Business and Finance

Earlier this month the Toronto Star published a story on Ottawa-area inventor Thane Heins, who has figured out a way to tap the mysterious energy in a magnetic field to create a more efficient electric motor – and in his view, possibly much more.

The story was the most read and emailed story on the Toronto Star website for most of the following week, and ranked as one of the most popular stories of the past year.

Links on top-rated blogs, such as Gizmodo.com and Wired.com, and discussion sites, such as Slashdot. org, drew international attention to Heins’ invention and the phenomenon behind it.

Videos of Heins demonstrating his technology were promptly posted on YouTube and have been viewed more than 275,000 times in less than three weeks.

On technology and science blogs around the world the discussion continues, and many are attempting to replicate Heins’ demonstration.

Never, in seven years as a reporter at the Star, have so many emails flooded my inbox in response to a story. It was a mixed batch of praise, healthy skepticism and unrestrained criticism (see "Reader" page B2).

Simply put, what Heins has done is figure out a way to redirect a magnetic field that, according to the law of conservation, is supposed to slow down an electric motor.

By redirecting the field to the heart of the motor, he causes the motor to dramatically accelerate without any increase of external power. In fact, power input decreases.

In one setup, where the motor is coupled to a generator, Heins appears to have created a positive feedback loop that makes the motor accelerate faster as more electrical load is added to the generator.

Since the story appeared, Heins has welcomed many people to observe demonstrations of his invention at the University of Ottawa. So far, most have walked away impressed or, at the very least, unable to explain the phenomenon.

Offers of investment and partnerships are cautiously trickling in. But Heins himself is being prudent. The CBC, CTV and Discovery Channel are onto the story.

Last week, Dr payday advance. Riadh Habash, the University of Ottawa professor working with Heins, was invited by NASA-Goddard Space Flight Center in Maryland to do a demonstration.

NASA scientist Erik Clark, when contacted by the Star, was understandably cagey. "I am not qualified to speak on the stance, real or imagined, of either NASA or GSFC NASA on this topic," he wrote by email.

Interesting nonetheless – and while Habash is unable to go, Heins hopes to go in his place. It’s a visit, if it happens, to follow up on. As for MIT professor Markus Zahn, who in the original story was quoted as seeing an "unusual phenomena" that he couldn’t explain?

Bombarded with email and phone calls, he wasn’t immediately available after the demonstration on Jan. 28. The Star did eventually get him on the phone and, as expected, he was upset at being mentioned in an article that hinted at perpetual motion.

"It’s just not true," he said. "We had discussed the fact that if he (Heins) called it perpetual motion that I wouldn’t want anything to do with it."

Asked what it was then, he mentioned the "hysteresis" theory – and how it increases motor efficiency – but he couldn’t say for sure. "It’s not my obligation to try to explain it to everybody else … He might have something that’s useful."

In a tersely worded letter to Heins, he concluded: "Any talk of perpetual motion, over unity efficiency, etc. discredits you, now me, and your ideas.

"I would not want to go to NASA or anywhere else to help promote your invention until basic testing and measurements are done so that the cause of the shaft speed up due to a permanent magnet is understood and that the foolishness is stopped of hinting that your motor violates fundamental laws of physics."

The letter ends with five words. "Best of luck to you."

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FRANKFURT–Automaker Volkswagen AG said Friday its January global sales rose by 11 per cent to a record high.

The Wolfsburg-based company, Europe's biggest car maker in terms of sales, said it sold 485,000 cars worldwide in January, its biggest amount ever for that month. The company didn't give comparative figures and was not immediately available for comment.

"As a group, we are well positioned with our brands and our constantly expanding range of models and are entering the coming months with complete confidence," said Detlef Wittig, the company's sales and marketing chief.

Demand was strong in Europe, where sales rose 7.4 per cent to 224,000, with 65,000 of that in its home market of Germany, an increase of nearly 15 per cent.

In Asia, the company said it sold 105,000 cars, up 33.7 per cent from last year. Of that amount, 94,000 cars were sold in China alone, up 36.7 per cent from last year.

In South America, sales rose 19 per cent with 62,000 cars delivered.

Volkswagen's brands include VW, Audi, Skoda, Seat, Lamborghini, Bentley and Bugatti.

By brand, the company said it sold 288,000 VWs, up 13 per cent from last year; 79,000 Audis for an increase of 4.7 per cent; and Skoda reported sales of 52,000, up 16 percent.

