MBIA Surges Most Since 2013 as Puerto Rico Electric Reaches Pact

  • Bond insurers said to have reached agreement with Prepa
  • MBIA had closed at lowest price since March 2010 this week

Shares of the two biggest bond insurers rallied, with MBIA Inc. surging the most since May 2013, after Puerto Rico’s cash-strapped electric utility was said to have reached a tentative agreement with the companies and some bondholders to restructure its $8.2 billion of debt.

MBIA, which earlier this month closed at the lowest price since March 2010, climbed 17.7 percent on Friday in its largest single-day rally since May 6, 2013. Assured Guaranty Ltd. gained as much as 5.5 percent, the most since May 2014. MBIA insures $1.4 billion of Puerto Rico Electric Power Authority bonds, as measured by gross par outstanding, its largest exposure to the island, according to company filings. Assured backs $744 million of debt from the utility, known as Prepa.

Under the pact, the insurers will provide about $450 million in the event of a default, according to two people with knowledge of the discussions, who asked for anonymity because the negotiations are private. The tentative agreement sets into motion what would be the largest-ever restructuring in the $3.7 trillion municipal market and potentially avert a default on $196 million of interest due Jan. 1.

The restructuring would be the first step in Puerto Rico’s goal to reduce its $70 billion debt burden by asking bondholders to take a loss or agree to delay principal payments, and it may provide a framework for agreements with other creditors.

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