Bond insurer takes steps to guard rating

MBIA Inc., the giant bond insurer hobbled by the sub-prime mortgage market’s collapse, said Wednesday that it would cut its dividend 62% and raise $1 billion in a sale of notes to boost capital and preserve its AAA credit rating.

The announcement drove the firm’s shares to their lowest level in 16 years in early trading. But the stock recouped most of the day’s loss later in the session, after an official at Warren Buffett’s Berkshire Hathaway Inc. said the company might throw a lifeline to struggling bond insurers.

MBIA shares closed off 58 cents at $13.40 after falling as low as $11.11. The stock has dived from $73 a year ago.

The Armonk, N.Y.-based firm is committed to keeping its AAA credit rating “without qualification,” Chief Executive Gary Dunton said Wednesday.

Bond insurers have been slammed in recent months by fears that defaults on mortgage-related securities they have insured could drain their capital. Without an AAA rating MBIA and other insurers could lose their ability to guarantee securities such as municipal bonds.

Fitch Ratings, which on Dec. 20 gave MBIA six weeks to raise capital or face a downgrade, said that if the company could raise $1 billion via the note sale it would be enough to protect its top-grade rating.

The dividend cut, to 13 cents a share per quarter from 34 cents, will save MBIA $80 million a year.

On top of their capital woes, bond insurers are facing new competition from Buffett, who last month started a municipal bond insurer. But Ajit Jain, head of Buffett’s new company, said Wednesday that it also might provide reinsurance to, or invest in, other bond insurers.

That helped buoy the stocks. Ambac Financial Group Inc. fell as low as $15.50 but rebounded to close at $19.25, off 31 cents. Radian Group Inc. closed at $8.38, down 90 cents, but was up from $7.43 at its low for the day.