Feb. 7 (Bloomberg) -- MBIA Inc., the world's biggest bond insurer, plans to sell $750 million of stock in an effort to bolster capital and retain its AAA credit rating.

MBIA, based in Armonk, New York, said the private-equity firm Warburg Pincus will make up any shortfall in the sale by buying convertible participating stock. Warburg Pincus has already purchased about $500 million of MBIA shares.

Bond insurers led by MBIA and Ambac Assurance Corp. in New York need to bolster capital to avert downgrades that would cast doubt on the quality of $2.4 trillion of securities the industry guarantees. Fitch Ratings said this week it may cut MBIA's AAA insurance ranking, after lowering Ambac by two levels to AA last month because of mounting losses on subprime-related debt.

``The most significant fact is that they're raising the amount of capital from what they previously announced,'' Wilbur Ross, an investor in distressed companies, said in an interview with Bloomberg TV. ``I would be astonished if they hadn't consulted with the rating agencies before they made this announcement,'' he said, adding that MBIA may retain its AAA.

If the offering announced yesterday is successful, MBIA will have raised about $2.25 billion since November.

MBIA rose 79 cents, or 5.5 percent, to $15.07 in Frankfurt trading at 1:15 p.m. The stock is down 79 percent over the past 12 months. Ambac increased 21 cents, or 2 percent, to $11.22 in Germany.

Dinallo Bailout

The extra funds may not be enough to avert a downgrade because rating companies are increasing the capital they demand bond insurers set aside, Bank of America Corp. analysts led by Jeffrey Rosenberg wrote in a note yesterday.

``What we see is an almost day-to-day change in the rules of the game,'' said Donald Light, an insurance analyst at Boston consultancy Celent. ``At best we can say we're not sure'' if the capital will be enough three months or a year from now, he said.

New York Insurance Superintendent Eric Dinallo is trying to organize a bank-led rescue of bond insurers. Bailouts may be a cheaper option for banks compared with the costs they would incur from bond insurer downgrades. Banks may need as much as $143 billion of additional reserves if bond insurer credit ratings are lowered, according to analysts at Barclays Capital.

``This is good progress,'' Dinallo said in a statement. ``It's the kind of transaction we've been discussing and encouraging.''

`Good Progress'

New York regulators, who have already enticed billionaire investor Warren Buffett's Berkshire Hathaway Inc. to set up a bond insurance company, are ``talking to others interested in entering this market,'' Dinallo disclosed in a letter released yesterday by Congressman Paul Kanjorski, chairman of the U.S. House Financial Services subcommittee.

Eight banks including New York-based Citigroup Inc. and UBS AG in Zurich are working on financing for Ambac, a person briefed on the plan said last week. Credit Agricole SA's Paris- based Calyon unit is leading talks to bail out New York-based Financial Guaranty Insurance Co., the third-biggest U.S. municipal bond insurer, the Wall Street Journal reported yesterday, citing people familiar with the situation.

MBIA and Ambac may lose their top AAA ratings before they get the capital they need, according to a report by independent research firm CreditSights Inc. in New York last week.

MBIA's rating is vulnerable because it has insured $30.6 billion of collateralized debt obligations, or CDOs, that are backed partly by subprime mortgage securities, Fitch said this week. CDOs package assets such as mortgage bonds and buyout loans into new securities with varying risk.

Record Loss

The company reported a fourth-quarter net loss last month of $2.3 billion, or $18.61 a share, its biggest ever. The results led to a full-year net loss, snapping a streak of annual profitability dating back to at least 1991 that had been buoyed by the regular premiums from insuring municipal debt.

MBIA raised its after-tax operating loss estimate yesterday for the fourth quarter by $65 million to $472.8 million. The new figure resulted from doubling a loss reserve for expected claims on bonds backed by second-lien mortgages.

In addition to selling $500 million of shares to Warburg Pincus, MBIA also sold $1 billion in surplus notes and cut its dividend by 62 percent.

MBIA said its offering will comprise 50.3 million shares. Most of the proceeds will go to MBIA Insurance Corp., the company said.

Standard & Poor's, which last week downgraded or put under review $270.1 billion of subprime securities from 2006 and 2007, raised its loan-loss estimate for 2006 bonds to 19 percent, from 14 percent on Jan. 15.

To contact the reporter on this story: Christine Richard in New York at crichard5@bloomberg.net

Last Updated: February 7, 2008 07:36 EST