MBIA, a bond insurer struggling to maintain the top credit ratings necessary for its business, posted a quarterly loss on Thursday after a $3.5 billion writedown.
The world's largest bond insurer posted a loss of $2.3 billion, or $18.61 a share, compared with profit of $181 million, or $1.32 a are in the same quarter of the prior year.
The company said it was writing down $3.5 billion on its credit derivatives portfolio, including a credit impairment of $200 million it expects to actually incur.
It also set aside $713.5 million, which includes a special addition of $100 million for an unallocated loss reserve for MBIA's prime, second-lien mortgage exposure.
MBIA , which guarantees municipal bonds and repackaged consumer debt, sold $1 billion of surplus notes to boost its capital levels earlier this month.
Warburg Pincus has invested $500 million in MBIA and has also committed to backstop a $500 million rights offering.
MBIA Chief Executive Gary Dunton said the measures would offset the reserves and impairment.
"We believe that these steps, along with reduced capital requirements resulting from slower business growth, will result in our capital position surpassing rating agency Triple-A requirements as currently articulated and will allow us to continue serving the needs of our clients and investors," he said in a statement.
Moody's Investors Service, however, said on Jan. 17 that even with the new capital, it may cut the top credit ratings for MBIA's main unit.
MBIA, like many of its competitors, is expected to make big payouts in the future after insuring bonds linked to subprime mortgages.
Concerns about the market impact of MBIA being downgraded, and investors being forced to sell bonds guaranteed by the company, have brought government regulators into the fray. New York State Insurance Superintendent Eric Dinallo is working with bond insurers, banks, and others to put together a bailout.
After-tax operating loss for the quarter was $407.8 million, compared to an income of $179.2 million in the year-ago period.