Mbia traded higher after rating agency Standard & Poor’s downgraded the company’s municipal bond insurance unit from AA to A. Early this month the S&P placed the company and its National Public Finance Guarantee Corp unit on credit watch. The move did not go well with the company’s CEO, Bill Fallon, who insists it was uncalled for, given that the company has more than $1.7 billion in capital reserves.
Mbia Acquisition Talk
Fueling renewed interest in the stock, is chatter that the company could be a potential acquisition target after the downgrade. Assured Guaranty Ltd. (NYSE:AGO) is seen as a potential acquirer its CEO, Dominic Frederico in May having admitted that they were eyeing potential acquisitions of legacy guarantors.
The company in January also completed the acquisition of Mbia’s European operating division a move that continues to fuel talk of it acquiring the rest of the business.
BTIG Research analyst, Mark Palmer believes Assured Guaranty will acquire Mbia to strengthen its position in the industry.
“Assured Guaranty has made it clear that they want to buy all the other municipal bond insurers, be they active or inactive, and MBIA is the only other active public company writing new business,” said Mr. Palmer.
Palmer expects a $14 offer from Assured Guaranty to be more than enough in swaying Mbia to accept a merger. The analyst also expects activist investors to push for a deal should the company’s credit rating continues to drop.
The last thing that Mbia needs at the moment is pressure from activist investors having already felt its effect at the peak of the financial crisis in 2009. Pershing Square Capital Management pushed a successful short selling campaign on the stock in 2009.
Puerto Rico Woes
Declining credit rating is not the only thing that Mbia has to worry about. The Financial Oversight and Management Board of Puerto Rico has refused to approve a proposed Puerto Rico Electric Power Authority Restructuring Support Agreement pushed by the company’s subsidiary National Public Finance Guarantee Corporation. The company has already aired its outrage stating it is in violation of the PROMESA law.
Mbia stock was up by 3.72% in Wednesday’s trading session to end the day at $9.20 a share.