MBIA Inc. bought back $170 million of notes and got enough support from other bondholders to complete a debt amendment that shields itself from being dragged into bankruptcy by a cash-strapped unit.
MBIA said a majority of investors holding almost $900 million of bonds approved changes to indentures that would have accelerated payments if its MBIA Insurance Corp. subsidiary were to be seized by regulators. To gain enough bondholder support, MBIA repurchased about 52 percent of its outstanding 5.7 percent bonds due in December 2034, which Bank of America Corp. had offered to buy on Nov. 13 in an effort to block the changes.
Bank of America, which bought products from the MBIA Insurance unit protecting the lender from losses on more than $6 billion of debt, sued the insurer over a 2009 restructuring that it claims was based on misleading information. Armonk, New York-based MBIA is separately suing the bank, seeking to force it to buy back faulty loans in insured mortgage-backed securities, and claims the bank is delaying that case to starve it of cash.
MBIA shares, which surged more than 20 percent last week, jumped 5.7 percent to $8.84 in New York. The gain pared this year’s decline to 24 percent.
“MBIA is using its resources to buy back its own bonds to gain ‘consent’ instead of honoring its obligations to its policyholders,” Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, said in an e-mail. “We will continue to pursue all of our options to protect our interests as a policyholder and attempt to ensure that MBIA fulfills its financial obligations to all policyholders.”
Kevin Brown, a spokesman for MBIA, said in an e-mail that “contrary to Bank of America’s suggestion, the repurchases of holding company debt were funded exclusively with holding company resources and had no impact on policyholders.”
Bruce Berkowitz’s Fairholme Capital Management LLC held $11.6 million, or 3.5 percent, of the 2034 notes that were outstanding as of Nov. 13, as well as 3.1 percent of the company’s $270.9 million of 6.4 percent bonds maturing in August 2022, 44 percent of the 7 percent notes due in 2025, and 33.6 percent of the 6.625 percent notes, according to data compiled by Bloomberg.
MBIA paid consenting bondholders $10 for each $1,000 in face value. The indenture amendments apply to almost $900 million of MBIA’s debt outstanding, with $568 million issued from 1994 to 2002 and $329 million in 2004.
Bank of America said it would pay par for the 5.7 percent notes if they were tendered by Nov. 27, and $950 per $1,000 of face value between then and Dec. 11, conditioned on a majority of the notes being tendered, according to a Nov. 13 statement.
The securities traded at 100.05 cents on the dollar on Nov. 20 to yield 5.7 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s up from 78 cents on the dollar on Nov. 8, yielding 7.8 percent, the data show.
The changes allowed the insurer to replace MBIA Insurance in the so-called cross-default provision with its more stable National Public Finance Corp. that holds the insurer’s state and municipal bond guarantee business.
The insurer created that unit as part of a split of its businesses that New York State regulators approved in 2009 in an effort to revive the public-finance business. About two dozen banks and investment firms including Morgan Stanley and Bank of America sued the insurer and regulators after the split.
The split left the old unit with soured mortgage-backed debt, leading lenders including Bank of America to claim the restructuring was a “fraudulent conveyance” that rendered the old insurer insolvent.
In documents asking bondholders to approve the indenture changes earlier this month, MBIA said it would have “insufficient liquidity and capital market access” to pay its debts in a default and would probably seek to negotiate with stakeholders for a restructuring or bankruptcy. Substituting the National Public Finance unit removes “the direct link between a rehabilitation or liquidation proceeding of MBIA Corp. and a company bankruptcy,” the company said.