Errors in the Conference Call held by the Labor Council for Latin American Advancement (LCLAA) on June 25, 2008

On June 25, 2008 the Labor Council for Latin American Advancement (LCLAA) held a conference call for members of the media (“Pension and Labor Groups Call on MBIA to Downstream Capital, Protect Pension Holders”) ostensibly to discuss their concerns related to MBIA’s decision to retain approximately $900 million of the proceeds from its most recent equity offering at the holding company level rather than contributing it to its insurance subsidiary. Participating in the call were Dr. Gabriela Lemus, Executive Director of the Labor Council for Latin American Advancement and Dr. Joseph Mason of Louisiana State University.

In the course of the conference call, a number of erroneous statements about MBIA were made by Dr. Lemus, as well as by Dr. Mason, a purported expert on bond insurers. As will be made evident in the following identification and correction of these errors, Drs. Lemus and Mason lack a basic understanding of MBIA’s business, portfolio and capitalization. They clearly made no effort to check their facts in advance of the call and never contacted in MBIA in advance of the call to express their concerns. According to a Dow Jones Newswire article, “The call was publicized in part by an e-mail sent by public relations firm Group Gordon, on behalf of Ackman's Pershing Square Investments, a frequent critic of bond insurers that has long held a short position in MBIA”.

The specific erroneous statements on the call include the following:

1. Dr. Joseph Mason stated that, “[Moody’s and S&P] last fall maintained MBIA's rating on the promise that MBIA would raise approximately $2 billion of capital to restore its business to a safe and sound condition. MBIA raised $1 billion from Warburg Pincus in December but never raised the other $1 billion. Ever since, MBIA has been reluctant to place the funds that they did raise directly in the insurance subsidiary, which is the part of MBIA that backs municipal bonds and other traditional debt instruments”.

This statement is inaccurate, as even a cursory review of MBIA’s website or numerous media articles would have revealed. MBIA raised a total of $2.6 billion in new capital, consisting of $500 million in common equity from Warburg Pincus, which was contributed to the insurance company, $1.0 billion in a Surplus Notes offering and $1.1 billion from a common equity offering. Approximately $1.5 billion of the total $2.6 billion is already in the insurance subsidiary, and the $1.1 billion from the common equity offering remains at the holding company level.

2. Speaking about MBIA’s original intention to downstream $900 million to its insurance subsidiary, Dr. Joseph Mason stated that, “That commitment still has not happened, and the security and therefore the [unintelligible] subsidiary insurers are still at risk of untoward default”.

MBIA is not at risk of default. While MBIA is no longer rated Triple-A, it remains highly solvent and soundly investment grade. The purpose of our capital raise was to support the capital requirements for Triple-A ratings – we never viewed it as needed for use in paying claims or to bolster solvency. Today, MBIA has substantially more claims-paying resources than it needs to meet all of its expected obligations to policyholders and, in fact, more than required for its current ratings according to S&P and Moody's.

Further, in Moody’s press release of June 19 it noted that MBIA has adequate claims-paying resources for a worst case scenario stating: “Based on Moody's revised assessment of the risks in MBIA's portfolio, estimated stress-case losses would approximate $13.6 billion at the Aaa threshold and $9.4 billion at the A2 threshold. This compares to Moody's estimate of MBIA's claims-paying resources of approximately $15.1 billion.”

3. Dr. Joseph Mason stated, “In the meantime, MBIA has now been downgraded by the rating agencies. They still never raised that additional capital”.

This is patently inaccurate and could have been easily checked through our public disclosures or simply placing a call to MBIA. As noted above, MBIA raised $2.6 billion in capital in January and February, substantially more than he stated and well in advance of the downgrades.

4. Dr. Joseph Mason stated, “MBIA is now discussing commuting some of their contracts that are cancelling their contract for a fee that will be paid to the contract holder. The problem is that the cost of commuting those contracts is far higher than the available resources from the recapitalization. They received $1 billion from Warburg Pincus in December”.

Despite suggestions in the media to the contrary, MBIA has never indicated that it was seeking to commute existing contracts in any material volume. MBIA is always open to discussing modifications to any transaction, including commutations of exposure, when it makes sense for both MBIA and our policyholders and counterparties. That is no different today than it has been throughout our history. But we have no large scale effort in place that would seek to commute CDS exposure across our portfolio. A simple phone call by Dr. Mason to MBIA would have revealed this.

