MBIA to ‘Barely Scrape’ Through Beyond 2015, CreditSights Says

MBIA Inc., the holding company of the world’s largest bond insurer, should be able to make payments on $1 billion of debt until 2015, and will then “barely scrape” through the year, according to CreditSights Inc.

MBIA, which had $390 million in cash and highly liquid investments as of June 30, will end 2015 with $3 million, CreditSights analysts Rob Haines, Craig Guttenplan and Joseph Di Carlo in New York wrote in an Aug. 24 report.

Investors should sell five-year and shorter-dated credit- default swap protection on Armonk, New York-based MBIA the analysts said. They would receive $1.55 million upfront in addition to $500,000 a year for selling protection on $10 million of the company’s debt for five years, according to data provider CMA. The swap prices signal the market has priced in a 50.5 percent chance of default over five years assuming debtholders can recover 32 percent.

“Given management guidance and using our expectations for sources and uses of holding company cash, we expect MBIA to have sufficient resources to barely scrape through 2015,” the analysts at the bond-research firm wrote.

Even as losses mount at MBIA Corp., the unit that insures structured finance securities, regulators are unlikely to take-it over, which would trigger a default at the holding company, Haines said in a telephone interview.

“Regulators have been loath to seize bond insurance companies,” he said.

MBIA spokesman Kevin Brown didn’t immediately return a call for comment.

Negative Outcome

MBIA’s $292.9 million of 6.4 percent senior unsecured bonds due 2022 traded at 73 cents on the dollar on Aug. 19, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The holding company could last longer if an intercompany loan is repaid, it raises capital or can take dividends from its units, the analysts wrote. A negative outcome in various legal disputes may reduce its prospects, they said.

MBIA has projected it will offset claims on mortgage- related securities through lawsuits against financial institutions that it says misrepresented the quality of loans used to back bonds it insured.

MBIA is being sued by a group of financial institutions, including JPMorgan Chase & Co. and Citigroup Inc., seeking to reverse a transfer of the company’s municipal bond guarantees into National Public Finance Guarantee Corp., a newly created company.

MBIA fraudulently transferred capital away from MBIA Corp., which continues to back structured finance obligations for Wall Street firms and other investors, according to the lawsuit filed in New York State Supreme Court in May 2009.

“The biggest risks to our thesis are if MBIA is unsuccessful in the litigation contesting the split and/or if MBIA is unsuccessful in the litigation seeking put-backs or other contractual remediations on certain securitizations,” the CreditSights analysts said.