14 per cent junky. More bad news for the bond insurer this morning. Bloomberg report MBIA will languish under the yoke of a 14 per cent coupon on its new emergency capital-raising issue of AA rated bonds:
“It was expensive but they needed to get it done,” said Kevin Murphy, who oversees investment-grade and emerging-market bonds at Boston-based Putnam Investments, which has $65 billion in fixed-income assets under management. “It’s good news for the company, good news for the bond insurance sector and good news for the credit markets.”
MBIA needs the money to bolster capital and stave off a reduction in its insurance unit’s top credit rating. Fitch Ratings gave MBIA until the end of the month to raise at least $1 billion. A loss of the rating would cripple MBIA’s business of insuring debt.
Placement of the bonds began on Friday, carrying on through to Monday. The placement is for $1bn of 25-year hybrids with a fixed rate until 2013, when if they’re not called, they float.
What’s astounding is the fact that the issue will still carry an AA rating. Especially in light of the latest from Bill Ackman. And the seriously questionable thing about the whole issue, again raised by Ackman, is the fact that MBIA will only be permitted to make interest or principal payments on the notes with the blessing on the New York State Insurance Department.
If MBIA’s systemic risk becomes more acute, in other words, these bonds could likely be written off.
Yves Smith also gives a glimpse into the strategy behind shorting the bond insurers. No prizes for guessing that the mystery hedge fund he quotes from is Ackman’s Pershing Square.
