Fitch Places MBIA Rating On Watch

Bond insurer MBIA was hit today with an announcement from Fitch Ratings that it has placed the firm on rating watch negative, and could downgrade the insurer if it doesn't get more financing in place.

Fitch said that after a review of the Armonk, N.Y.-based insurer's exposure to collateralized debt obligations (CDO) backed by subprime mortgage collateral, the rating service found the $30.6 billion exposure falls below a “triple-A” rating by about $1 billion.

During the next four-to-six weeks, MBIA must obtain additional capital commitments and/or obtain reinsurance or other risk mitigation measures to avoid losing its “triple-A” rating. If MBIA fails to get the capital or measures in place, Fitch said it would probably knock down MBIA's rating one notch to “double-A-plus.”

Recently, MBIA obtained a $1 billion investment from Warburg Pincus in an effort to increase the company's capital and claims paying resources.

Fitch said that slower growth in the fourth quarter and expected slowdowns in 2008 should help improve the company's capital position. It said the company has also been “diligent in avoiding business during this time frame that would be considered underpriced or ineffectively underwritten.”

But Fitch criticized the company for at one point pursuing business “in the sectors suffering material credit deterioration,” and it is those transactions that are causing the problems today.

Fitch said the company maintains “excellent liquidity,” and if the losses do develop the claim payments will “often not need to be paid for many years into the future.”

The company has assets of $45.3 billion and shareholder equity of $6.5 billion, Fitch said.

For 2006, Highline Data showed MBIA reported net premium written of $723 million and net income of $668.6 million. Total assets stood at $11 billion with surplus of $4.08 billion and total liabilities of $6.9 billion.

MBIA's stock closed on the day down 26 percent, or $7.07, to $19.95 a share.

Late in the day MBIA issued a statement saying information posted on its Web site disclosed nothing new that was not discussed during a conference call with investors on Aug. 2. Information posted on the company's Web site on the 19th provided details of the its CDO exposure.

Contrary to some press reports that details were suppressed, MBIA said the information was provided to all rating agencies and was made available to Warburg Pincus prior to their entering into the investment agreement.

(This story was updated on Dec. 21 at 8:38 a.m.)