Seat said its sales fell 3 percent to 29,000, while Bentley sold 800 cars, an increase of 2.3 per cent.

Lamborghini said its sales rose by 41 per cent, with 200 cars, while Bugatti delivered three cars in January, down from five in January 2007.

In the United States, however, sales fell 8.8 per cent to 21,000 cars sold paydayloans. For all of North America, sales fell 10.3 percent to 37,000 cars sold.

The news came the same day Nissan Motor Co. Executive Carlos Ghosn said even if the United States is not in recession, its auto industry is.

"We are very lucid on the situation of the industry that there is a recession in the United States, at least in the car market,'' Chief Executive Carlos Ghosn told reporters in Seoul, South Korea, saying automakers face rising costs for iron ore, precious metals, aluminum and other materials.

"These represent risk for the industry," he said, adding, however, that the American auto market "will not stay in recession for a long time.''

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CALGARY – TransAlta Corp. has followed through on plans to sell its two Mexican electricity generating stations, saying they will be purchased for US$303.5 million by a private equity group that includes the Ontario Teachers’ Pension Plan. 

A "significant portion of the proceeds" from the sale will be used to buy back TransAlta shares, the Alberta-based power company said.

However, TransAlta . (TSX: TA) also said it expects to take a charge to first-quarter earnings of between C$55 million and $65 million, 27 to 32 cents per share, to reflect the difference between the sale price and the book value of the two plants.

The company’s board has been under pressure from U.S. private equity firm Luminus Group, which is TransAlta’s largest shareholder, to take on more debt to finance a share buyback – an option that TransAlta’s current leadership has rejected.

Instead, CEO Steve Snyder confirmed Feb. 1 that TransAlta would sell the Mexican business – a 252-megawatt gas-diesel plant in Campeche and a 259-megawatt gas plant in Chihuahua.

It announced Tuesday that the buyer is InterGen Global Ventures BV, a joint venture of Ontario Teachers and AIG Highstar Capital II LP.

"This transaction successfully concludes the strategic review we initiated over a year ago for our Mexican assets," Snyder stated Wednesday.

"By unlocking the value of these assets, TransAlta is continuing to execute its strategy of delivering consistent and sustainable shareholder value, through a balanced approach to portfolio optimization and growth investments focused on our core markets in the western U.S payday loans. and Canada, a stable and growing dividend, and share repurchases."

Luminus Group is attempting to shake up the current board by proposing four new directors.

"We believe that the TransAlta board needs to be augmented through the addition of individuals with industry-specific experience and fresh perspective,"Paul Segal, president of Luminus Management, said Tuesday.

InterGen has a portfolio of more than 5,000 megawatts at nine plants in Britain, the Netherlands, Mexico, the Philippines and Australia.

The C$106-billion Ontario Teachers’ Pension Plan and AIG Highstar Capital, a private equity fund run by AIG Global Investment Group, took over InterGen in 2005 in a C$2.2-billion purchase from Shell Generating BV and Bechtel Enterprises Energy BV.

TransAlta shares opened with a gain of 11 cents to $34.65 after news of the divestment, amid sharply negative overall action on the Toronto Stock Exchange. In early afternoon trading, they were at $35.07, up 42 cents or 1.2 per cent, and near the high end of the stock’s 52-week range of between $35.12 and $23.59.

12:43ET 20-02-08

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MONTREAL – A Quebec judge has extended creditor protection for insolvent printer Quebecor World Inc. until May 12.

The monitor appointed to oversee the case told Quebec Superior Court that the printer's business has stabilized since it was placed under the protection of the Companies' Creditors Arrangement Act in Canada and Chapter 11 of the U.S. bankruptcy code a month ago.

Dennis Ferland of Ernst & Young told Justice Robert Mongeon on Tuesday that the company's cash flows have been better than expected.

Reorganization of the Montreal-based company is complicated because of the many subsidiaries operating in North America. Lawyers for the company are scheduled to appear in U.S. bankruptcy court on Thursday but the U.S. system doesn't require an extension to protection which remains in place until the case is closed.

Quebecor World's goal is to return operations to normal and develop business and restructuring plans that will take the company forward.

Meanwhile, the printer said it has signed a five-year contract with Rona Inc fast cash. (TSX: RON) to print all of the home renovator's advertising material, including its retail flyers.

Quebecor World (TSX: IQW) will also provide other services, including advertising campaign management software and the development and distribution of special products to support Rona on a national scale. Rona requested that Quebecor World not disclose the value of the contract.