In addition, Dr. Mason’s statement about Warburg Pincus’s investment is incorrect. Warburg Pincus committed to a $500 million equity investment and a $500 million rights offering backstop in December. The $500 million investment was completed in January and the rights offering was cancelled in favor of a straight common equity offering in which Warburg Pincus invested another $300 million. Again, a cursory review of MBIA’s website would have revealed this.

5. Dr. Joseph Mason stated, “The cost of commuting is estimated to be on the low side, at least $2.9 billion just to commute the contracts underlying the guaranteed investment contract and another $4.5 billion just to post margins on existing credit default swaps as a result of the downgrade. The point is MBIA [unintelligible] does not have the resources as a corporation to provide adequate insurance protection to the bonds that are insured by its subsidiary”.

Dr. Mason has made no effort to understand MBIA’s business, nor does he understand the effects of the downgrades and continually confused the audience about what transpired and how the company works. In this case, Dr. Mason has apparently confused required terminations and collateral posting in MBIA’s Asset/Liability Management (“ALM”) business with commutations of insured credit default swap contracts. As was clearly indicated in MBIA’s press release of June 19, the numbers he cites actually relate to $2.9 billion in termination payments on Guaranteed Investment Contracts (“GIC”) and $4.5 billion in collateral posting requirements on GICs following the recent downgrades of MBIA. The ALM business raises funds through the issuance of insured Medium Term Notes (MTNs) and investment agreements. The funds raised are then invested in average Double-A quality assets. Thus the assets necessary to satisfy the current termination payments and collateral posting requirements are already on MBIA’s balance sheet.

6. Dr. Joseph Mason stated, “It needs to commit this capital to the insurance subsidiary posthaste to protect the value of investments…”

As the trading value of the insured bonds is in large part a function of their rating, contributing additional capital to the insurance subsidiary would likely have little effect on their value. That’s because in their ratings actions, S&P and Moody’s made it clear that additional capital would not in and of itself restore MBIA’s Triple-A ratings. In fact, MBIA is currently overcapitalized for its current ratings according to S&P and Moody’s.

7. Dr. Gabriela Lemus, the Executive Director of the Labor Council for Latin American Advancement, stated that, “MBIA reneged on their promise to provide more claims-paying resources to its subsidiary”.

That is incorrect. No such “promise” was ever made. The referenced capital is part of the net proceeds from MBIA’s $1.1 billion equity offering that closed in February. The prospectus for the offering stated in the Use of Proceeds section: “The net proceeds of this offering and the backstop commitment shall be used to support our business plan and operations.” No promise was made to put the capital in MBIA Insurance Corporation.

In MBIA’s January 9 Press Release announcing its capital strengthening plan MBIA said, “Upon successful completion of its capital management plan, the Company expects to meet or exceed the rating agencies' current capital requirements for MBIA to retain its Triple-A ratings. Based on discussions with the rating agencies and the commentary they have released to the market, the Company believes that the successful implementation of this capital plan will result in a robust capital position that will lead to stable ratings.”

In a press release issued the same day announcing a $1 Billion Surplus Notes Offering, MBIA said that as part of its plan to raise capital to meet or exceed the rating agencies' Triple-A requirements, its primary insurance operating subsidiary, MBIA Insurance Corporation (the "Insurance Company"), intends to issue $1 billion of surplus notes due 2033.

In a press release issued on January 18, Gary Dunton, MBIA Chairman and CEO at the time said, "We have developed and are implementing a comprehensive capital strengthening plan in good faith reliance on Moody's stated requirements. The plan includes the Warburg Pincus commitment for $500 million of new equity and its agreement to backstop a $500 million rights offering, along with the issuance of $1 billion of Surplus Notes on January 16, 2008. We have been proactive in raising a substantial amount of new capital to support our Triple-A ratings. We believe our capital plan meets or exceeds the requirements previously outlined by Moody's and the other two major rating agencies.”

In two press releases issued on February 6 and February 7, 2008 with respect to its equity offering, the Company stated that it intended to contribute most of the net proceeds to MBIA Insurance Corporation “to support its business plan”. The Company’s business plan has consistently been to restore its stable Triple-A ratings.

