MBIA Extends Biggest Rally Since 2013 on Puerto Rico Debt Deal

  • Utility agreed with insurers and bondholders on restructuring
  • MBIA muni-bond insurance unit backs $1.4 billion of Prepa debt

Shares of MBIA Inc. extended their largest rally since 2013 after Puerto Rico’s electric utility reached an agreement with insurance companies and bondholders to restructure its $8.2 billion of debt.

MBIA, which earlier this month closed at the lowest price since March 2010, climbed as much as 9.3 percent Thursday to $6.82. Since the Puerto Rico Electric Power Authority, known as Prepa, was said to have reached a tentative agreement with creditors on Dec. 18, the Purchase, New York-based insurer’s shares have surged 22 percent, the most since May 2013.

MBIA’s National Public Finance Guarantee Corp. insures $1.4 billion of Prepa bonds, as measured by gross par outstanding, its largest exposure to the island, according to company filings.

The Prepa deal marks a first step by the Caribbean island to reduce debt that has left the government contending with a mounting fiscal crisis. Its obligations would be cut by more than $600 million, with investors taking losses of about 15 percent in a debt exchange. Insurers will provide a surety bond of as much as $462 million that will guarantee repayment in the event of a default.

Shares of bond insurer Assured Guaranty Ltd. rose as much as 2.5 percent to $27.45, the highest since Nov. 11.