Capital Infusion Strengthens MBIA

The $1 billion investment in MBIA by Warburg Pincus, a leading international private equity firm, demonstrates a vote of confidence in MBIA and strengthens its balance sheet as it seeks to maintain its AAA rating.

Support by Warburg Pincus, one of the world’s top private investment firms, will come in the form of a direct purchase of MBIA’s common stock, and as a backstop for a shareholder rights offering to take place in early 2008.

The strengthening of MBIA’s balance sheet comes in the face of a recently released Moody’s report indicating that MBIA might fall below capital levels required by the rating agency for “AAA” status as a financial guarantor. MBIA’s announcement seeks to eliminate fears that its capital strength has waned due to the crisis in the mortgage backed securities market.

MBIA, headquartered in Armonk, N.Y., also announced that it expects to establish additional reserves of $500 to $800 million in the fourth quarter in recognition of the continued decline of residential mortgage backed securities. Most of the decline is due to accounting rule requirements that current market prices of such securities be reflected on the firm’s balance sheet, even if no actual loss is recorded.

Confidence in MBIA’s future

In making its investment in MBIA, Warburg Pincus has expressed its confidence in the future of the municipal bond insurance business in general, and MBIA’s role as a leader in that industry, in particular. Warburg’s investment recognizes the fact that most of MBIA’s insured portfolio consists of high-grade bonds for which bond insurance is hardly needed. MBIA is a high-volume insurer that prefers highly rated frequent issuers who choose to use bond insurance as a means to lower interest costs at the time of a bond sale rather than needing such insurance for market access.

The major rating agencies are all involved in a special end-of-year review of the bond insurance industry in light of the toll that the mortgage backed insurance crisis has had on certain business lines in which the insurers are engaged. Moody’s, in particular, has indicated that capital levels may need to be increased for several insurers, including MBIA, to keep their “AAA” ratings. The Warburg Pincus investment is a pre-emptive move by MBIA to prevent such an action.

12/12/2007