Communications breakdown

9 January 2008

Investors savaged the bond insurer s stock after it unveiled a plan to shore up its capital. The fact that regulators are now eyeballing its disclosures didn t help. MBIA has to rebuild its credibility before it can compete effectively with cleanerthanclean Berkshire Hathaway.

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MBIA announced plans to issue $1bn in surplus notes, which rank below its other debt and guarantees and is therefore counted as part of its capital cushion. It will also cut its dividend, reinsure part of its portfolio and let part of its guarantee portfolio mature in order to further boost capital. Fitch, the most critical of the three ratings agencies, said the moves will shore up its tripleA rating on the bond insurer.

The surplus notes offering is expected to come to market this month.

In December, Warburg Pincus agreed to purchase $500m of equity at $31 per share, and to backstop a $500m rights offering. The first transaction is expected to happen this month and the second is slated for February.

MBIA's stock fell 15% by midday before recovering more than half the morning's losses.

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