MBIA Says Moody’s Downgrade May Force $7.5 Billion in Payments

June 23, 2008

Bond insurer MBIA said Friday it may need to put up nearly $7.5 billion to meet collateral posting requirements and potentially pay off obligations after losing its top “AAA” rating from Moody’s Investors Service.

The world’s largest bond insurer said it will need $2.9 billion to cover potential termination payments under insurance investment contracts known as guaranteed investment contracts.

MBIA will also need to post about $4.5 billion in collateral under these contracts as a result of the downgrade, the company said in a statement.

MBIA said it has $15.2 billion of assets available to satisfy these requirements.

On Thursday, Moody’s cut MBIA Insurance five notches to “A2,” the sixth highest investment grade, and MBIA Inc. was cut five notches to “Baa1,” three steps above junk, from “Aa2.”

Standard & Poor’s downgraded MBIA two notches from “AAA” to “AA” on June 5.

Demand for MBIA insurance wraps has effectively dried up on concerns over losses it will take from insuring risky residential mortgage-backed debt.

MBIA has said it retained at the holding company level $900 million in capital that had been previously earmarked for its bond insurance arm as it reevaluates its options.

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