UPDATE 2-NY gov downplays deadline in bond insurer talks

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By Joan Gralla

NEW YORK, Feb 19 (Reuters) - New York Gov. Eliot Spitzer is less interested in a specific timetable for devising a plan to help rescue bond insurers than finding a "beneficial private- sector solution," his spokeswoman said on Tuesday.

Last Thursday, the Democratic governor testified to Congress about his efforts to help the bond insurers keep their "AAA" ratings, later telling reporters that a solution "could happen within a couple of days."

Asked about the deadline, Christine Anderson, a spokeswoman for Spitzer, said on Tuesday he had been stressing the matter's urgency.

"We are less interested in a specific timetable than we are about achieving a beneficial private-sector solution," she said.

Spitzer also told reporters in Albany on Tuesday that he was "making good progress" in talks with the U.S. Treasury, the Federal Reserve, and major banks to help embattled bond insurers keep their top "AAA" ratings.

Credit agencies repeatedly have warned the insurers that they could lose their "AAA" ratings unless they raise capital.

But the insurers are solid, Spitzer said, explaining the risk he sees is that any downgrades could force widespread selling because many players can own only top-rated debt.

"The solvency is rock solid, the rating is what would percolate through the entire marketplace and could then be transmitted through other underlying bonds that are being held by a lot of entities that are precluded by their own internal rules from holding anything other than 'AAA,'" he said.

"If they were to lose the 'AAA' status, it could cause a significant sell in other parts of the bond market."

OF REMEDIES AND RATES

Only one of the three big bond insurers whose risky subprime investments have imperiled its municipal bond business has publicly said it will try one of Spitzer's options: splitting its muni book from its subprime portfolio.

FGIC Corp (BX.N)(PMI.N) told regulators last week it wants to split into two companies. Rival Ambac Financial Group (ABK.N) is in discussions to raise $2 billion of capital, a prelude to dividing itself into two companies, Tuesday's Wall Street Journal said.

In contrast, bond insurer MBIA Inc (MBI.N) said on Tuesday it would not split in two but is looking at shifting its insurance operations into multiple subsidiaries under the current holding company.

States regulate insurance companies, and the remedies they have once insurers fall ill include seizing control of them via the courts. This gives considerable clout to Spitzer's point man in the talks, the state's insurance superintendent, Eric Dinallo.