Tuesday, July 8, 2008 3 comments ++[ CLICK TO COMMENT ]++

Bond Insurer News

I have this feeling that if we get out of the credit crisis, the bond insuers will signal it long before any other business. Right now the market thinks the monolines are close to insolvent, and that there are huge losses in front of us. Anyway, here are some happenings in the bond insurance world...

Ambac Stuff:

  • Investment Management Collateral Requirements: Ambac details in a press release their collateral posting requirements under various ratings. This is some scary stuff with Ambac being short $1.1 billion if they are cut to A-. Ambac says that they will try to move money from the insurance company to avoid crytallizing any losses but I wonder how the regulator will look upon that. It has as surplus of $2.6 billion at the current rating level. For those sitting on the sidelines, this shows an example of how a side business built for normal business conditions (i.e. unlikely to get cut below A; high quality bond investments trading close to intrinsic value) can cause a huge threat to a company when things unravel.
  • Eric Dinnallo Approves Ambac Buying Back Stock: Eric Dinnallo seems to be ok with Ambac's share buyback given the small quantity involved and the ability to send a positive signal to the market.
  • Ambac stock up sharply (30%+) right now... likely on short-covering

MBIA Notes:

  • Warburg Pincus writes down a portion of its MBIA Investment: They invested $1 billion and seems to have wrote off $215 million. I'm not really sure if these are real losses or some mark-to-market writedown. I don't understand private equity accounting (or much of any accounting for that matter ;) ) so not sure what this means. If you assume this is a real loss then it implies 21.5% real impairment. MBIA's reported impairments along with dilution have been similar to that number.

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3 Response to Bond Insurer News

July 8, 2008 at 3:41 PM

Did you ever sell you Ambac shares are are you still holding on?

July 8, 2008 at 4:05 PM

I'm holding on. In fact, I have thought at times about averaging down.

The thing is, I invested well after the credit crisis unfolded so my original investment thesis hasn't changed much. The situation is far worse now and management made some mistakes but the main investing thesis (namely, mark-to-market losses not reflecting real losses) hasn't changed much.

In addition, the fact that Martin Whitman still hasn't changed his mind also gives comfort to me.

Unfortunately, my cost basis is high compared to the current price so it is unlikely I'll make any money except under the most optimistic scenarios.

July 8, 2008 at 4:19 PM

Man, you are a TRUE contrarian lol. I have no idea how bond insurers work (ok I do) but not my thing. Good luck with it though siv


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