Warburg increases stake to 30% in US bond insurer

The private equity firm, which first bought into MBIA in 2007, has increased its stake after the bond insurer separated its municipal bond insurance arm from its mortgage-backed insurance unit in an attempt to restructure.

Warburg Pincus increased its stake in municipal bond insurer MBIA to more than 30 percent, according to a filing with the US Securities and Exchange Commission.

Warburg first invested in the bond insurer in 2007 with a commitment to inject up to $1 billion into MBIA. The firm has continued to inject capital as the company has been battered by the economic downturn and its exposure to bonds linked to subprime mortgages.

Financial details of the most recent transaction were not available.

The bond insurer recently posted a $1.2 billion loss for the fourth quarter. MBIA’s fourth quarter loss was less than its same-quarter loss of $2.3 billion a year earlier.

MBIA, which insures municipalities and states, said the losses could widen because some state and local governments have budge shortfalls.

In February, MBIA announced it was separating its US municipal bond-insurance business from its insurer covering mortgage-backed bonds and other financial structures. The principal insurance subsidy, MBIA Insurance Corporation of Illinois, was expected to be renamed the National Public Finance Guarantee Corporation as part of the restructuring.

“Our new enterprise is intended to enhance the ability of states and municipalities to invest in critical infrastructure, facilitating the creation of new jobs while reducing the burden on taxpayers,” Jay Brown, chief executive officer of MBIA, said in a statement in February. “As new insured municipal bonds are issued, I expect the public finance markets will begin to thaw, freeing up much needed capital for future projects.”

A group of financial institutions have objected to the split, arguing the transfer of about $5 billion from the mortgage-backed insurance business to the municipal insurer leaves less capital to pay claims on securities the banks insured.