A two-notch downgrade by S&P Global Ratings on MBIA Inc.'s bond insurance unit's rating does not jeopardize the future of the company, according to CEO Joseph Brown Jr., and there is no need to take any "drastic actions."
Speaking during a call to discuss second-quarter results, Brown said the company is making an internal evaluation of its "intrinsic value" and will consider potential alternatives to "guide our thinking on the appropriate share price levels at which to repurchase stock."
MBIA became the subject of deal rumors after S&P's rating downgrade forced National Public Finance Guarantee Corp. to stop writing new business. Brown declined to respond to a question on the call as to whether a formal process is underway to pursue a sale. He did say, however, that any potential transaction would be judged against what the company could deliver to shareholders through other alternatives, including buybacks, in a period of three to five years.
National Public Finance, which remains a primary contributor of funds to MBIA, will take an aggressive approach aimed at enhancing its investment income, CFO Anthony McKiernan said, as it is no longer bound to the high-quality investments needed to maintain an AA- or above rating. Changes in the portfolio's composition are unlikely to happen this year, but executives expect an eventual increase in investment income to boost the National Public Finance's ability to pay dividends.
Brown conceded that MBIA's previous plans for securing a special dividend from the subsidiary may not materialize this year. The company had earlier hoped to seek regulatory approval in late 2017, but the executive said such a move is now unlikely. The company will approach the regulator once the outlook for Puerto Rico improves, he said.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.