MBI - MBIA Inc.

[valuecfa]

https://www.creditsights.com/id/138832?rf=0

 

Creditsights research reiterates that BAC's decision to still purchase mbia bonds (and waive conditions) signals the possibility that it is a prelude to a settlement, as summary judgement hearings begin.

 

Judging from recent share price declines, the market isn't buying it.

[muscleman]

https://www.creditsights.com/id/138832?rf=0

 

Creditsights research reiterates that BAC's decision to still purchase mbia bonds (and waive conditions) signals the possibility that it is a prelude to a settlement, as summary judgement hearings begin.

 

Judging from recent share price declines, the market isn't buying it.

 

Or perhaps the market expects a settlement adverse to mbi?

I am a bit confused. Mbi has succeeded in the solicitation, so why does bac still want to buy the bonds?

[valuecfa]

Grasping at straws last minute now?

http://finance.yahoo.com/news/bank-america-claims-mbia-default-224335964.html

 

MBIA's slide presentation in motion for summary judgement on breach of the insurance agreements:

http://www.mbia.com/investor/publications/2012-12-12-PL-MSJ-presentation.pdf

[muscleman]

Grasping at straws last minute now?

http://finance.yahoo.com/news/bank-america-claims-mbia-default-224335964.html

 

MBIA's slide presentation in motion for summary judgement on breach of the insurance agreements:

http://www.mbia.com/investor/publications/2012-12-12-PL-MSJ-presentation.pdf

 

I am confused. Isn't the solicitation of the bonds already done, and the bonds already modified?

Or is bac trying to reverse that process?

Can someone send out a notice of default merely because he is a bond holder, even though the bond is still paying?

[valuecfa]

The two parties must still be far apart in determining a proper settlement figure.

[muscleman]

The two parties must still be far apart in determining a proper settlement figure.

 

That is true.

My current concerns are:

Can someone send out a notice of default merely because he is a bond holder, even though the bond is still paying?

 

What is the downside for MBI? I am thinking that the figure that MBI booked into the balance sheet is the number that BAC is offering, which is 66%, but MBI is seeking to recover 100%.

BAC made a deal with AGO for 66%, so I think it will offer the same for MBI. But if MBI really makes BAC pissed off, maybe it will try to reduce that number to some really pittance amount. If that happens, then probably downside for MBI shareholders is loss of all capital?

 

My other concern is, since the solicitation has passed, will BAC's current notice of default reverse that bond modification?

[valuecfa]

The 2004 Indenture:

 

http://www.mbia.com/investor/faq/BOIND-Ind2034.pdf

[valuecfa]

The two parties must still be far apart in determining a proper settlement figure.

 

That is true.

My current concerns are:

Can someone send out a notice of default merely because he is a bond holder, even though the bond is still paying?

 

What is the downside for MBI? I am thinking that the figure that MBI booked into the balance sheet is the number that BAC is offering, which is 66%, but MBI is seeking to recover 100%.

BAC made a deal with AGO for 66%, so I think it will offer the same for MBI. But if MBI really makes BAC pissed off, maybe it will try to reduce that number to some really pittance amount. If that happens, then probably downside for MBI shareholders is loss of all capital?

 

My other concern is, since the solicitation has passed, will BAC's current notice of default reverse that bond modification?

 

First comments i'm aware of

 

MBIA Spokesman-believes Bank Of America's purported notice of default is meritless,has no force,effect under terms of indenture

 

MBIA Spokesman-BofA letter 'nothing more than transparent attempt to gain leverage to force co to accept discounted settlement'

[Kraven]

I had some thoughts on this which are in the BAC thread.

[doc75]

A little more info:

 

http://www.lloyds.com/news-and-insight/news-and-features/dow-jones/article/12398/update-bank-of-america-sues-mbia-sends-insurer-notice-of-default

 

BofA's lawsuit charges that the Armonk, N.Y., insurer's debt amendments, completed Nov. 26, should be invalidated for two reasons, according to an official familiar with the document. First, the bank said MBIA negotiated a side deal with certain bondholders that disadvantaged other investors. Second, it says MBIA was in breach of legal terms governing its debt when it bought back its own bonds, and then counted those as holdings toward a 50% threshold it needed to successfully amend the debt.

