Friday, June 20, 2008

MBIA: $2.9 Billion Required for Contract Terminations

by Bill McBride on 6/20/2008 05:30:00 PM

UPDATE: from Yves Smith at Naked Capitalism: MBIA Downgrade Increases Collateral Requirements; Clarification on CDS Acceleration in Insolvency/Custodianship

MBIA Comments on the Impact of the Moody's Downgrade

As a result of the downgrade to A2, MBIA expects that it will require $2.9 billion to satisfy potential termination payments under Guaranteed Investment Contracts (GICs). In addition, MBIA expects to be required to post approximately $4.5 billion in eligible collateral to satisfy potential collateral posting requirements under GIC's as a result of the downgrade. MBIA Inc. has total assets of $25 billion related to its ALM business, of which $15.2 billion is available to satisfy these requirements including approximately $4.0 billion in cash and liquid short-term investments; $1.0 billion of unpledged eligible collateral on hand; and approximately $10.2 billion of other unpledged diversified securities with an average rating of Double-A. In addition, MBIA Inc. also has available another $1.4 billion in cash, including the proceeds of its recent equity offering.