National PFG Eyes Reentry

National Public Finance Guarantee, MBIA's public finance guarantor, appears to have launched a new ad campaign as part of a renewed bid to reenter the public finance guaranty market. This development comes on the heals of MBIA's Q4 2010 financial results conference call in which Jay Brown said he expected the key Article 78 case challenging MBIA's split between public and structured exposure to be "resolved in our favor this year."

Chuck Chaplin, MBIA's CFO then weighed in on the Tuesday call saying "We expect that as the transformation litigation is resolved, we will be in a position to generate new business in National."

While there are other law suits challenging MBIA's transformation outside the Article 78 case, one of the main suits was recently dismissed. That decision has been appealed by the plaintiffs.

Meanwhile, MBIA Corp., the structured finance guarantor, continues to stabilize its finances. This implies that a recombination of the public finance and structured finance units - however unlikely - would be incrementally less negative.

In light of these developments, advertisements on The Bond Buyer's website showed NPFG with the slogans "Built to last. Built to serve." and "Strength. Endurance. Commitment." The advertisements linked to NPFG's main web page that featured the phrase "We're at the bridge. It's time to cross it."

This all boils down to one thing: at least one entity other than The Blue Dragon thinks that National can write business this year. It is not apparent what type of outreach NPFG is currently conducting, but the most likely place for NPFG's first policy to source from is an institutional investor.

There is clear value over and above ratings in a guaranty featuring the type of due diligence and subrogation work done in the Vallejo case. In that case, NPFG recovered essentially 100% of it's claim on $4.8M of defaulted COP's plus $400k of its $500k in legal expenses. They also rallied the National Federation of Municipal Analysts and the California State Treasurers office to publicly support their case.

MBIA/NPFG employees have in the recent past told Mark Tapley that they view underwriters as their primary client. If that idea is still widespread at the company, it should be tossed in favor of looking through to the actual investor beneficiaries. The easiest way for NPFG to write its first policies will be small obligor deals in the secondary or primary market in which one buyer - perhaps a mutual fund or insurance company - dominates the issue. The value of due diligence and subrogation will be more apparent to large investors compared with the retail investors that solely rely on ratings.