MBI - MBIA Inc.

[valuecfa]

Can some MBIA expert comment today's announcement?

 

http://www.4-traders.com/MBIA-INC-13464/news/MBIA-Inc-Announces-Consent-Solicitation-Relating-to-the-Indentures-Governing-Its-6-40-Senior-Not-15478610/

 

hmm.. I am confused. What benefits does this bring to MBIA shareholders?

 

Plenty. Question is what does it do for the note holders. At work and don't have time at the moment to read all material

 

I don't have time at the moment but u can review the material at docs.mbia.com

[PlanMaestro]

Getting ugly, little liquidity at Corporate. Gets clear why they are trying to get rid of the cross-default when Bank of America will appeal whatever comes. I am sure BAC wants to settle but… liquidity, liquidity, liquidity.

 

As valuecfa says, what is the incentive for the bondholders to go along?

 

 

As of September 30, 2012, MBIA Corp.'s statutory balance sheet reflected $1.1 billion in cash and invested assets including $386 million of cash, short-term investments and other highly liquid investments available to meet liquidity demands, and excluding amounts held by subsidiaries.

 

MBIA Corp. had statutory capital of $1.5 billion and claims-paying resources totaling $5.1 billion at September 30, 2012.

 

[…]

 

"The path forward for our structured finance subsidiary, MBIA Corp., requires that we collect our put-back recoverables, principally from Countrywide and Bank of America, who continue to renege on their contractual obligation to repurchase billions of dollars in ineligible mortgages. Their default has put substantial pressure on MBIA Corp.'s liquidity position. We remain confident that we will ultimately resolve our litigation with Bank of America and collect the put-back recoverables, which will improve MBIA Corp.'s stability."

[valuecfa]

Claims paying and statuatory capital didn't decrease all that much over the last quarter, relative to the timeline in the trial's calendar.

 

Sure would be nice to get majority on this solicitation!

 

25.4% under the 90' indenture is a damn good start. And 3.5% for the 04' indenture.

 

It's kind of funny...Checking the quick math on the 2004 indenture, you can see the Fairhomle Fund (proper Fairholme, not the others)own exactly 3.5% of the 2004 indentures( via the 2034 bonds), the exact amount that has already agreed to the solicitation. I bet Jay Brown will be sending Bruce a Christmas card.

 

I didn't bother doing the math yet on the 90' indenture, but i bet that it is all Fairholme too, from the combined Fairholme funds.

 

I'm sure everyone is aware now that the intent is to avoid the cross default language in the indentures.

[JRH]

I have suspected for a long while that Fairholme's investment in MBIA - and specifically the concentrated positions in FAAFX and FOCIX - are predicated on the assumption that in the worst case scenario, Fairholme would act as a liquidity provider (i.e. participate in a large secondary or reach a similar arrangement).  I'd have to look back but I think it was one of the annual/semi-annual reports a year or two ago when he said he thinks one of their opportunities is to "help essential companies rebuild their balance sheets".  Since then he's talked repeatedly about MBIA offering an "essential" service.

 

Not to get hung up on a word, of course.  But MBIA is ~35% of both FAAFX and FOCIX.  If you know Berkowitz's history, you know that concentration and the risk of a significant loss do not square.  Either they're nowhere near the grave or else there are other variables in the equation.

 

Having said that, I haven't convinced myself.  I've held MBIA for a while now at a certain percentage of my portfolio that I consider the ceiling on a position where I suspect I don't fully understand everything.

[valuecfa]

Listening to the call... Mbia says that the consent solicitation is a proactive defensive action (from my perception directly against Bank of America/Countrywide), and not precipitated by a request from the regulator. Whew, that was my question that i am glad was asked in the Q and A.

[valuecfa]

I'm slightly confused by the most recent response to a question asked. Jay implied that there would be no cross default anyway from the surplus notes even if the consent solicitation is not agreed to by majority. Anyone catch that?

[PlanMaestro]

I'm slightly confused by the most recent response to a question asked. Jay implied that there would be no cross default anyway from the surplus notes even if the consent solicitation is not agreed to by majority. Anyone catch that?

