Buffet finds opportunity in the woes of bond insurers.

AP / Gerald Herbert

Memo to billionaire investor Warren Buffett: Rhode Island welcomes you.

Buffett, head of Berkshire Hathaway of Omaha, Neb., has just launched a company that will sell insurance to states, cities, towns and other such government entities that issue municipal bonds.

Buffett’s latest venture, Berkshire Hathaway Assurance Corp., has already established an operation in New York, and plans to expand to other states — including Rhode Island.

And that is welcome news to state General Treasurer Frank Caprio. “Mr. Buffett’s indication that he will bring his new bond insurance venture to Rhode Island is good news for our communities and our state,” Caprio said in a statement.

“Having bond insurance from a stable, triple-A rated company will help reduce the cost of borrowing money and generate savings for taxpayers,” he said.

Buffett’s venture comes as other companies that issue municipal bond insurance are struggling because of the crisis in the subprime mortgage market.

Credit-rating companies have cautioned publicly that some of the largest bond insurance firms, such as Ambac Financial Corp. and MBIA Inc., could lose their triple-A ratings because they insure mortgage-related bonds, which could result in big losses for the insurers.

Asked yesterday about Buffett’s plan to expand to Rhode Island, Normand G. Benoit, a Providence lawyer and one of Rhode Island’s prominent bond counsels, said, “I think the competition would be a good thing.”

Benoit, a partner in the Providence law firm of Partridge Snow & Hahn, said Buffett’s venture will be “very well received” by Rhode Island government agencies.

Those agencies last year issued about $1.366 billion in municipal bonds to finance various projects, Benoit said.

About half of the municipal bonds issued each year by Rhode Island government agencies, including cities and towns, carry municipal bond insurance, he said.

Buffett’s venture will give the agencies another bidder from which to choose their municipal bond insurance. This, in turn, could help control or even lower the overall cost of issuing bonds, saving taxpayers money.

In general, municipal bonds that carry insurance are more appealing to investors. By buying bonds that carry insurance, investors have the added assurance that they will receive timely payments of interest and principal.

When a city, town or other government agency issues municipal bonds, and the agency decides to solicit bids for insurance, the agency might receive several offers through a competitive process. But given market volatility lately, there may be few bidders, Benoit said.

Buffett’s venture means there may soon be an additional player in the marketplace, making the bidding process more competitive.

In general, “The more bidders, the better,” Benoit said in a telephone interview yesterday. “I don’t see any downside whatsoever” if Buffett’s venture follows through on plans to expand into Rhode Island.

Caprio said he sent a letter to Buffett about a week ago, asking him to have his new venture apply to do business in Rhode Island.

The Wall Street Journal newspaper reported late last month that Buffett had established Berkshire Hathaway Assurance to sell insurance to cities, counties and municipalities that seek to sell bonds to finance public projects — such as the construction of new roads, schools, sewer systems and the like.

The move puts Berkshire in direct competition with MBIA, Ambac and other big bond insurers.

Besides New York and Rhode Island, Buffett’s venture plans to sell municipal bond insurance in California, Puerto Rico, Texas, Illinois and Florida.