MBIA settles claims with BofA for $1.7 billion cash and 5.7% notes

By Susanna Moon

Chicago, May 6 - MBIA Inc., along with its subsidiaries MBIA Insurance Corp. and National Public Finance Guarantee Corp., agreed to dismiss charges against Countrywide Home Loans, Inc. in a $1.7 billion settlement with Bank of America Corp.

In return, MBIA will receive $1.6 billion in cash and $137 million principal amount of MBIA's 5.7% senior notes due 2034, according to separate press releases by MBIA and Bank of America.

The 5.7% notes were acquired through a tender offer in December, as previously reported.

In addition, Bank of America said it will terminate all of its outstanding credit default swap protection agreements purchased from MBIA on commercial mortgage-backed securities as well as terminate other trades in order to close out positions between the companies.

MBIA will issue to Bank of America warrants to purchase 9.94 million shares of MBIA common stock, or about 4.9% of its outstanding shares, at an exercise price of $9.59 per share. The warrants may be exercised at any time prior to May 2018.

Also, MBIA Insurance Corp. obtained a $500 million senior secured credit facility with Bank of America for general corporate purposes.

Borrowings under the agreement will be secured by a pledge of the collateral that secured the loan to MBIA Insurance and by MBIA Insurance's equity interest in its wholly owned subsidiary, MBIA UK (Holdings) Ltd.

MBIA said the payment from Bank of America, including the bonds, will be used to repay the remaining outstanding balance and accrued interest on MBIA Insurance's secured loan from National Public Finance. The secured loan balance of about $1.7 billion as of April 1 had been reduced to about $1.6 billion as a result of the receipt of $110 million on May 2 in settlement of representation and warranty-related litigation with Flagstar Bank.

More details

The litigation against Countrywide began in September 2008 and was later amended to include claims against Bank of America relating to breaches of representations and warranties on MBIA-insured securitizations sponsored by Countrywide.

Bank of America also agreed to dismiss its claims in the pending litigation concerning the restructuring announced by MBIA on Feb. 18, 2009 and the litigation concerning the senior debt consent solicitation completed by MBIA in the fourth quarter of 2012. In addition, Bank of America agreed to withdraw the notice of default it sent in connection with the consent solicitation.

MBIA Insurance's policies insuring the residential mortgage-backed securities transactions originated by Countrywide will continue to be in full force and effect, and MBIA Insurance will continue to make timely payment of principal and interest when due under these policies, MBIA said. Bank of America will have no further put-back liability to MBIA with respect to the insured Countrywide transactions.

MBIA noted that the policies held by Bank of America have a notional insured amount of about $7.4 billion, of which $6.1 billion are policies insuring credit default swaps held by Bank of America referencing commercial real estate exposures.

The settlement agreement requires regulatory approval.

Blackstone Group acted as MBIA's financial adviser in connection with the settlement.

MBIA, based in Armonk, N.Y., is a holding company whose subsidiaries provide financial guarantee insurance, as well as related reinsurance, advisory and portfolio services, for the public and structured finance markets, and asset management.

Bank of America is a Charlotte, N.C.-based financial services company.

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