 

I did not listen to the conference call but I would be surprised if they did trigger it. They can suspend payments just like a preferred.

[Kraven]

I'm slightly confused by the most recent response to a question asked. Jay implied that there would be no cross default anyway from the surplus notes even if the consent solicitation is not agreed to by majority. Anyone catch that?

 

I did not listen to the conference call but I would be surprised if they did trigger it. They can suspend payments just like a preferred.

 

Yes.  The regulator needs to approve the payments, so either there are funds and it is approved or it is not.  If not, no default.

 

I just listened to the call.  I think the whole situation regarding the consent solicitation is interesting.  My take on it is that while the concern they state about potentially being forced into bankruptcy as a result of the insured claims and not having sufficient liquidty, while valid, are being used more as a tool to bring to light the Bank of America litigation than anything else.  That is, it's interesting that BAC could theoretically be their largest debtor and creditor at the same time.  However, there are other counterparties out there and they only mention BAC by name and repeatedly at that. 

 

I think this is actually pretty savvy on their part.  I don't get the sense that they are in any imminent danger or really any danger at all.  I think they are tired of waiting for the resolution of the lawsuits whether via court decision or settlement and they are trying to throw it up in the air publically to try and jump start things.  It's not costing them that much money to get the consent solicitation done so it serves a dual purpose of both helping them structurally, but getting some public airing of the issues. 

[BargainValueHunter]

I have suspected for a long while that Fairholme's investment in MBIA - and specifically the concentrated positions in FAAFX and FOCIX - are predicated on the assumption that in the worst case scenario, Fairholme would act as a liquidity provider (i.e. participate in a large secondary or reach a similar arrangement).  I'd have to look back but I think it was one of the annual/semi-annual reports a year or two ago when he said he thinks one of their opportunities is to "help essential companies rebuild their balance sheets".  Since then he's talked repeatedly about MBIA offering an "essential" service.

 

Not to get hung up on a word, of course.  But MBIA is ~35% of both FAAFX and FOCIX.  If you know Berkowitz's history, you know that concentration and the risk of a significant loss do not square.  Either they're nowhere near the grave or else there are other variables in the equation.

 

Having said that, I haven't convinced myself.  I've held MBIA for a while now at a certain percentage of my portfolio that I consider the ceiling on a position where I suspect I don't fully understand everything.

 

Look at Berkowitz's actions with GGP, ACF and JOE.

 

Perhaps he is trying to build a Berkshire-like company within the mutual fund framework. (collecting and/or financing businesses at distressed prices that will throw off lots of free cash that can then be invested into similar businesses)

 

Would be interesting to see what a Fairholme recapitalization of MBIA would look like....

[JRH]

Conference call transcript:

 

http://seekingalpha.com/article/990371-mbia-management-discusses-q3-2012-results-earnings-call-transcript

 

I will probably start pushing the boundaries on my personal % limit I mentioned before if it falls much under $9 (based on info currently available).

[valuecfa]

I was just debating the solicitation with my fixed income team and some smart outside bond dealers we use. I think it is likely MBIA gets the solicitation consent they desire approved, to help prevent BAC's litigation delay strategy.

[Kraven]

Just read through the consent soliciation statement.  I am really struggling with this.  I said earlier I think that it's a pretty savvy move on MBIA's part in that it brings publicity to their case with BAC and perhaps puts some pressure on them.  The whole thing is strange though.  I mean why now?  These issues would have been clear for 4 1/2 years, so why did it take this long to "correct" it?

 

If the consent goes through they have effectively ringfenced National and orphaned MBIA Corp (except to the extent MBIA Corp owes National on whatever outstanding intercompany loans there are).  One of the interesting by-products of the consent is that by swapping National for MBIA Corp any restrictions on disposing of the stock are gone.  It could be dumped, sold, etc.