 

 

[doc75]

And from another article...

 

A source familiar with the matter, speaking on condition of anonymity, said Bank of America also filed suit against MBIA in a New York state court, alleging MBIA interfered in Bank of America's offer to buy the bonds. As of Thursday evening the suit was not yet publicly available.

[valuecfa]

Well written (and quickly at that) note from BTIG Research:

 

MBIA: BofA Notice of Default Claiming Violation of 5.7% Notes’ Covenants Reveals Bank’s Increasing Desperation

 

http://www.btigresearch.com/2012/12/13/mbia-bofa-notice-of-default-claiming-violation-of-5-7-notes-covenants-reveals-banks-increasing-desperation/#ixzz2EzCDC3EZ

 

 

[muscleman]

I had some thoughts on this which are in the BAC thread.

 

For MBIA folks' convenience, I found your post there and post here. If you don't like this please let me know. ;)

 

Kraven said:

-------------------------------

I quickly skimmed through the indenture.  It appears to be a pretty standard form.  I am puzzled as to what BAC is claiming the default is.  I don't see anything.  The only thing I could come up with is that if any amendment adversely affects the right of repayment of any holder, it requires the consent of each holder, not just a majority.  However, in this case, given that the debt is of the parent not only is the right of repayment not impaired, it's improved!  However, they could probably attempt to torture the language and come up with some kind of claim.

 

A couple further thoughts.  In terms of whether BAC can just go to court now, of course anyone has access to the courts, but there are specific provisions in an indenture that would need to be followed long before a court would (should) entertain anything here.  First, a holder of more than 25% of the outstanding notes (which BAC has) must give a notice of default to the trustee and direct that the trustee take action.  There's all kinds of time involved in this.  Months.  So this is noise to some extent.  It plays well in the press, but the hoops haven't been jumped through and I can't imagine any court addresses this any time soon.

 

Also, trustees are notoriously risk averse.  Risk averse isn't even the right term for it, but it will have to do.  They want no risk, and given the state of things between these parties guaranteed before the trustee agreed to sign the amendment they and their counsel quadruple checked it to make sure it was good.  While that is not proof of anything and doesn't mean there won't be some further action, in my mind, it was done correctly.  This just makes for good theater. 

 

[muscleman]

Well written (and quickly at that) note from BTIG Research:

 

MBIA: BofA Notice of Default Claiming Violation of 5.7% Notes’ Covenants Reveals Bank’s Increasing Desperation

 

Read more: http://www.btigresearch.com/2012/12/13/mbia-bofa-notice-of-default-claiming-violation-of-5-7-notes-covenants-reveals-banks-increasing-desperation/#ixzz2EzCDC3EZ

 

Looks like I need to register to have access? Looks like you subscribed to a few research services.  :)

[valuecfa]

Well written (and quickly at that) note from BTIG Research:

 

MBIA: BofA Notice of Default Claiming Violation of 5.7% Notes’ Covenants Reveals Bank’s Increasing Desperation

 

Read more: http://www.btigresearch.com/2012/12/13/mbia-bofa-notice-of-default-claiming-violation-of-5-7-notes-covenants-reveals-banks-increasing-desperation/#ixzz2EzCDC3EZ

 

Looks like I need to register to have access? Looks like you subscribed to a few research services.  :)

 

You only need a corporate email address to have access to their research.

[Cardboard]

What is so complicated about this whole thing? Give MBIA a fair amount then extract all assets from Mozillo and all his lieutenants to pay for the roughly $1 billion extra. Fire all the lawyers that are costing us a damn fortune.

