NEW YORK (Reuters) – Private equity firm Ripplewood Holdings is considering starting a bond insurer to compete with industry leaders such as Ambac Financial Group (ABK.N: Quote, Profile, Research) and MBIA Inc (MBI.N: Quote, Profile, Research), the New York Post reported on Wednesday.
Ripplewood would look to raise $1.5 billion to launch the effort, according to the report. Discussions regarding launching a bond insurer are in early stages and a deal may never get off the ground, the newspaper said, citing an unnamed source.
Ripplewood would be entering an industry whose future is uncertain. Many bond insurers are reeling after guaranteeing repackaged subprime mortgages and other risky securities that have headed south, or are expected to.
The percentage of municipal bonds insured has declined over the last year, and some investors are questioning whether it makes sense to accept lower returns on a bond in exchange for insurance.
Meanwhile, new, well capitalized competitors like Warren Buffett's Berkshire Hathaway Assurance Corp, a unit of Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research)(BRKb.N: Quote, Profile, Research), are winning bond insurance business.
Ripplewood is looking at whether it is worth spending the time to set up a business that can be a consistent cash-flow generator but can otherwise be a low-return operation, the New York Post said.
Ripplewood declined comment. (Reporting by Dan Wilchins, additional reporting by Megan Davies; editing by John Wallace)