MBIA To Post $737M Loss In 4Q

Armonk, N.Y.-based bond insurer MBIA said it expects to report a $737 million loss in the fourth quarter of 2007 as the effects of the subprime mortgage market collapse continue.

Management said the losses would consist of $614 million in case loss activity and $123 million in unallocated loss reserve activity.

The $614 million case loss is tied to securitizations of prime home equity lines of credit and prime closed-end second lien mortgages (mortgage bonds that cannot be repaid before maturity without permission of the bondholders). However, the ultimate loss could differ from the estimate, the company said.

MBIA said $214 million in unallocated loss reserves in the third quarter will increase by approximately $23 million.

The insurer also announced that it is reducing its quarterly shareholder dividend from 34 cents to 13 cents a share, which is expected to save the company $80 million a year.

The news comes as the company released its plan to improve its capital position in the face of the losses.

As announced in December, the company will receive $1 billion from Warburg Pincus with the purchase of shares in the company. The company said $1 billion of debt it was issuing would be treated as capital of the insurance company for rating agency purposes.

The company will also release capital to pay down debt that is expected to amount to between $300 million and $500 million in the fourth quarter of last year.

MBIA said it purchased reinsurance that is expected to reduce the company's capital exposure by $50-to-$150 million in the near term.

After completing the plan, the company said it should "meet or exceed the rating agencies' current capital requirements" to retain its "triple-A" rating. Without the rating, public entities would be unable to purchase coverage from MBIA for their bond offerings.

Standard & Poor's said it was assigning a "double-A" rating to $1 billion in bonds the company was issuing. It also lowered the "double-A" rating of MBIA's subsidiary North Castle Custodial Trust's committed preferred stock to "double-A-minus" to reflect the issuance of notes.

S&P said the action reflects the rating agency's "standard application" that surplus note ratings are rated two notches below MBIA's financial strength rating that remains at "triple-A."

The new debt brings MBIA's total debt to 22.9 percent of its capitalization as of Sept. 30 of last year, S&P said. But, that figure does not include the reserves the company said it plans to use in paying down debt.

Later in the day, Moody's Investors Service assigned a "Aa2" rating to MBIA Insurance's $1 billion surplus note and downgraded the senior unsecured rating of the parent company by one notch to "Aa3" from "Aa2." The rating outlook was negative.

Moody's action did not affect MBIA Insurance rating of "Aaa."

(The story was updated at 4:15 p.m.)