MBIA Inc said on Monday that after selling $4 billion of assets in the second quarter, it now has enough cash and collateral to meet the extra requirements triggered by its recent downgrades.
MBIA
The announcement followed a Wall Street Journal report that said the bond insurer was raising cash through municipal bond sales last week to make billions of dollars in payments triggered by its rating downgrade by Moody's Investors Service.
Because of the sales, MBIA said will record pre-tax net realized losses on its second-quarter income statement of approximately $300 million. But this should not have a material impact because the losses "did not differ substantially" from unrealized losses already taken, MBIA said in a press release.
MBIA shares had fallen as much as 13 percent on Monday, but pared those losses after the company announcement to trade down almost 9 percent.
"Contrary to recent statements in the media, MBIA is not in a 'tenuous situation,"' said C. Edward Chaplin, chief financial officer, in a statement.
"The holders of our insurance policies, GICs (guaranteed investment contracts), medium-term notes and other debt instruments can rest assured that MBIA will meet its obligations to them as it always has -- on time and in full," the company said in a statement describing its latest actions.
MBIA and Ambac , both bond insurance industry giants, have lost their top ratings, mainly because of ill-timed and costly expansions into subprime mortgage securities.
The U.S. municipal market last week was pressured in part by MBIA's sales of $400 million to $500 million of tax-free debt, and traders said on Monday they feared similar selling by Ambac Financial Group.
Both insurers have much less need for tax-free income because their profits have been so dismal, the traders noted.
An Ambac spokesman had no comment.
MBIA said last week's muni sales were not prompted by its need to raise cash due to the downgrades.
"While MBIA continues to buy and sell municipal securities in the ordinary course of managing its insurance investment portfolio, the repositioning activity in the Asset/Liability Management portfolio did not include the sale of municipal securities," MBIA said.
Muni bonds offered for sale last week were owned by the insurance company's separate $12 billion investment portfolio, and were not part of the fund used for the guaranteed investment contracts, a source close to the company said.
On June 19, Moody's Investors Service stripped MBIA of its last top "AAA" rating. The downgrade forced the bond insurer to exit some guaranteed investment contracts or post extra collateral. MBIA on Monday said its entire remaining GIC portfolio will be fully collateralized as a result of the recent transactions.
Some $3.9 billion of GICs are being collateralized and $3.6 billion are being terminated, the company said.
MBIA's Asset/Liability portfolio liabilities declined to $24.1 billion at June 27 from $25.1 billion at March 31 "through normal amortization of the portfolio," the company said.
The company statement said MBIA has approximately $1.4 billion in cash at the holding company level.