shares jumped more than 40% Wednesday after the bond insurer said it was separating its safer municipal bond business from its riskier foray into structured finance.
In a long-anticipated move, Armonk, N.Y.-based MBIA is transferring the stock of MBIA Insurance Co. of Illinois to a new, separate holding company subsidiary of the parent company. The new entity, which will be named National Public Finance Guarantee Corp., will be able to raise money more easily without the constraint of less healthy parts of the business weighing it down.
Wednesday's announcement is the first major step toward transforming our business for the future as I outlined when I returned to MBIA last February," MBIA CEO Jay Brown said in a company statement. "With this company, we have a new, well-capitalized financial guarantee insurer dedicated exclusively to the U.S. public finance market."
and a number of other financial guarantors were hit with ratings downgrades last year, after the market for complex derivative products it underwrote collapsed, weighing on their capital reserves. The downgrades were potentially devastating for the insurers, which cannot underwrite new policies without pristine credit.
Brown said MBIA ultimately intends to return to the structured finance and international markets when "its ratings and market conditions permit," but "will maintain strong operational and legal separation between those businesses and the U.S. public finance business."
National's portfolio consists entirely of U.S. public finance business with total net par outstanding of approximately $537 billion as of Sept. 30, MBIA said. The company also intends to relocate the business from Illinois to New York. Brown expressed gratitude to the New York and Illinois Insurance departments for their aid in the transition.
MBIA shares soared as high as $4.93 on Wednesday, but more recently were up 20.1% to $4.18.
This article was written by a staff member of TheStreet.com.