MBIA's $1 Bln Debt Sale Stalls as Investors Balk
By Walden Siew
NEW YORK (Reuters) - A planned $1 billion debt sale by MBIA Inc (MBI.N) may be delayed until next week, investors familiar with the offering said on Thursday, as the market demands higher concessions to help the world's largest bond insurer shore up its capital and defend its rating.
The news came a day after MBIA slashed its dividend and said it would sell $1 billion of so-called surplus notes and buy reinsurance. The moves are part of an effort to preserve capital and the "triple-A" ratings the bond insurer needs to operate normally.
The surplus note sale, which had been expected to price on Thursday, has a fixed coupon of between 9 percent and 12 percent, nearly double what similarly rated bonds offer, according to investors briefed by dealers on the transaction.
Surplus notes are bonds specific to the insurance industry, but they can be classified as equity by some state insurance regulators. That allows ratings companies to count some of the securities as equity, bolstering the insurers' balance sheets.
Pricing is not likely until next week, with investors haggling over increased protections, a source familiar with the deal said. The MBIA bond could carry a fixed coupon as high as 11 percent for five years, according to a second investor.
An MBIA spokeswoman declined to comment.
How the debt sale is received may be a test case for other bond insurers as they seek to shore up their capital base.
Surplus notes are "not something you see that often, so some investors are wondering what they are again, and how does it work," said Cynthia Cole, a portfolio manager at Allegiant Asset Management in Cleveland, Ohio.
According to Thomson Financial data, the last big surplus note sale came in May 2003, when New York Life Insurance Co. sold $1 billion of such debt. Mutual of Omaha Insurance Co. also sold $300 million of surplus notes in June 2006.
"If it goes well, I'm sure the others will consider using this structure," Cole said. "The advantage is it gets them to the place where they can keep their triple A rating."
Cole said she was considering participating if the debt offers double-digit yields.
Also on Thursday, a filing showed that distressed debt investor Marty Whitman had doubled his stake in MBIA to almost 11 percent. Whitman is known for generating big returns on companies going through wrenching turnarounds.
Whitman's Third Avenue Management LLC holds a 10.98 percent stake in bond insurer MBIA, the investment fund said in a filing with the U.S. Securities and Exchange Commission.
MBIA said last month that private-equity firm Warburg Pincus agreed to inject $500 million and possibly an additional $500 million to help the transaction.
Fitch Ratings and larger rival Standard & Poor's rated the new MBIA debt "AA," their third-highest grade. Moody's Investors Service rated it an equivalent "Aa2." The debt matures in 2033.
(Additional reporting by Al Yoon; Editing by Dan Grebler)