 

I am both a BAC and MBI shareholder, much more so BAC. We need this cleaned up before end of year to finally end up with some readeable balance sheet for regulators and the Street. I have money to make here that will end up to charity eventually. Come on Moynihan, do it for the little childrens!

 

Cardboard

[ShahKhezri]

What is so complicated about this whole thing? Give MBIA a fair amount then extract all assets from Mozillo and all his lieutenants to pay for the roughly $1 billion extra. Fire all the lawyers that are costing us a damn fortune.

 

I am both a BAC and MBI shareholder, much more so BAC. We need this cleaned up before end of year to finally end up with some readeable balance sheet for regulators and the Street. I have money to make here that will end up to charity eventually. Come on Moynihan, do it for the little childrens!

 

Cardboard

 

My position in BAC is 10x MBI, but I think this sets a bad precedent overall, do business with us and if we're wrong and you sue us, we will kick and scream and do everything in our power. 

[muscleman]

I had some thoughts on this which are in the BAC thread.

 

I read through the solicitation announcement again, and indeed it looks like the bond has been modified shortly after solicitation is complete.

http://investor.mbia.com/releasedetail.cfm?ReleaseID=723086

"t has successfully completed its consent solicitation resulting in the amendments to indentures "

 

So BAC's argument looks pretty weak so far.

[muscleman]

Does anyone know the percentage of settlement for the case of Syncora vs BAC?

http://www.reuters.com/article/2012/07/18/us-bankofamerica-countrywide-syncora-idUSBRE86H02V20120718

Syncora got back 375 Million. I can't find the face value.

In the case of AGO VS BAC, AGO got back 66% I think.

 

MBI's balance sheet recorded only 50%, so in the worst case scenario, it is probably going to receive that much, and we still have 3x upside potential. Am I right about this?

[Parsad]

What is so complicated about this whole thing? Give MBIA a fair amount then extract all assets from Mozillo and all his lieutenants to pay for the roughly $1 billion extra. Fire all the lawyers that are costing us a damn fortune.

 

I am both a BAC and MBI shareholder, much more so BAC. We need this cleaned up before end of year to finally end up with some readeable balance sheet for regulators and the Street. I have money to make here that will end up to charity eventually. Come on Moynihan, do it for the little childrens!

 

Cardboard

 

My position in BAC is 10x MBI, but I think this sets a bad precedent overall, do business with us and if we're wrong and you sue us, we will kick and scream and do everything in our power.

 

Anyone would take an aggressive, defensive posture if every Tom, Dick and Harry wanted you to fund all of their mistakes.  Especially if you are now doing well, while they are doing shitty.  I hope BAC pulls out every trick in the book to get plaintiffs to settle at the precedents set in other settlements.  Cheers!

[Kraven]

A little more info:

 

http://www.lloyds.com/news-and-insight/news-and-features/dow-jones/article/12398/update-bank-of-america-sues-mbia-sends-insurer-notice-of-default

 

BofA's lawsuit charges that the Armonk, N.Y., insurer's debt amendments, completed Nov. 26, should be invalidated for two reasons, according to an official familiar with the document. First, the bank said MBIA negotiated a side deal with certain bondholders that disadvantaged other investors. Second, it says MBIA was in breach of legal terms governing its debt when it bought back its own bonds, and then counted those as holdings toward a 50% threshold it needed to successfully amend the debt.

 

If I'm understanding this correctly, their first argument seems to be the point that I made.  They are arguing that an amendment that adversely affects the right of repayment of a holder requires the consent of every holder and not just a majority.  However, it may just be the reporter's language choice, but it says it disadvantaged other "investors".  Do they mean other bondholders in that same issuance or other MBIA investors in whatever form?  If the former, not only was the right of repayment not impaired, it was improved.  If the latter, well that's just silly.  The indenture does not require that be taken into account, there is no fiduciary duty, etc.

