AMBAC Indemity Corp., a municipal bond insurer, firmly tossed its hat into the asset-backed insurance ring Friday, naming the real estate and mortgage-backed sectors as its areas of interest.
Robert J. Genader, AMBAC's senior executive vice president, made the announcement during The Bond Buyer's Municipal Finance Conference, saying the firm would soon begin enhancing real-estate related securities.
An AMBAC spokeswoman said the firm would focus on mortgage-backed and single-family home issues.
"I feel a little like Ross Perot's running mate, Admiral Stockdale," newcomer Genader said, "Why am I here?" He was seated between Richard L. Weill, executive vice president of Municipal Bond Investors Assurance Corp., and Richard Price of Financial Guaranty Insurance Co., both of whom represent firms that are already established in the business.
Genader said AMBAC expects to derive up to 5% of its new business in 1993 from the asset-backed area. And by the end of that year about 1% of the company's total book of business would be in that new sector, he said. AMBAC's current portfolio is slightly more than $54 billion.
He said it makes sense for AMBAC to go into mortgage-backed and real estate issues because risks in that sector are similar those involved in muni insurance.
The three speakers were joined in the discussion entitled "The Asset-Backed Market: Friend or Foe to Bond Insurers" by panelist Michael Djordjevich, president and chief executive of Capital Guaranty Insurance Co.
Robert P. Cochran, president and chief executive of Financial Security Assurance, which began in the asset-backed field and started insuring municipal issues about two years ago, served as moderator.
Of the five firms. only AMBAC and Capital Guaranty do not currently enhance asset-backeds. Djordjevich said his firm has no immediate plans to enter the market, though he has come across structured deals in the course of his municipal business.
MBIA's Weill said that while his firm currently insures asset-backed deals and plans to do more in the future, municipal bonds will remain MBIA's main focus.
The asset-backed side will "always be the tail on the dog, and I suspect the dog will be our core municipal bond insurance" business, he said.
Weill noted that while the frequency of municipal bond losses is rare, the loss is heavier compared with some asset-backed securities. For instance, while a pool of mortgages will have a higher frequency of individuals not paying loans, he said, "the severity of the loss is far less."
For its part. FGIC eventually wants to make asset-backeds 25% of its portfolio. according to Price. They currently make up 10%, he said, largely because of the time required to evaluate the transactions and the growth of the municipal bond insurance business.
"It is very important in this business to understand the asset," he told the crowd, "You can't securitize assets you don't understand."
In other news Friday, a Westinghouse Electric Corp. spokesman said traders fears that Westinghouse may follow Marriott Corp.'s lead in saddling one company with most of its debt were unfounded.
"There's no possibility of us doing what Marriott did," spokesman Jay McCaffrey said, citing a three-year support agreement between Westinghouse Electric Corp. and Westinghouse Electric Credit Corp.
Westinghouse issues have been widening out, one trader said, because of talk on the Street that cast the company as a possible suspect. The trader emphasized, however, that Westinghouse has said nothing to foster that speculation.
In secondary trading overall yesterday, high-grade bonds finished unchanged, while high-yield issues lost 1/4 quiet in light activity.
New issues
Bowater Inc. issued a two part offering totaling $250 million. The first tranche consisted of $125 million of 8.250% notes due 1999. The noncallable bonds were priced at 99.914 to yield 8.265% or 187.5 basis points over comparable Treasuries. The second consists of $125 million of 9.50% debentures due 2012. The noncallable debentures were priced at 99.636 to yield 9.54% or 190 basis points over 30-year Treasuries.
Moody's rates the offering Baal, while Standard & Poor's rates it BBB. First Boston Corp. lead managed the offering.
Friday's Ratings
Moody's has given an Aa3 debt rating to Capital Re Corp.'s proposed issuance based on the strength of its insurance operating subsidiary, Capital Reinsurance Company.
"The rating reflects the strong earnings growth and conservative business risk strategy of Capital Re that has allowed it to become the market leader in financial guaranty reinsurance, while developing a low risk, diversified insured portfolio."