 

I don't see BAC as wanting to delay so long that they force MBIA into liquidation.  I am not sure how that helps them really.  I guess it could put pressure on them to accept a more BAC favorable deal, but if they go bankrupt, the case is still outstanding and now BAC has to deal with a pissed off bankruptcy judge and a pissed off NY Insurance Commissioner breathing down their necks.  It also screws them on whatever outstanding CMBS and other securitization of theirs that MBIA wrapped.  I don't see it.  After all this time rehabilitating their reputation and being on the cusp of getting back into the public's good graces, I don't see Moynihan stomping on MBIA so bad they go under and causing whatever ripple effects that causes in the financial markets.  That doesn't mean he'll roll over, he won't, but he isn't going to push so far they drop dead.  That screws them as well.

 

So I come back to, what's this about?  It's prudent of course for MBIA to ringfence National and orphan MBIA Corp.  There is some deterioration on their CMBS, but as they said in the call there haven't been any material claims and nothing seems to be imminent.  So I ask again, why now?  I think it has to be kind of a description for the world of mutual self assured destruction.  Obviously BAC doesn't destruct, but it will feel pain and the rest of the financial world will as well, perhaps greatly.  Just rambling, but I am puzzled by it all.

[JRH]

Christian Herzeca's latest blog post:

 

http://mbibaclitigtion.blogspot.com/2012/11/is-bank-of-americas-article-77-85.html

 

Adding this morning, still trying to plan for the worst (12-18 months to BAC-MBI resolution), hoping for the best!

[muscleman]

Christian Herzeca's latest blog post:

 

http://mbibaclitigtion.blogspot.com/2012/11/is-bank-of-americas-article-77-85.html

 

Adding this morning, still trying to plan for the worst (12-18 months to BAC-MBI resolution), hoping for the best!

 

What if the judge rules against BAC, and then BAC appeals? Will that take another 5 years?

[A_Hamilton]

Christian Herzeca's latest blog post:

 

http://mbibaclitigtion.blogspot.com/2012/11/is-bank-of-americas-article-77-85.html

 

Adding this morning, still trying to plan for the worst (12-18 months to BAC-MBI resolution), hoping for the best!

 

What if the judge rules against BAC, and then BAC appeals? Will that take another 5 years?

 

It could, but at that point BAC is on the hook for substantial interest on the judgement amount in the event that they lose the appeal.

[JRH]

What if the judge rules against BAC, and then BAC appeals? Will that take another 5 years?

 

Yep, who knows?  A more useful way for me to make my point is that I try to avoid looking at MBIA as a catalyst-driven investment at all (although I believe BAC owes them the money, I don't know when/how they get it).  According to various analysts and investors, a settlement has been "right around the corner" for at least a couple years now.

[ERICOPOLY]

Christian Herzeca's latest blog post:

 

http://mbibaclitigtion.blogspot.com/2012/11/is-bank-of-americas-article-77-85.html

 

Adding this morning, still trying to plan for the worst (12-18 months to BAC-MBI resolution), hoping for the best!

 

What if the judge rules against BAC, and then BAC appeals? Will that take another 5 years?

 

It could, but at that point BAC is on the hook for substantial interest on the judgement amount in the event that they lose the appeal.

 

What interest rate would that be these days?

[PlanMaestro]

Good comments. Good questions. No good answers, at least from me.

 

Might it be related to the clash with regulators over the surplus notes? I imagine that there are other forces pushing here.

 

Just read through the consent soliciation statement.  I am really struggling with this.  I said earlier I think that it's a pretty savvy move on MBIA's part in that it brings publicity to their case with BAC and perhaps puts some pressure on them.  The whole thing is strange though.  I mean why now?  These issues would have been clear for 4 1/2 years, so why did it take this long to "correct" it?

 

If the consent goes through they have effectively ringfenced National and orphaned MBIA Corp (except to the extent MBIA Corp owes National on whatever outstanding intercompany loans there are).  One of the interesting by-products of the consent is that by swapping National for MBIA Corp any restrictions on disposing of the stock are gone.  It could be dumped, sold, etc.

