After selling more than $4 billion in assets during the second quarter, MBIA Inc. said yesterday it has the extra cash and other assets needed to satisfy additional requirements under its guaranteed investment contracts prompted by the downgrade of MBIA Insurance Corp. to A2 from Aaa by Moody's Investors Service June 19.
"Contrary to recent statements in the media, MBIA is not in a 'tenuous' situation," MBIA chief financial officer C. Edward Chaplin said in a statement. "Our ability to quickly reposition our assets underlying our asset/liability management business in a difficult market demonstrates the high quality and liquidity of the portfolio."
MBIA's asset-liability management business did not sell municipal securities as part of the "repositioning," the company said, but continues to buy and sell them in the "ordinary course of managing its insurance investment portfolio." It expects to record a $300 million pre-tax net realized loss on its second-quarter income statement because of the $4 billion in sales.
MBIA will use the money to collateralize $3.9 billion in GICs and terminate $3.6 billion more, assuming all holders of the contracts exercise their rights, the company said. Prior to the downgrade, MBIA had collateralized just $8.3 billion of its $15.8 billion GICs.
MBIA's asset/liability management portfolio now contains $24.1 billion in liabilities, down from $25.1 billion March 31. In addition to its GICs, MBIA's liabilities include $7.3 billion in medium-term notes issued by MBIA Global Funding, LLC, and $1 million in fixed term collateralized repurchase agreements.
Last Friday, MBIA took another hit when it was removed from the Russell 1000 large-cap index, along with Ambac Financial Group Inc. and Radian Group Inc. Shares of all companies have plummeted over the year, with MBIA closing yesterday at $4.39 compared to a 52-week high of $68.98, Ambac down to $1.33 from a 52-week high of $88.65, and Radian finishing at $1.43 from a 52-week high of $55.96.