Monday, 4 February 2008

Private Equity Not Interested In Monoline Bailout

It seems private equity firms are reluctant to get involved in any bailout of the monoline insurers. and who could blame them? The Banks on the other hand who have some more large potential writedowns at stake may be silly enough to get involved. From the FT:

Private equity firms unlikely to rescue Ambac and MBIA

Leading private equity firms are unlikely to participate in any recapitalisation of Ambac and MBIA, increasing the pressure on banks to come up with a rescue package for the troubled US bond insurers.

A number of firms, including Bain Capital, Carlyle Group, Kohlberg Kravis Roberts and TPG, have looked at investing in the cash-strapped groups, which guarantee the value of everything from municipal bonds to the most complicated mortgage securities. These investors have all concluded that the risks are too great, according to people familiar with their thinking...

...The reluctance of big private equity firms to become involved comes after they looked closely at the two large monolines. They also studied the experience of Warburg Pincus, which committed $1bn to MBIA in early December at what seemed an attractive price, only to see MBIA's share go into freefall. Additionally, they noted that Blackstone, which has a minority stake in FGIC, had so far declined to put more money into that troubled bond insurer.

"If we worry that we can get shot from the shadows by something we can't see coming, it is not for us," says the managing director in charge of financial service investments for one of the leading private equity funds.

"The financial guarantors pass neither the shadow test nor the ability-to-understand test."