MBIA Unit's Credit Rating Drop Suggests A Sale or Activist Could Be Next

If MBIA Inc. (MBI) doesn't find a buyer for itself soon, it could become a target of an activist investor pushing for a deal.

That's because rating agency Standard & Poor's on Monday downgraded the municipal credit insurer's municipal bond insurance unit, National Public Finance Guarantee Corp., from AA- to A. It's an action that analysts believe increases the possibility that the financial services company will find a buyer for itself.

Mark Palmer, an analyst at BTIG Research, suggests in a report Monday that the natural buyer of the company would be Assured Guaranty (AGO) , which has said it will seek to consolidate the industry's remaining firms.

Case in point; Assured Guaranty CEO Dominic Frederico noted in May that there are some potential acquisitions of legacy guarantors or their insured portfolios still available to be acquired "and we are the most logical purchaser." It is likely that Frederico is referring to MBIA and other bond insurers in his comment.

And another indication that Assured Guaranty will seek to buy MBIA? The bond insurer in January acquired MBIA's European operating division, a move that also suggests it could be interested in buying the rest of the business.

"Assured Guaranty has made it clear that they want to buy all the other municipal bond insurers, be they active or inactive, and MBIA is the only other active public company writing new business," said Palmer. "At the end of the day MBIA's board is going to have to look at the reality that their ability to write a material amount of new business is potentially years away given the S&P downgrade."

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