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To: ild who wrote (208673)	12/9/2002 11:14:47 PM
From: ild	Read Replies (1) \| Respond to of 436258

MBIA Denies Accuracy Of Report by Gotham Study Asserts Credit Rating of Triple-A Is Undeserved, Warns of 'Liquidity Issues' By CHRISTINE RICHARD DOW JONES NEWSWIRES NEW YORK -- Bond insurance giant MBIA responded to a research report by New York hedge fund Gotham Partners, saying the report aimed to depress MBIA's share price and cause a weakening in the bonds it had insured. Gotham's 62-page document asserted MBIA's triple-A credit rating is "undeserved" and "a downgrade of MBIA could cause liquidity issues at the company." If that analysis were correct, the impact would be felt far beyond MBIA's operations. A top credit rating is important to MBIA, which has insured about $800 billion in debt outstanding. It is also of great importance to the insured bonds, many of which received much higher ratings than otherwise, thanks to MBIA's backing. MBIA, in a statement, termed Gotham's report "a negative advocacy piece" and said Gotham has taken a short position in MBIA stock and a speculative position in derivatives on MBIA-insured debt. "Many of the points raised in the Gotham report are patently wrong and demonstrate a clear lack of understanding," MBIA Chairman Jay Brown said. MBIA said the hedge fund's report, among other things, was intended to cause a widening in so-called spreads -- or levels at which fixed-income products commonly are quoted -- in the credit default swap market on bonds insured by MBIA. Credit default swaps are derivative contracts that allow investors to buy and sell protection against possible defaults. The market is closely watched by bond investors, and transactions in it tend to affect corporate bond prices. Among points raised in its report, Gotham said it was concerned about MBIA's leverage. It cited a ratio of guarantee liabilities outstanding to shareholder equity of 139 to 1. In response to MBIA's contention that the report was biased, William Ackman, a founding director of Gotham, said the fund disclosed its short position at the beginning of the report. He said Gotham has a $1 billion short position on MBIA in the credit default swap market and an undisclosed short position on the stock, including put options. A put is an option to sell a security at a specified price, usually within a limited period. Mr. Ackman called MBIA's rapid reaction troubling, noting its chairman is quoted saying many of the points in it are "patently wrong" only 20 minutes after the report was released. Mr. Ackman stressed that his greatest concern with MBIA is the extent of its leverage, which he says is understated because of the company's use of off-balance-sheet funding. Responding to the report, MBIA Chief Financial Officer Neil Budnick took greatest exception with the assertion that MBIA could face liquidity risk and with the magnitude of losses Gotham projected that MBIA could face on collateralized debt obligations. Concerning MBIA's leverage, he said it was important to consider the quality of assets MBIA insures, with 70% carrying a stand-alone rating of single-A or above.