MBIA Raised to Investment Grade by S&P After Settling Lawsuits

MBIA Inc. was raised to investment grade by Standard & Poor’s for the first time in four years after the holding company for bond insurers settled with the last of 18 banks that had challenged its 2009 restructuring.

Its senior unsecured debt rating was lifted seven steps to BBB from B-, New York-based S&P said today in a statement. National Public Finance Guarantee Corp., the unit created by MBIA in the split to jumpstart its municipal debt-guarantee business, was raised three levels to A from BBB.

MBIA and Bank of America Corp. settled a five-year legal battle over soured mortgage debt on May 6 in a deal that will pay the Armonk, New York-based insurer the equivalent of $1.7 billion and give the lender a 5 percent stake. As part of that deal, Bank of America dropped its challenge to MBIA’s restructuring. MBIA also agreed to pay $350 million to Societe Generale SA to resolve their litigation over the split, a person familiar with the matter said two days later.

“After more than four years of sitting on the sidelines, while it built its capital position, National is finding a position where it can begin moving forward,” MBIA Chief Executive Officer Jay Brown said on a conference call with investors and analysts today before the ratings upgrades were announced by S&P.

Most of the money in the Bank of America settlement was used to repay a $1.7 billion loan from the National unit to the cash-strapped MBIA Insurance Corp. subsidiary that had backed some of Wall Street’s most toxic mortgage debt, according to a statement yesterday.

MBIA last was rated investment grade by S&P in February 2009 when it was cut from an A- grade, according to data compiled by Bloomberg. The National unit was three steps to BBB from BB on May 8, after being cut to the junk level in February.