Warburg Pincus has added another insurance firm to its financial services portfolio, with its agreement to invest up to $1 billion (€683 million) in publicly traded MBIA Insurance Corporation.
The private equity firm approached the world’s largest bond insurance company several weeks ago and eventually struck a deal to purchase $500 million in MBIA common stock, equivalent to 16.1 million shares at $31 per share. The price represents a 3 percent premium over MBIA’s closing share price on 7 December.
Warburg has also agreed to backstop a shareholder rights offering, expected to occur in the first quarter of 2008, of up to $500 million and will receive pursuant warrants with a 7-year term.
The investment was welcomed by MBIA, which had been looking to “further strengthen our capital position, particularly in light of rating agencies’ pending reviews of residential mortgage-backed securities and collateralised debt obligations transactions that we have insured”, Gary Dunton, MBIA’s chairman and chief executive officer, said in a statement. The company currently has a top credit rating of AAA.
David Coulter, a Warburg Pincus managing director who leads the firm’s financial services investments, said in a statement that MBIA’s “high quality and liquid investment portfolio and the ‘pay-as-you-go’ nature of its insurance liabilities give it a strong liquidity profile”.
Warburg’s insurance company holdings include Aeolus Re and Arch Capital, both Bermuda-based insurance or reinsurance companies.