On the TSX, Quebecor World shares gained 7.58 per cent, or 2.5 cents, to 35.5 cents in trading Tuesday morning

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DETROIT–A tentative deal for auto parts supplier Plastech Engineered Products Inc. to continue sending parts to Chrysler LLC has been extended.

The deal was to expire Friday. But Chrysler spokesman Kevin Frazier says it has been extended to Feb. 27.

Both companies are awaiting a ruling expected Tuesday from Bankruptcy Judge Phillip Shefferly on Chrysler's efforts to retrieve equipment from Plastech.

Dearborn-based Plastech filed for bankruptcy protection Feb http://us-no-fax-payday-loans.com. 1 after Chrysler said it was severing business with it.

Four Chrysler plants closed briefly when Plastech stopped shipping parts, but Plastech resumed sending parts under the tentative deal.

Plastech supplies about 500 components for nearly all Chrysler's vehicles.

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SAN FRANCISCO–Yahoo Inc. is discussing a possible Internet partnership with media conglomerate News Corp., its latest effort to repel Microsoft Corp.’s takeover bid or pry a better offer from the unsolicited suitor, a person familiar with the situation said Wednesday.

The specifics of the proposed joint venture haven’t been worked out, according to the person, who didn’t want to be identified because the talks are considered confidential.

Both The Wall Street Journal and a prominent blog, TechCrunch, reported that News Corp. is interested in folding its popular online social network, MySpace.com, and other Internet assets into Yahoo – an idea that first came up last year. News Corp. owns The Wall Street Journal.

News Corp. and a private equity firm reportedly would buy significant stakes in Yahoo as part of a complex deal designed to boost the Sunnyvale-based company’s market value above Microsoft’s initial bid of $44.6 billion, or $31 per share.

A Yahoo spokesman said the company continues to "carefully and thoroughly" evaluate alternatives that will enrich its long-term shareholders. Yahoo’s board reportedly is to meet again Thursday or Friday to consider the company’s next move.

News Corp. spokeswoman Teri Everett declined to comment on the Yahoo talks.

Separately, Yahoo sent a letter assuring its shareholders the company is poised to rebound from a two-year financial funk that had devastated its stock before the Microsoft bid. The letter echoed many of the points that Yahoo co-founder Jerry Yang made to the company’s employees in an e-mail earlier this week.

"This is a great company and we are moving quickly to make it even better," wrote Yang, who became Yahoo’s chief executive eight months ago.

Yahoo shares climbed 31 cents to $29.88 Wednesday while Microsoft shares gained 62 cents to $28.96 News Corp. shares slipped 10 cents to finish at $19.93.

Based on Microsoft’s current market value, its cash-and-stock bid for Yahoo now stands at $29.50 per share, or about $41 billion.

Yahoo rejected Microsoft’s offer Monday, insisting that its Internet franchise is worth more money. Microsoft has held firm so far, calling its original "full and fair" while threatening to launch a hostile takeover attempt.

"What’s unclear now is whether Yahoo is just trying to get a higher offer or if the company really doesn’t want to sell to Microsoft," said Peter Falvey, a technology investment banker with Revolution Partners.

Although News Corp. Chairman Rupert Murdoch unequivocally said during a conference call last week that his New York-based company isn’t interested in an outright acquisition of Yahoo, he didn’t rule out the possibility of a deal involving MySpace.

When asked whether he might renew the previous discussions with Yahoo about a MySpace alliance, Murdoch replied: "I think that day has passed, but you never know."

A News Corp paydayloans.com. stake in Yahoo might hinge on whether the two sides can agree on how much MySpace is worth.

News Corp., which also owns the Fox television and movies studios in addition to its newspaper and Internet holdings, bought MySpace for $580 million in 2005. But the social network’s value has soared as its audience swelled above 100 million users, creating a potential advertising gold mine.

Ironically, Murdoch and his lieutenants can point to a recent Microsoft deal to make a case that MySpace is worth more than $15 billion.

Facebook Inc., which owns the Internet’s second largest social network behind MySpace, now arguably has a $15 billion market value, based on Microsoft’s purchase late last year of a 1.6 per cent stake for $240 million.

Despite MySpace’s popularity, the Web site still hasn’t established itself as an effective advertising vehicle. Internet search leader Google Inc. last month cited lacklustre returns from its ad partnerships with MySpace and other social networks as one of its few disappointments during the fourth quarter.

Besides talking with News Corp., Yahoo also reportedly has explored an advertising partnership with Google, its biggest rival. Reports of a possible merger with Time Warner Inc.’s AOL appears to be more rumour than fact, said the person familiar with News Corp. negotiations.

