Spitzer has been a key force behind capital-raising and
restructuring for bond insurers. The situation is not expected to change much given Spitzer being caught on a
federal wiretap arranging to meet a prostitute.NEW YORK (Reuters) - Allegations of Eliot Spitzer's
involvement with a prostitution ring should probably have only a modest
impact on bond insurers' restructuring efforts because the New York
governor's troubles have surfaced late enough in the process.
Spitzer has been a key force behind capital-raising and
restructuring for bond insurers. These mostly New York-based companies,
which guarantee more than $2.4 trillion of debt, could face billions of
dollars of payouts after backing repackaged subprime mortgage bonds and
other risky debt.
"He's been behind the whole process of getting the New York
insurance commissioner to come to a solution quickly for the insurers,"
said Dan Fuss, vice chairman of investment company Loomis Sayles.
But much of the recapitalizing and restructuring process is over for
now, after Ambac Financial Group Inc, the second-largest U.S. bond
insurer, sold $1.5 billion of equity and convertibles last week.
And the biggest regulatory force involved with day-to-day
discussions among the insurers, banks and others has been New York
Insurance Superintendent Eric Dinallo, whom Spitzer appointed.
The New York Times reported on Monday that Spitzer was caught on a
federal wiretap arranging to meet a prostitute. The Times and The Wall
Street Journal said on Tuesday that he was likely to resign.
"Spitzer's issues erode Dinallo's authority ever so slightly," said
James Ellman, portfolio manager at hedge fund Seacliff Capital.
Requesting anonymity, another hedge fund manager said: "I'm sure
Dinallo's going to do the same things now that he would have done
before."
Dinallo's office declined to comment.
At this point, New York insurance regulators are focusing on
restructuring FGIC Corp, a source familiar with the matter said. The
company recently told regulators it wanted to split its low-risk
municipal bond insurance business from its higher-risk structured
finance insurance operation.
FGIC, the fourth-largest bond insurer, is owned by a consortium that
includes private equity firm Blackstone Inc., which said on Monday that
it had written down the value of its stake in the company to a few
cents on the dollar.
An FGIC spokesman declined to comment.
To be sure, bond insurers may have to raise more capital in the
future, but analysts said that whoever is governor then will also have
good reason to try to fix the companies' problems.
(Additional reporting by Jennifer Ablan; Editing by Lisa Von Ahn)
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