UPDATE: Bond Insurers Ambac, MBIA Look Over Asset Programs
24 March 2009 - 3:31AM
Dow Jones News
Life and bond insurers soared Monday after the announcement that
they will be eligible to participate in the U.S. Treasury
Department's Public Private Partnership Investment Program, which
will back buyers of troubled securities.
Bond insurer Ambac Financial Group (ABK) is one that will
investigate Treasury's offer to backstop a market for securities it
holds in its investments, said Ambac spokeswoman Vandana
Sharma.
MBIA Inc. (MBI) spokesman Kevin Brown said MBIA is still looking
over the details of the program, but the company is "definitely"
interested in the government's Term Asset-Backed Securities Loan
Facility, or TALF, program, which makes one-year term loans to be
backed by asset-backed securities.
The public-private partnership program will use $75 billion to
$100 billion from the Troubled Asset Relief Program, or TARP, to
generate $500 billion in purchasing power to buy legacy assets held
by investors, with a government backstop encouraging private sector
investors to purchase the assets.
"A broad array of investors are expected to participate in the
Legacy Loans Program," Treasury said in a fact sheet. "The
participation of individual investors, pension plans, insurance
companies and other long-term investors is particularly
encouraged."
It's unclear whether non-bank participants will participate as
buyers, sellers, or both. While the Treasury documents invite
insurer participation, the terms sheet says eligible sellers
include any insured U.S. bank or U.S savings association. Banks or
savings associations owned or controlled by a foreign bank or
company aren't eligible, the Treasury's fact sheet said.
Up to now, insurers such as Ambac have unsuccessfully lobbied
for inclusion in government programs that have offered capital to
help make up for losses tied to mortgage loans.
Hartford Financial (HIG), Lincoln National Corp. (LNC), and
Genworth Financial Group (GNW) were among a dozen or so life
insurers that applied last year for bank status to potentially
qualify for direct capital investments under an earlier TARP
program.
Much of Ambac's exposure to the market is through financial
guarantee insurance it offers on securities that are held by other
institutions, but often it holds control rights on the securities
if they default.
Eligible assets will be determined by banks, regulators, the
Federal Deposit Insurance Corp. and the Treasury Department. The
FDIC will conduct an analysis to determine the amount of funding it
is willing to guarantee on securities offered for sale. Leverage
won't exceed a 6-to-1 debt-to-equity ratio.
Under the legacy securities program, non-recourse loans will be
made available to investors to fund purchases of legacy
securitization assets.
Eligible assets are expected to include certain non-agency
residential mortgage-backed securities that were originally rated
AAA and outstanding commercial mortgage-backed securities and
asset-backed securities that are rated AAA.
Shares of Ambac were up 23.6% recently to 87 cents, leading bond
insurers, while Prudential Financial Inc. (PRU) led life insurers,
trading up 16.7% to $19.48 recently.
-By Lavonne Kuykendall, Dow Jones Newswires; (312) 750 4141;
lavonne.kuykendall@dowjones.com
(Maya Jackson Randall contributed to this report.)