Although Google probably could help elevate Yahoo’s recently drooping profits, the alliance would likely face antitrust hurdles because the two companies operate the Web’s two biggest ad networks and eliminating one would reduce competition.

If Yahoo is able to work out a deal with News Corp., analysts believe Microsoft will simply raise its offer because it needs the acquisition to counteract Google’s dominance of the online ad market – a battleground that is rapidly reshaping the technology and media industries.

Analysts believe Microsoft is prepared to offer as much as $35 or $36 per share, if necessary, to get the Yahoo deal done.

"Buying Yahoo makes tremendous sense for Microsoft, more sense than any other company in the world," said Ken Marlin, a New York investment banker specializing in media and technology deals.

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Natural gas is a cleaner fuel when compared to coal, but in the context of climate change, it’s far from being our saviour. Once all of Ontario’s coal plants are shut down – we’re told by 2014 – then the next greenhouse gas emitter on the global warming hit list is, by default, natural gas.

"About 36 per cent of Toronto’s carbon dioxide emissions come from natural gas," says Philip Jessup, executive director of the Toronto Atmospheric Fund.

It calls attention to our strategy of doubling natural gas plant capacity as part of the province’s 20-year power system plan. It also puts the spotlight on "fuel-switching" – that is, ditching your electric stove in favour of natural gas, or getting rid of that electric resistance heating in favour of a natural gas-fired furnace.

Compared to electric heating, there’s no disputing that natural gas is currently cheaper. But is it cleaner than electricity?

Not in Ontario. Not in Toronto. In fact, once all coal plants are shut down, a lion’s share of the electricity in the province will come from nuclear, hydroelectric and wind power. That means using electricity to heat your home will result in far less greenhouse gas emissions than using a natural gas appliance.

So the question is, how do we make using electricity cheaper?

Duane Hallowell, 34, a former cryogenic engineer with the U.S. navy, is focused on this mission. He founded a company in Maine three years ago, called Hallowell International, aimed at getting households in northern U.S. and Canadian climates off of fossil fuels.

What he invented was a new kind of heat pump, which as a technology has existed for decades. The difference is that Hallowell’s heat pump, called Acadia, was designed to work efficiently in temperatures as low as minus 30 degrees Celsius – that is, in Canadian winters.

"For the same amount of energy to heat a house with resistance heating, you could heat three homes with an Acadia," he says. "And that’s a worst-case scenario."

There are typically two kinds of electrical heat pump systems – air-source and ground-source.

The latter is what we commonly know as low-temperature geothermal, which cools a building by extracting heat from inside and dumping it in the ground; or in reverse, heats a building by pulling heat out of the ground and releasing it inside.

Geothermal systems can run $25,000 to $35,000 for a residential retrofit, which is a tough bite to swallow even though the payback is much quicker than, say, solar power or small-wind systems. A big part of that cost is the need to drill holes in the ground and line it with tubing. Glycol or food-grade ethanol in the tubing acts as the energy carrier, exchanging heat between the ground and the building.

A ground-source system is more efficient than an air-source one. The temperature in the ground is more constant than the ambient air, so ground-source heat pumps don’t have to work as hard.

But hurdles to their deployment remain. If the drilling or tube laying isn’t done properly, or if the system isn’t sized accurately for a home’s cooling and heating needs, fixing it can be a nightmare.

These risks are falling, which is encouraging, and generous government incentives – $7,000 from Ottawa and the province combined – do help ease financial pain cash advance loans. But nagging "what if" worries of ground-source systems remain.

In urban areas, geothermal also poses problems. When you live in the Annex or Beaches and have little backyard space to spare, then the logistics of drilling holes and laying tubing become tricky. Tricky equals higher cost.

Air-source heat pumps work in much the same way as geothermal systems, but instead of the ground, they use outside air to extract and release heat. Home refrigerators work in a similar way. They extract heat from the food in your fridge and release it from coils behind it.

Air conditioners are a one-way heat pump – in summer it extracts heat from inside air and dumps it outside. Air-source heat pumps are popular in the U.S. south because they work like air conditioners, plus they can provide limited heating if temperatures drop.

"Unfortunately, they’re still just being developed primarily as air conditioners with a major deficiency in heating," says Hallowell.

It’s why they’ve never taken off in Canada. Once temperatures drop below freezing, a conventional air-source heat pump is useless.

