the company last was a player. The penetration rate of bond insurance is currently hovering at about 5% of overall issuance, a "stark contrast" to the 57% rate seen when the market was humming in 2005, according to Palmer.

Low interest rates have tempered demand for municipal bond insurance, even as the field of providers has narrowed to Assured Guaranty (AGO - Get Report) and Build America Mutual (BAM).

Palmer said in his report that a meeting with MBIA management and National Public Finance Guaranty CEO Bill Fallon indicated a ramp up of the business could take time.

"Fallon said that while National would be prepared to write new business on the same day it received a credit-rating upgrade to 'AA,' he also understood that some municipalities were likely to try to exploit the unit's desire to demonstrate its viability as it re-launches after a five-year hiatus," Palmer wrote.

$6 Billion Commutation

Two weeks ago, MBIA announced $6 billion in commutations at its structured products unit, further minimizing some legacy exposures that have weighed on the company since its near-collapse in 2008.

MBIA shares rose over 3% in Tuesday trading to $14.64, closing within reach of a 12-month high. Shares have gained 22% over the past 12-months.

-- Written by Antoine Gara in New York

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