Australia's Macquarie aims to form US bond insurer

By Lilla Zuill

NEW YORK (Reuters) - Australia's Macquarie Group (MQG.AX) is seeking a license from New York's insurance regulator to create a U.S. municipal bond insurer, seeing opportunity as other bond insurers have floundered.

Macquarie has submitted a formal application to the New York Insurance Superintendent, according to a source familiar with the matter. The company has already retained a management team with experience in municipal financial guarantee.

Macquarie's bond insurance arm is to be called Municipal Infrastructure and Assurance Corp, and only intends to guarantee debt for municipal and infrastructure projects -- a good fit for the company since it is a large investor and manager of infrastructure projects around the world.

Its application could be approved in a matter of weeks, according to another person familiar with the case.

A New York-based Macquarie representative declined to comment on the company's plans.

IN BUFFETT'S FOOTSTEPS

Macquarie's move follows Berkshire Hathaway Inc (BRKa.N) forming its own municipal bond insurer late last year. Warren Buffett's Berkshire Hathaway Assurance Corp is now licensed to do business across the United States. It received permission from New York regulators first -- within a month of its application being filed.

"If Warren Buffett gets into business, others tend to follow," New York Insurance Superintendent Eric Dinallo said in an interview on Friday.

Bond insurers are paid to guarantee interest and capital payments in the event of a bond going into default. The coverage reduces the perceived risk of owning the debt, which can help to attract investors and lower funding costs.

But the sector has been badly battered by losses after some players branched out into guaranteeing mortgage debt, raising capital adequacy concerns and spooking investors.

Buffett moved into the market as credit rating agencies undertook reviews of ratings on already established bond insurers, concerned they might not be able to cover losses.

Shares of MBIA Inc (MBI.N), the largest U.S. bond insurer, and rival Ambac Financial Group Inc (ABK.N) have fallen sharply since November, but have shown signs of moderate recovery as the firms attempt to work out deals to end contracts that guaranteed risky mortgage debt. MBIA closed up 8.8 percent at $8.42 on Tuesday, and Ambac rose nearly 13 percent to $4.73.

Dinallo earlier in the year estimated the U.S. bond insurance market needed $10 billion to $15 billion in new capital. While Buffett's entrance, and new capital raised by already established firms, has helped, more is needed, according to Dinallo.

Private equity firm Ripplewood Holdings has also shown interest in forming a U.S. bond insurer, Dinallo said.

No one at Ripplewood Holdings could be reached for comment.

(Editing by Leslie Gevirtz and Braden Reddall)