Hallowell saw the neglect, so he went ahead and engineered a better air-source heat pump – one that operates during the summer like an Energy Star central air conditioner but in the winter handles all of a home’s heating needs. "Are we as efficient as geothermal?" asks Hallowell. "Well, we’re close."

Natural Resources Canada is now testing the Acadia system. I consulted an energy consultant who is also testing it for the Manitoba energy ministry. He didn’t want to be named, but had good things to say.

"They’re the real deal. Technically, there’s no massive, innovative, wizardry here. Just compressors and booster coils and good control systems. Very well done."

His only concern was that Hallowell is still new to the market so it doesn’t yet have a track record for service and maintenance. "So if you’re getting one of these early units, see if they’d provide guarantees of servicing and back-up."

Hallowell’s Canadian distributor, MITS Air Conditioning Inc. of Mississauga, says it costs $14,000 to $16,000 to purchase and install an Acadia system, compared to about $11,000 for a high-end air conditioner and gas furnace.

Unlike geothermal, there’s no ripping up of grass. No drilling. "If it does break it’s easy to fix because there’s nothing underground," says Jim Chaters at MITS.

Currently, the federal government offers a $400 incentive to purchase an air-source heat pump. The province matches that. Hallowell is trying to get that incentive increased so it’s at least half of what geothermal systems get.

Chaters, who sells all kinds of conventional heating and cooling equipment, says four years ago he’d never given much thought to heat-pump technology. Then his eco-minded daughter began pushing him to look for better options.

"Air-source heat pumps are the future, because they’re getting more and more efficient."

Jessup at the Toronto Atmospheric Fund adds: "We are going to have to move to these technologies in a big way if we are to meet the ambitious (emissions) targets that Toronto council has set."

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Home Depot offers a 100 per cent customer satisfaction guarantee. But some customers are far from satisfied.

Take Joanna and Peter Alpajaro, who hired the retailer to install granite tile floors in their bathroom and mud room last June.

Home Depot charged $4,000 for the small area (163 square feet) and insisted on payment in full before the work was done.

"We did not know that Home Depot passes on the job to a third-party contractor," they told me. "Even more alarming, there is very little follow-up or supervision."

The first contractor did not level the floors before laying the tiles. He came back to redo some sections, but the floors were still uneven and the grout cracked.

Last September, the retailer sent a more experienced contractor to their home. But he was given only 20 new tiles to do patch repairs.

"What should have been a two-day job took over three weeks. No one from Home Depot was monitoring the situation. We never got as much as a phone call from them, asking how things were going."

Last month, I sent details of the Alpajaros’ complaint to Tiziana Baccega at Home Depot’s head office in Toronto. That resulted in a visit by the same manager who had ignored their emails before. He agreed the floor was beyond repair and authorized a full refund.

Allan Parkin wrote to me about a $40,000 kitchen installation that had been botched.

"It was a new model and was supposed to be featured in Home Depot’s new kitchen catalogue," he said. "When the photographer came to the kitchen, she would not even photograph it as it was so bad.

"Doors have warped, shelves have fallen out, the cabinets are too small for the appliances supplied and yet Home Depot tells us everything is to specification."

After complaining for a full year, Parkin was offered $4,000 in compensation. He refused, saying it wasn’t enough easy payday loans. "The dream kitchen we saved for for 15 years is an embarrassing nightmare."

Again, Baccega arranged for an on-site visit. This led to a breakthrough.

"There must have been seven or eight people and there was no acrimony, no arguing," Parkin said after the two-hour meeting last week.

"Home Depot has since sent me a written confirmation of their commitment to solve every one of the issues we raised."

Tracey Kelly had an outdoor plastic deck installed by a Home Depot contractor in 2005. But the problems continued until early 2008.

"I’ve been calling Home Depot, the contractor, the deck manufacturer (Eon) and getting nowhere," she said.

After I contacted Baccega, an Eon representative came to the Kellys’ home in Kitchener and provided a written report on which items it would replace and which were Home Depot’s responsibility.

The Atlanta-based retailing chain has had teething pains with its installation program in Canada. But a new system has reduced complaints, Baccega said.

Customers no longer have to deal with a store manager to get help with installations. Now there’s a dedicated installation team, with 25 zone managers in Ontario.

"When customers call, these managers have three hours to get to the site and deal with the installers while they’re still there."

She said customers should not sign off on installation jobs until they were 100 per cent satisfied.

I’d add this advice: Never pay for a contracting job in full before it’s completed, let alone before it starts.