 

I don't see BAC as wanting to delay so long that they force MBIA into liquidation.  I am not sure how that helps them really.  I guess it could put pressure on them to accept a more BAC favorable deal, but if they go bankrupt, the case is still outstanding and now BAC has to deal with a pissed off bankruptcy judge and a pissed off NY Insurance Commissioner breathing down their necks.  It also screws them on whatever outstanding CMBS and other securitization of theirs that MBIA wrapped.  I don't see it.  After all this time rehabilitating their reputation and being on the cusp of getting back into the public's good graces, I don't see Moynihan stomping on MBIA so bad they go under and causing whatever ripple effects that causes in the financial markets.  That doesn't mean he'll roll over, he won't, but he isn't going to push so far they drop dead.  That screws them as well.

 

So I come back to, what's this about?  It's prudent of course for MBIA to ringfence National and orphan MBIA Corp.  There is some deterioration on their CMBS, but as they said in the call there haven't been any material claims and nothing seems to be imminent.  So I ask again, why now?  I think it has to be kind of a description for the world of mutual self assured destruction.  Obviously BAC doesn't destruct, but it will feel pain and the rest of the financial world will as well, perhaps greatly.  Just rambling, but I am puzzled by it all.

[A_Hamilton]

Another question I have thought about with MBIA in the past is whether it would ever make sense for them to intentionally put themselves into bankruptcy in order to accelerate settlement of claims with BAC.

[JRH]

Christian Herzeca's latest blog post:

 

http://mbibaclitigtion.blogspot.com/2012/11/is-bank-of-americas-article-77-85.html

 

Adding this morning, still trying to plan for the worst (12-18 months to BAC-MBI resolution), hoping for the best!

 

What if the judge rules against BAC, and then BAC appeals? Will that take another 5 years?

 

It could, but at that point BAC is on the hook for substantial interest on the judgement amount in the event that they lose the appeal.

 

What interest rate would that be these days?

 

Eric, others have quoted 9% based on NY state law (if i recall correctly).  Certainly it is enough to be material, and thus factored into settlement negotiations.

[A_Hamilton]

Christian Herzeca's latest blog post:

 

http://mbibaclitigtion.blogspot.com/2012/11/is-bank-of-americas-article-77-85.html

 

Adding this morning, still trying to plan for the worst (12-18 months to BAC-MBI resolution), hoping for the best!

 

Yes, 9% fixed in NY, imagine what that does to litigation incentives as rates bounce around and companies with different costs of capital go into litigation!

 

What if the judge rules against BAC, and then BAC appeals? Will that take another 5 years?

 

It could, but at that point BAC is on the hook for substantial interest on the judgement amount in the event that they lose the appeal.

 

What interest rate would that be these days?

 

Eric, others have quoted 9% based on NY state law (if i recall correctly).  Certainly it is enough to be material, and thus factored into settlement negotiations.

[Kraven]

Good comments. Good questions. No good answers, at least from me.

 

Might it be related to the clash with regulators over the surplus notes? I imagine that there are other forces pushing here.

 

 

Yeah, I don't know really.  I don't see why surplus notes would cause this though.  They pay if they have funds, they don't if they have no funds.  No default.  It's just all very strange.

[Kraven]

Another question I have thought about with MBIA in the past is whether it would ever make sense for them to intentionally put themselves into bankruptcy in order to accelerate settlement of claims with BAC.

 

Which MBIA?  MBIA Inc, the parent, or MBIA Corp, the structured finance sub?  Either way, I don't see them doing this.  It would cause so many adverse ripple effects that I don't think even receipt of whatever they get from BAC would help.  I believe it would also affect National's ability to write new policies.

[Grenville]

Any thoughts on why it's taking so long for the Article 78 summary judgment ruling?

[Kraven]

Any thoughts on why it's taking so long for the Article 78 summary judgment ruling?

 

Not really, other than that the courts are probably trying to nudge the parties to a settlement.  One thing about litigation is that it always costs more, takes longer and involves more pain than expected.  Trying to discern what the courts will do is like reading animal entrails to divine the future.