G.E.'s Bond Insurance Biz Sold For $2.16 Billion

By Michael Ha

NU Online News Service, Aug. 4, 1:51 p.m. EDT?General Electric, continuing to streamline its insurance business, has arranged to sell its bond insurance unit to a consortium for $2.16 billion.

The purchasers of the New York-based Financial Guaranty Insurance Company (FGIC) include the PMI Group Inc. of Walnut Creek, Calif., and a number of investment firms. One of the purchasing group's executives said the new owners would make the firm less conservative and expand its business lines.

FGIC is a monoline bond insurer with some $202 billion of insured par outstanding. It provides financial guaranties for debt securities, focusing on municipal bond insurance.

Under the transaction, the purchase price consists of some $1.44 billion in equity, $225 million of senior debt, $235 million of mandatorily convertible participating preferred equity held by G.E. and a pre-closing dividend of $260 million.

The buyer group announced that Frank Binova, former vice chairman and chief financial officer of Ambac Financial Group, a New York-based bond insurer, will lead the new company.

G.E., which has an insurance business which posted $23 billion in revenues last year, has said it wants to focus on business lines and markets where it sees the "most attractive growth and return prospects." In late June, G.E. agreed to sell off its U.S. auto and home business, as well as its Japanese life insurance unit, to American International Group for some $2.15 billion.

"We like this deal very much from a G.E. Insurance perspective. We gain clear benefit from a transaction that supports both our global realignment strategy and our parent's desire to reallocate capital to faster-growth segments of the company," said Michael Fraizer, chief executive officer at G.E. Insurance. Mr. Fraizer also assured FGIC customers that the new company would maintain its "Triple-A" ratings.

When the deal is completed, the PMI Group, one of the largest mortgage insurance providers in the country, will have the biggest share in FGIC, with a 42 percent ownership. As for the other buyers in the group, Blackstone Group L.P. and the Cypress Group, both private investment firms based in New York, will each get 23 percent of FGIC, while Chicago-based CIVC Partners will own seven percent of the new company.

G.E. will also keep a minority interest in the business, with a five percent stake. The arrangement will allow FGIC to operate as an independent business owned by five different corporations, including G.E.

For PMI, the transaction is expected to help the company diversify its product base, to compensate for the tough environment in private mortgage insurance business. Last month, PMI posted $70 million for its second-quarter profit, down from $81 million in income recorded one year ago.

"We believe our investment in FGIC represents a solid growth opportunity and a diversification that strengthens the overall risk profile of the PMI Group. We are very excited about our FGIC investment and we are pleased to have the Blackstone Group, the Cypress Group and CIVC as our partners," Roger Haughton, chief executive officer at PMI, said of the new deal.

Mr. Haughton also added that FGIC will follow a strategic business plan to compete across the full range of financial guaranty business, including asset backed securities and international markets.

Also commenting on the transaction, William Spiegel, managing director at the Cypress Group, told National Underwriter that there were a number of factors that drew his firm to the consortium acquisition.

"We started talking about this deal in late March, early April. The stability of this business model drew us to this transaction. We also liked the opportunity to team up with PMI. It is an attractive strategic partner for us because of its strategic vision of being in all the sectors of financial guaranty," Mr. Spiegel said.

According to Mr. Spiegel, when the transaction is completed, FGIC will have the opportunity to broaden its business going forward.

"G.E. allowed FGIC to participate only in the most conservative municipal finance. G.E. also didn't want FGIC to have the exposure to segments of the economy that might overlap with what G.E. broadly focuses on," Mr. Spiegel observed.

"Under our ownership, FGIC will have broader business lines that other financial guaranty companies already participate in," he said.

The deal still awaits the regulatory approval, which could take up to four months, Mr. Spiegel noted. FGIC currently has some 100 employees, and going forward, the new owners will add more workers, "as we intend to grow this business," he said.

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G.E.'s Bond Insurance Biz Sold For $2.16 Billion

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