Home Depot has a customer satisfaction guarantee, but it may take years to get the work done properly.

Write to onyourside@thestar.ca

or check the On Your Side blog at www.ellenroseman.com

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CALGARY – Canadian Superior Energy Inc. (TSX: SNG) has offered an “estimate on a preliminary basis" that the Victory discovery off Trinidad contains up to 1.1 trillion cubic feet of natural gas.

The semi-submersible rig now at the Victory block will move to the nearby Bounty prospect in the next week.

Canadian Superior CEO Craig McKenzie said Monday that Victory, a joint venture with BG Group PLC and Challenger Energy Corp. (TSXV:CHQ), has a "most likely case" of 615 billion feet of gas and 2.4 million barrels of associated liquids.

The well tested natural gas in two main formations, and Canadian Superior estimates it can produce over 100 million cubic feet per day from the lower zone and 50 million cubic feet per day from the second formation credit reports.

The Bounty prospect, 3 1/2 kilometres from Victory, is to be drilled to a total depth of 5,500 metres under 300 metres of water.

"We are excited about moving forward expeditiously to develop the Victory discovery and we are equally excited to get our Bounty well spudded," McKenzie said.

"At Bounty we are targeting multiple potential reservoirs on a large separate structure."

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NEW YORK - MBIA Inc. reported write-downs of $3.5 billion on souring credit markets Thursday, exacerbating concerns that rising costs could squeeze local governments as well as slow any recovery for big banks.

Continued weakness in the bond insurance market may put struggling banks in a precarious position. Banks, which have reduced portfolio values by more $140 billion during the second half of 2007 in a deteriorating mortgage market, might be forced to take further write-downs tied to bonds insured by companies like MBIA.

MBIA said it is considering new options to raise capital.

The insurer lost $2.3 billion in the fourth quarter, or $18.61 per share, compared with earnings of $181 million, or $1.32 per share, during the same period the previous year.

Analysts polled by Thomson Financial, on average, forecast a loss of $2.97 per share for the quarter. Shares of MBIA fell 4.5 percent, or 63 cents, to $13.33 at the open of trading Thursday.

During the quarter, MBIA reduced the value of its credit portfolios by $3.5 billion, reducing earnings by $18.04 per share. The losses were primarily tied to the reduced value of collateralized debt obligations in its insured portfolio.

So-called CDOs are complex financial instruments that combine various forms of debt.

MBIA also took a $713.5 million pretax loss on its exposure to rising delinquencies and defaults among home equity products. Of the $713.5 million, $100 million was placed in reserve to cover potential future losses.

The beleaguered bond insurer also reduced the value of its 17.4 percent stake in reinsurer Channel Re to $0 from $85.7 million.

"The effect of these reserving and impairment activities on our capital position will be more than offset by the successful completion of our capital plan, which will increase our capital position by well over $2 billion," Gary Dunton, MBIA's chairman and chief executive, said in a statement.

MBIA raised more than $1.5 billion in recent months to try and maintain its critical "AAA" rating free credit report instantly. The company raised $1 billion through the offering of surplus notes and another $500 million through a direct investment by private equity firm Warburg Pincus, which closed Wednesday. Warburg Pincus has also pledged to backstop an additional $500 million rights offering.

Oppenheimer & Co. analyst Meredith Whitney said banks' could take up to $70 billion in additional write-downs because of the faltering bond insurers.

Struggles at bond insurers could also make it prohibitively expensive for municipalities to raise money for everything from street repairs to playgrounds.

The bond insurance market is in the midst of a major upheaval after ratings agencies began reviewing their operations during the fourth quarter. Due to rising delinquencies and defaults on mortgages, ratings agencies believe bonds and securities backed by those troubled loans will increasingly default as well, forcing bond insurers to pay out claims.

Bond insurers make principal and interest payments when issuers default. Under extreme loss scenarios, ratings agencies believe many bond insurers do not have enough cash available to pay out claims, which has forced the companies to either raise new capital or face a downgrade from the "AAA" financial strength rating.

Bond insurers essentially need "AAA" ratings to book new business.

Fitch Ratings already downgraded Ambac Financial Group Inc., Security Capital Assurance Ltd. and most recently Financial Guaranty Insurance Co. Both Moody's Investors Service and Standard & Poor's said they are currently reviewing ratings on bond insurers, including MBIA.

For the full year, MBIA lost $1.9 billion, or $15.22 per share, compared with earnings of $819.3 million, or $5.99 per share, in 2006.

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