By Henny Sender and Francesco Guerrera in New York
January 24, 2008
Private equity companies, including TPG, value investors such as Wilbur Ross and asset management firms are all considering launching new bond insurers in a move that could hamper efforts to aid troubled incumbents such as Ambac and MBIA.
Private equity executives say that at a time when total exposure is impossible to calculate, it is far more attractive to start up a new enterprise than to invest in existing firms. They note that the credit turmoil has hit existing providers, premiums are high, and regulators are keen to stabilise the market.
Mr Ross, who built his multimillion-dollar fortune by investing in distressed sectors, told the Financial Times he was weighing the merits of buying into an existing insurer or setting up a new one.
The plans by TPG, Mr Ross and others have not been finalised and could come to nothing, but any attempt to bring fresh competition to the market would complicate the capital-raising hopes of Ambac, MBIA and smaller rivals.
This month Warren Buffett set up a new bond insurer after conversations with the New York insurance regulator Eric Dinallo, a move that alerted other value investors to the potential of the market.
The FT revealed on Wednesday that Mr Dinallo had convened a meeting to urge leading banks to provide up to $15bn to support bond insurers. US stocks rallied strongly on the news, underlining the importance the markets attribute to the role of the monolines. Mr Dinallo stated on Thursday it was “important to resolve issues related to the bond insurers as soon as possible”.
A number of local and state authorities have called for new entrants into the market, arguing that the financial troubles and uncertain credit ratings of existing operators impaired their ability to insure billions of dollars’ worth of municipal bonds.
Fitch Ratings has downgraded Ambac from triple-A to double-A and on Thursday it downgraded its smaller rival, Security Capital Assurance, from triple-A to A, sending shares in bond insurers sharply lower.
Some executives believe that the market would welcome new bond insurers with clean balance sheets and point to parallels with the aftermath of the September 11, 2001 terror attacks, when many private equity firms and hedge funds went into the insurance business.
One private equity firm that is unlikely to start its own monoline is Blackstone, which acquired a minority stake in FGIC, a monoline insurer, in 2003 in a $2bn deal. FGIC is now facing losses.
Source: Financial Times
Investors consider launching new monolines
