MBIA unit MBIA Insurance completes sale and financing transactions

By Caroline Salls

Pittsburgh, Jan. 10 – MBIA Inc. wholly owned subsidiary MBIA Insurance Corp. completed two previously announced transactions, according to an 8-K filed Tuesday with the Securities and Exchange Commission.

In one of the transactions, MBIA Insurance wholly owned subsidiary MBIA UK (Holdings) Ltd. sold its MBIA UK Insurance Ltd. operating subsidiary to Assured Guaranty Corp.

In exchange for MBIA UK and a cash payment of $23 million to Assured, MBIA UK Holdings received notes owned by Assured that were issued by Zohar II 2005-1 CLO. The notes had an outstanding principal amount of roughly $347 million as of Sept. 30.

In the second transaction, MBIA Insurance closed on a financing facility with affiliates of some holders of its 14% fixed-to-floating-rate surplus notes and with MBIA.

Under the facility, some of the senior lenders provided $328.25 million of senior financing, and MBIA provided $38 million of subordinated financing to MZ Funding, which in turn lent the proceeds of the financing to MBIA Insurance.

MBIA Insurance will use the net proceeds of the financing, together with about $60 million from its own resources, to pay an anticipated claim on a policy that insures notes issued by Zohar II 2005-1 Ltd. and Zohar II 2005-1 Corp. There were $770 million of those notes outstanding as of Sept. 30.

MBIA Inc. has agreed to provide an additional $50 million of subordinated financing to MZ Funding, which MZ Funding will lend to MBIA Insurance if needed for liquidity purposes.

In connection with the financing, a bankruptcy remote special purpose entity called MZ Funding LLC was organized as a wholly owned subsidiary of MBIA Inc. to act as the direct borrower.

Wilmington Savings Fund Society, FSB will act as trustee and collateral agent under the new senior notes and subordinated notes indentures.

The senior notes and subordinated notes were purchased under agreements entered on Tuesday.

According to the 8-K, MBIA Insurance is required to promptly submit a written request to MZ Funding to make an additional loan, and MZ Funding is required to issue to MBIA $50 million in additional insured subordinated notes, minus the amount of any outstanding loans, immediately upon the earlier of MBIA Insurance’s consent to the filing of a petition for an insolvency proceeding or MBIA being informed that the filing of a petition is imminent.

The additional notes must also be issued if the senior insured notes have not been paid in full as of July 10, 2019, if as of the last day of any fiscal quarter the statutory surplus of MBIA Insurance is less than $65 million, MBIA Insurance’s available liquidity less an undrawn delayed-draw amount is less than $20 million or MBIA Insurance determines that it needs the undrawn amount for liquidity purposes.

The notes and the MBIA loans will mature on Jan. 20, 2020 and will bear interest at 14%.

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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