MBIA upsizes stock deal, shares rise; Alliance Data drops Blackstone suit; Northwest CEO says deal 'likely'

By Evan Weinberger

New York, Feb. 8 - MBIA Inc. upsized the common stock offering meant to stabilize the limping bond insurer. Its stock traded higher Friday.

Alliance Data Systems Inc. dropped its lawsuit against the Blackstone Group and said the two sides would work toward completing their deal. Alliance Data Systems traded higher; Blackstone Group stock slipped.

And the chief executives of both Delta Air Lines Inc. and Northwest Airlines Corp. made statements that pointed toward a coming merger in the coming days. Reports arose in the latter half of the week that the two air carriers could announce a merger as early as next week. Both stocks slid Friday.

Stocks fluctuated again as market players tried to make sense of the state of the economy. Investors also had to deal with further downgrades on the bond insurers and the mortgage-backed securities they insure.

The Dow Jones Industrial Average fell 64.87 points, or 0.53%, to close at 12,182.13.

The Nasdaq gained 11.82 points, or 0.52%, to close at 2,304.85.

And the Standard & Poor's 500 slid 5.62 points, or 0.42%, for a 1,331.29 close.

MBIA upsizes, stock moves up

On Wednesday, Armonk, N.Y.-based bond insurer MBIA announced a $750 million common stock offering meant to maintain its invaluable AAA rating.

On Thursday, the offering was upsized to $1 billion, with the stock priced at $12.15. The initial offering is 82.3 million shares. There is also a $150 million, or 12.35 million share, greenshoe on the deal.

Private equity shop Warburg Pincus, which plowed $500 million into MBIA to help keep it afloat late last year, agreed to buy a further $300 million of the shares.

Market watchers have had mixed opinions about the deal, although the views have been predominantly negative. Some have applauded MBIA for going out to get the capital it needs to maintain the AAA rating.

Others have noted that while JPMorgan and Lehman Brothers are underwriting the deal, there's very little "institutional appetite" among the big investment banks to get heavily invested in MBIA.

And still other market watchers have pointed out to Prospect News over the past several weeks - following the lead of other critics of the bond insurers - that if a company has to raise money or take on debt to retain a AAA rating, then the company is probably not AAA. There is increasing unease that MBIA and the other bond insurers do not have the available capital to cover all the claims that could come in on busted mortgage-backed securities.

To underscore that, Fitch Ratings put MBIA's AAA rating on negative watch on Tuesday. The ratings agency put 87 classes of mortgage-backed securities MBIA insures on negative watch as well.

MBIA (NYSE: MBI) moved up 40 cents, or 2.82%, to $14.60 on Friday.

In other bond insurer news, Moody's Investors Service dropped its rating on Hamilton, Bermuda-based bond insurer Security Capital Assurance Ltd. to A3 from AAA.

The company's stock (NYSE: SCA) plummeted 60 cents, or $23.08, to $2.00.

Alliance Data withdraws lawsuit

Alliance Data Systems, the Dallas-based credit card processor, dropped its lawsuit against affiliates of the Blackstone Group Friday morning.

Alliance Data filed suit in Delaware in January claiming that the New York-based private equity shop broke the $6.4 billion takeover agreement reached last May.

Blackstone claimed that federal regulators were putting too high a burden on it as part of the conditions for the takeover.

ADS dropped its suit "without prejudice," so in theory it could re-file its claims against Blackstone.

ADS, however, does not appear inclined to do so. In a statement Friday morning, ADS said that in conversations with Blackstone management, they were confident the private equity shop would try to complete the deal. The credit card processor gave no guarantees, though.

"Alliance Data has identified various potential solutions to OCC-related issues that Blackstone has said are impediments to completing the merger, and the company looks forward to working together with Blackstone to effect an acceptable solution to these issues," ADS said in its statement. "There can be no assurance, however, that an acceptable solution will be obtained or that the merger will be completed."

Another option, if a deal isn't reached, is that the two sides could wait until April 17, which is the agreement's termination date. They could then simply let the deal expire.

Alliance Data (NYSE: ADS) rose $3.56, or 6.92%, to $55.02 on Friday.

Blackstone (NYSE: BX) slid 17 cents, or 0.96%, to $17.51 on the day.

Delta-Northwest deal on tarmac?

Northwest Airlines CEO Doug Steenland certainly sounds like a man getting ready to announce a deal.

In a letter to employees Wednesday, Steenland said "consolidation is highly likely at some point," adding that doing nothing "could be our worst alternative," according to the Associated Press Friday.

Reports began appearing earlier in the week that Eagan, Minn.-based Northwest and Atlanta-based Delta could announce a merger agreement as early as the Feb. 11 week.

According to the reports, Steenland's role in a merged company has been one of the sticking points.

Many industry watchers say that a deal between Delta, the number two air carrier in the United States, and Northwest, the fifth largest in the country, could spark a further wave of airline consolidation.

Rising fuel prices hurt airlines Friday.

Delta (NYSE: DAL) fell 30 cents, or 1.62%, to close at $18.19.

Northwest (NYSE: NWA) slid 5 cents, or 0.27%, for an $18.45 close.

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