MBIA U.K. unit to be sold to Assured in exchange for Zohar II notes

By Caroline Salls

Pittsburgh, Sept. 29 – MBIA Insurance Corp. wholly owned subsidiary MBIA UK (Holdings) Ltd. entered into an agreement to sell MBIA UK Insurance Ltd. to Assured Guaranty Ltd. subsidiary Assured Guaranty Corp., according to an MBIA news release.

The purchase price consists of the transfer to MBIA UK Holdings of notes issued by Zohar II 2005-1 CLO with a total outstanding principal amount of $347 million and a cash payment to Assured by MBIA UK Holdings of $23 million.

MBIA said the transaction is subject to the receipt of regulatory approvals from the Prudential Regulation Authority of the United Kingdom, the New York State Department of Financial Services (NYSDFS) and the Maryland Insurance Administration.

Addressing maturity

The sale of MBIA UK, effectively in exchange for the Assured Zohar II notes, is part of MBIA’s strategy to address the maturity of the Zohar II notes on Jan. 20, 2017, the release said. There were roughly $772 million of gross par of the notes outstanding as of June 30.

MBIA said it does not currently expect that the Zohar II CLO will have sufficient cash flow to repay all of the Zohar II notes at maturity.

The transaction is scheduled to close in early January.

“The acquisition of the Assured Zohar II notes reduces MBIA Corp.’s liability under its Zohar II policy and may facilitate our ability to address the remaining Zohar II notes on or before their maturity,” MBIA UK Insurance chief financial officer and president Anthony McKiernan said in the release.

“While the sale of MBIA UK, if completed, will be an important and meaningful accomplishment, MBIA Corp. still has substantially more to do.”

Additional strategies

MBIA said it is in the process of exploring a variety of additional strategies to address its Zohar II notes obligations. The company said these strategies may involve the restructuring or repurchase of some of the notes, which may require substantial third-party financing.

MBIA said it is seeking to arrange that financing.

If it is unable to successfully implement its strategies for restructuring or otherwise satisfying its obligations under the Zohar II notes, MBIA said it does not expect to have a sufficient amount of liquid assets to pay all claims related to the notes at maturity.

Restructuring condition

In addition, the company said it expects that the approval by the NYSDFS of the sale of MBIA UK, if granted, would be based on the NYSDFS concluding that MBIA will successfully execute its strategies to meet and/or restructure its obligations on the notes.

MBIA said it believes that if the NYSDFS concludes at any time that the company will not be able to restructure or otherwise satisfy its obligations under the notes, while maintaining sufficient assets to readily pay other policyholder claims, the NYSDFS would likely put MBIA into a rehabilitation or liquidation proceeding under Article 74 of the New York Insurance Law and/or take other actions as the NYSDFS may deem necessary to protect the interests of MBIA’s policyholders.

‘Landmark transaction’

“In this case, we will be acquiring a seasoned insured portfolio of almost exclusively European transactions and the capital resources to support those exposures,” Assured Guaranty president and chief executive officer Dominic Frederico said in a separate release.

Nick Proud, CEO of Assured Guaranty (Europe) Ltd., said “This is a landmark transaction that will significantly increase the size of Assured Guaranty’s European insured portfolio, creating a total non-U.S. portfolio of approximately $45 billion.”

Barclays Capital is acting as financial adviser, and Debevoise & Plimpton LLP is acting as legal adviser, to MBIA on the sale transaction. BofA Merrill Lynch is acting as financial adviser to Assured Guaranty, and Mayer Brown LLP is acting as its legal adviser.

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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