News & Analysis

Warburg pumps more capital in to swooning MBIA

On the heels of its $500 million investment in MBIA, Warburg Pincus has agreed to purchase an additional $300 million in shares as part of an oversubscribed $1 billion public offering. A source familiar with the matter told PEO the company is 'wildly undervalued'.

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In its latest rights issue to ward off the threat of lower ratings from credit agencies, MBIA Insurance has secured further support from Warburg Pincus.

The private equity firm agreed to purchase $300 million (€204 million) in common stock as part of a $1 billion public offering, which MBIA increased from a planned $750 million due to investor demand.

The world's largest bond insurer sold 82,304,527 shares of common stock at $12.15 per share, a 14 percent discount to its closing price on Thursday. JPMorgan and Lehman Brothers were the joint book runners, and underwriters have been given 30 days to purchase up to an additional 12,345,679 shares of common stock to cover any over-allotments, MBIA said.

Warburg Pincus had agreed to backstop the offering, but MBIA has said it will not need such assistance. The private equity firm also said it will not exercise its right to buy $300 million in convertible participating preferred stock, MBIA said.

MBIA has a AAA credit rating, but has been put on a watch or review status, with the possibility of downgrades, by all three major ratings agencies.

In early December, Warburg Pincus agreed to buy $500 million of MBIA stock, equivalent to 16.1 million shares at $31 per share.

David Coulter, a Warburg Pincus managing director who leads the firm's financial services investments, said in a statement at the time 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”.

The insurer has now raised a total of $2.5 billion, including a $1 billion debt issue in January, according to the Wall Street Journal.

A person familiar with the matter told PEO that Warburg Pincus continues to feel MBIA is “wildly undervalued” and that its recent drop in market value fails to reflect the company's underlying fundamentals.

MBIA has “absolutely no liquidity pressure, which you want to have through market downturns like this”, the person said.

The person also noted the bond insurer's long-term business plan is considered sound, partly due to an expected increase in infrastructure-related financing.