Sovereign funds, Cerberus eye bond insurer stakes

Sovereign wealth funds and private equity firm Cerberus are looking at investing in bond insurers as the insurance companies try to raise money and hang onto their top ratings.

New York's state insurance superintendent said on Wednesday he has talked to sovereign wealth funds about potential investments in U.S. bond insurers. He declined to say if those conversations have ended or are continuing.

Separately, a person familiar with the matter said Cerberus Capital Management is in talks to invest in Ambac Financial Group Inc, the second-largest bond insurer.

The private equity firm has not signed anything, and discussions are still in progress, the person said. A Cerberus spokesman declined to comment.

Regulators, investors and banks are working closely with the bond insurers, who collectively guarantee more than $2.4 trillion of securities.

Financial markets are paying close attention to any potential deals because without new capital, the insurers may lose their top ratings. Rating downgrades could force investors to dump billions of dollars of bonds and lift borrowing rates for consumers and cities alike. Banks would also have to write down their exposure.