MBIA Shareholder Whitman Boosts Equity Stake to 10%

MBIA Shareholder Whitman Boosts Equity Stake to 10%

March 4 (Bloomberg) -- Activist investor Martin Whitman increased his stake in MBIA Inc. to 10 percent, saying the world's largest bond insurer will be able to keep its AAA rating and resume writing new policies.

Third Avenue Management LLC's flagship mutual fund purchased 10.6 million of MBIA's common shares at $12.15 each in February, Whitman said in a letter to shareholders released this week. New York-based Third Avenue, which Whitman founded in 1986, also bought $197 million of MBIA surplus notes.

The $2.6 billion in capital Armonk, New York-based MBIA has raised since December through the sale of stock and surplus notes means the company is easily AAA and doesn't need to be bailed out, according to Whitman. He criticized the ratings companies for being ``arbitrary and capricious'' and ``highly subjective.''

``MBIA is now strongly capitalized,'' Whitman wrote. ``It ought to qualify easily an AAA rating with a $17 billion claims paying ability. If so qualified, MBIA would be in a position to underwrite a large amount of profitable new business.''

The 83-year-old investor said the main risks MBIA faces are from short sellers including William Ackman's Pershing Square Capital Management LP, lawmakers such as New York Governor Eliot Spitzer who mistakenly believe the insurers need a bailout.

MBIA's AAA bond insurance credit rating was affirmed by New York-based credit rating companies Moody's Investors Service and Standard & Poor's last week with a negative outlook. MBIA said in a regulatory filing Feb. 29 that it had done little business since its ratings came under scrutiny late last year.

Raising Capital

MBIA and other bond insurers, including Ambac Financial Group Inc., have been scrambling to raise money after downgrades of securities they insured that are backed by subprime mortgages.

Whitman said his fund had supplied almost $326 million of the capital raised by MBIA. The bond insurer ranks among the top- 10 holdings in Whitman's Third Avenue Value Fund, according to data compiled by Bloomberg.

MBIA announced the sale of $1 billion of common stock on Feb. 7 priced at $12.15 per share. A month earlier, MBIA's insurance company sold so-called surplus notes, which regulators consider equity. The notes offered a yield of 14 percent, a level normally reserved for companies with junk bond credit ratings.

Third Avenue Value Fund outperformed the Standard & Poor's 500 Index in seven of the past eight years, according to Bloomberg data. Whitman's investment company was listed as the second largest shareholder in MBIA as of Dec. 31, according to data compiled by Bloomberg.

BLOOMBERG