MBIA Inc.'s National Public Finance Guarantee Corp. is still in discussions with rating agencies about what they want to see from the bond insurer, an executive said yesterday.

National chief executive officer Thomas McLoughlin did not want to elaborate on details until the reviews were completed, but noted that National was capitalized at a "very high level" under existing Moody's Investors Service and Standard & Poor's capital adequacy models. He added that the company has previously discussed raising outside capital in the future.

During a first-quarter earnings conference call, MBIA executives also said that although they believe litigation filed over the split of its public and structured finance books is "completely without merit," it will have some impact on MBIA's marketing over the short term.

A number of hedge funds sued the insurer, saying its restructuring disadvantaged structured finance policyholders to the benefit of public finance policyholders.

MBIA has pointed out the New York State Insurance Department approved the transaction and last week filed a motion to dismiss the claim, calling it an "improper attempt by plaintiffs to bypass the state channels of review established by the New York State Legislature - and recognized by this court and the Second Circuit - for challenging determinations made by the New York State superintendent of insurance pursuant to New York's complex and comprehensive insurance regulatory scheme."

The company reported a first-quarter 2009 net income of $696.7 million, primarily driven by unrealized mark-to-market gains on its credit derivatives portfolio, which benefited from the widening of MBIA's own credit spreads.

During the conference call, MBIA chief executive officer Jay Brown said the company believes that two-thirds to 80% of its losses in its second-lien residential mortgage-backed securities and multi-sector collateralized debt obligations are reflective of ineligible loans and securities included in them.

MBIA has started litigation against some originators and says it feels "strongly" about it, while noting that the company will not book any recoveries until it has a better idea of what they may be.

"To a large extent when we look back at our performance over the last two years, it is primarily driven by those two areas where we have a large amount of ineligible collateral that have dominated the lawsuits we've seen so far," Brown said.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.