MBIA settles with BofA, ends quarter with liquidity of $373 million

By Lisa Kerner

Charlotte, N.C., May 10 - MBIA Inc.'s first quarter was overshadowed by events that happened subsequent to the quarter's close, including the company's $1.7 billion settlement with Bank of America, chief executive officer Jay Brown said during MBIA's earnings conference call on Friday.

On May 6, MBIA and Bank of America resolved litigation and, as part of the settlement, MBIA Insurance Corp. received a net payment consisting of about $1.6 billion in cash and $136 million principal amount of MBIA's 5.7% senior notes due 2034.

Bank of America and MBIA also agreed to the commutation of all of the MBIA Insurance policies held by Bank of America, which have a notional insured amount of about $7.4 billion, and of which $6.1 billion are policies insuring credit default swaps held by Bank of America referencing commercial real estate exposures. MBIA Insurance will have no further payment obligations under the commuted policies.

MBIA Insurance entered into a settlement agreement with Flagstar Bank on May 2, terminating a lawsuit in exchange for $110 million in cash and other consideration.

MBIA Insurance also entered into a settlement agreement with Societe Generale on May 8. MBIA Insurance agreed to commute $4.2 billion of exposure held by Societe Generale comprising asset-backed securities CDOs, structured CMBS pools and commercial real estate CDOs, according to the company's earnings news release.

Proceeds from the Bank of America and Flagstar settlements were used to repay the outstanding balance in full of the secured loan from National Public Finance Guarantee Corp.

"Our settlements with Bank of America, Societe Generale, Flagstar and a secondary program have improved the liquidity profile and volatility of economic losses of MBIA [Insurance] and substantially reduced the risk of regulatory intervention against it, while at the same time allowing it to repay its secured loan from National," Chuck Chaplin, president and chief financial officer, said in the release.

"Although there are yet volatile structured exposures that we expect to commute, and litigations with investors and mortgage originators that need to be settled or adjudicated, the risk profile of the company has been substantially improved since we last reported."

Financial highlights

"Our GAAP consolidated net income was $164 million in the first quarter, compared to net income of $10 million in the first quarter of 2012," Chaplin said on the call.

"The driver here is the increase in the value of put-back recoverables in the first quarter this year."

Chaplin used MBIA's adjusted pre-tax loss, a non-GAAP measure, as an alternative means to analyze the company's business performance.

MBIA had an adjusted pre-tax loss of $20 million for the first quarter of 2013, compared with an adjusted pre-tax loss of $548 million for the first quarter of 2012.

"The improvement is driven by significantly higher realized investment gains, lower insured losses and lower litigation and legal costs," Chaplin said.

As of March 31, MBIA had liquidity of $373 million including cash and liquid assets of $317 million held in the corporate segment available for general corporate liquidity purposes.

MBIA Insurance's statutory balance sheet as of March 31 reflected $896 million in cash and invested assets. Cash, short-term investments and other highly liquid investments available to meet liquidity demands, excluding amounts held by subsidiaries, totaled $258 million.

During the first quarter, MBIA Insurance commuted $2.1 billion of gross insured exposure, primarily comprising investment-grade corporate collateralized debt obligations.

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

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