When S&P downgraded MBIA to AA and Moody’s placed MBIA’s rating on credit watch and both made it clear that the downgrade and potential downgrade were not a function of capital adequacy, the rationale for contributing the proceeds of the common stock offering to support its Triple-A ratings no longer applied. To contribute the capital at this stage would simply not serve the intended purpose of maintaining the Triple-A. The amount of capital that MBIA raised as part of its capital strengthening plan was based on the amount indicated by the rating agencies as needed to maintain the Triple-A ratings plus a cushion. The rating agencies are now indicating that the ratings of MBIA Insurance Corp. would be dependent on other factors besides the amount of capital or claims-paying resources we have.

8. Dr. Gabriela Lemus, the Executive Director of the Labor Council for Latin American Advancement, stated, “This decision, we feel, leaves the MBIA insured bond holders and pension funds in a really serious, serious situation”.

9. Dr. Lemus also stated, “We are calling on MBIA to address the solvency issues confronting its insurance subsidiary by downstreaming the nearly $1 billion that it raised instead of simply shuffling it around. We feel that any decision other than downstreaming all of this capital will unfairly and adversely affect our pension investments”.

As indicated above, MBIA is not at risk of default and does not have any “solvency issues,” so MBIA insured bond holders and pension funds are not “in a really, really serious situation”. While MBIA is no longer rated Triple-A, it remains highly solvent and soundly investment grade. The purpose of our capital raise was to support the capital requirements for Triple-A ratings – we never viewed it as needed for use in paying claims or to bolster solvency. Today, MBIA has substantially more claims-paying resources than it needs to meet all of its expected obligations to policyholders and, in fact, more than required for its current ratings according to S&P and Moody's.

Further, in Moody’s press release of June 19 it noted that MBIA has adequate claims-paying resources for a worst case scenario stating: “Based on Moody's revised assessment of the risks in MBIA's portfolio, estimated stress-case losses would approximate $13.6 billion at the Aaa threshold and $9.4 billion at the A2 threshold. This compares to Moody's estimate of MBIA's claims paying resources of approximately $15.1 billion.”

10. Dr. Joseph Mason stated, “With MBIA, it was a promise that MBIA would raise $2 billion worth of capital. MBIA raised $1 billion worth of capital. I do not find it at all surprising that MBIA is in the situation it's in. It has now been [unintelligible] rated and what I find [unintelligible] is really the delay in the action, but nonetheless, we are where we would expect to be given that MBIA raised half the amount of capital that the ratings agencies assumed was necessary last fall”.

As noted above, Dr. Mason is incorrect, as a cursory review of MBIA’s website or any one of numerous media reports or rating agency articles would have revealed. MBIA raised $2.6 billion in capital which was, based upon the feedback we were receiving from the rating agencies at the time, more than sufficient to maintain Triple-A ratings. The recent downgrades were the result of the rating agencies reevaluating their requirements for a Triple-A rating after we raised the funds, and ultimately basing their conclusions on factors other than just capital sufficiency.

11. In response to a question asking if the billion dollars would be enough to capitalize the insurance subsidiary sufficiently, Dr. Joseph Mason stated, “And the case in point is just the margin requirement to [boost] collateral on their credit default [unintelligible], which now become required because the bond insurers are no longer rated [unintelligible]. Those margin requirements alone will require $4.5 billion by MBIA's own very conservative estimate. So, even on a very conservative estimate, you need another $3.5 billion for that, you need another roughly $2 billion to secure the investments under guaranteed investment contractors….”

Dr. Mason is again incorrect, and clearly does not understand MBIA’s business. In this case, he again confuses credit default swaps with GICs and ignores the fact that MBIA already has on its balance sheet assets that it can use to satisfy the termination payments and collateral posting requirements on the GICs.

12. In response to the question “What is MBIA’s answer to our call to downstream capital”? Dr. Gabriela Lemus stated, “At this point, they have not responded to us…”

The LCLAA made no attempt to contact MBIA in connection with its concerns. In fact, four attempts on June 24 and 25 (before and after the call) by MBIA to contact Dr. Lemus to discuss these issues were rebuffed. Nor did the LCLLA provide MBIA with copies of the letters it apparently sent to the New York State Insurance Department and Governor Paterson.