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March 2, 2008

Wilbur Ross invests $1bn in bond insurer

by Dave Nixon

Story link: Wilbur Ross invests $1bn in bond insurer

Wilbur Ross, the US financier, will invest up to $1bn in Assured Guaranty to allow the bond insurer?to benefit from the quandaries plaguing bigger rivals such as MBIA and Ambac.

Mr Ross will firstly buy $250m of Assured’s shares, about 12 per cent, with a pledge to invest an additional $750m if the company requires it.

The move highlights striking changes happening in the bond insurance sector. Financial troubles encountered by MBIA and Ambac following investments in mortgage-related securities went bad have provoked a number of investors, including Warren Buffett and Mr Ross, to enter the bond insurance market.

Mr Buffett has launched a municipal bond insurer, while Mr Ross has been looking to invest in the sector. Both appear to be targeting the more unsurprising municipal bond insurance business as opposed to the unsafer structured finance side, which got MBIA and Ambac into difficulty.

Mr Ross stressed that the capital infusion into the Bermuda-based company was intended not at salvaging the company but at providing sufficient resources to win market share from larger competitors. Assured’s credit rating has not been exposed with a downgrade.

Assured could look at buying less significant bond insurers or purchasing the municipal bond businesses of larger rivals, Mr Ross said.

Talks persisted on Friday between Ambac and a group of no less than eight banks, intended at securing about $3bn of finances to recapitalize the bond insurer. The planned structure has to be amended to meet ratings agency requirements.

MBIA this week had its ­triple-A credit ratings affirmed by both Moody’s Investors Service and Standard & Poor’s.

Nevertheless it may be several months before investor assurance in these companies is re-established. Their capacity to build up future business is difficult to predict.

Under the terms of the agreement, WL Ross & Co, Mr Ross’s investment vehicle, would acquire $250m worth of Assured shares, a stake of more than 10 per cent, at a slight discount to the company’s current market price.

He will furthermore achieve a seat on the company’s 10-strong board of directors.

Assured shares were up 12.60 per cent at $25.65 at the close in New York.


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