 

The second argument about MBIA being in breach in buying back the bonds and counting those holdings to the 50% threshold also seems to lack merit.  Under most indentures an issuer or affiliate of the issuer who owns the security will not be counted as "outstanding" in the vote.  So in this case, if MBIA owned the $170 mil of bonds and those were backed out, then BAC's $130 mil would be the vast majority of the rest of the bonds.  However, MBIA structured their purchases to fix this issue.  The purchase required that the seller of the bond vote first and then MBIA would buy it. 

 

I can't think of a problem with that at all.  In fact, BAC required when they had their consent outstanding originally that the holder not vote.  BAC seems to be arguing that MBIA did exactly what they did.  The holder of a security has the right to vote or not vote as they see fit and then sell it afterwards.  BAC will argue though that for all intents and purposes we need to look through the purchase and sale and count those bonds as MBIA's.  I see no reason for that step to be taken.  The sellers had the right to do what they wanted and when they voted they held the bond.

 

I don't see how either BAC jumps immediately to court.  They haven't jumped through the proper hoops that the indenture requires in order to make a claim.  So my guess is they have been hounding the trustee, the trustee has pushed back and part of the lawsuit will be that the trustee has breached their obligations as well.  That gets them "around" the waiting period. 

[muscleman]

Well written (and quickly at that) note from BTIG Research:

 

MBIA: BofA Notice of Default Claiming Violation of 5.7% Notes’ Covenants Reveals Bank’s Increasing Desperation

 

Read more: http://www.btigresearch.com/2012/12/13/mbia-bofa-notice-of-default-claiming-violation-of-5-7-notes-covenants-reveals-banks-increasing-desperation/#ixzz2EzCDC3EZ

 

Looks like I need to register to have access? Looks like you subscribed to a few research services.  :)

 

You only need a corporate email address to have access to their research.

 

Thanks a lot. I am traveling abroad right now so it is harder to access.

I read through that article and was a bit positively surprised by the analyst. In the past I tend to disregard analysts' thoughts, especially talking heads like Jim Cramer. But this guy seems to know what he is talking about, and the arguments look strong to me. :)

 

 

[JRH]

The Bank of America complaint:

 

http://newsandinsight.thomsonreuters.com/uploadedFiles/Reuters_Content/2012/12_-_December/bofavmbiacomplaint.pdf

[Kraven]

quote author=JRH " data-ipsquote-contentapp="forums" data-ipsquote-contenttype="forums" data-ipsquote-contentid="3521" data-ipsquote-contentclass="forums_Topic" 95778#msg95778 data-ipsquote-timestamp=1355503445]

The Bank of America complaint:

 

http://newsandinsight.thomsonreuters.com/uploadedFiles/Reuters_Content/2012/12_-_December/bofavmbiacomplaint.pdf

 

Interesting.  Skimmed through it.  The arguments seem tenuous at best.  The language used is quite inflammatory and assumes as fact things that are still the subject of litigation (i.e. that there was a fraudulent conveyance of assets, etc.).  There are statements that strike me as untrue as well.  For example, they say that MBIA Corp is unable to pay its debts.  That simply is false.  There is not even an incipient claim.  It's not a debt until there is an actual liability.  That hasn't occurred yet and in fact isn't expected to occur, if at all, until much later next year.  Interestingly too I noticed that BAC's counsel on this claim is Skadden Arps.  They are a very fine firm, but I don't recall them being involved in this brouhaha to date.  Could be that the other firms are busy or it could be something else.  Still wishing that both parties would just grow up and settle things and move on.

[Cardboard]

"Anyone would take an aggressive, defensive posture if every Tom, Dick and Harry wanted you to fund all of their mistakes.  Especially if you are now doing well, while they are doing shitty.  I hope BAC pulls out every trick in the book to get plaintiffs to settle at the precedents set in other settlements."

 

The thing is that I don't think they are offering a similar settlement to MBI. If they were, they could put a lot more pressure on them by simply making a few public statements than doing this bond thing which looks like justice interference and as some have mentioned, will impact their reputation in some ways. It is like a rich husband fighting his wife in court over who is going to take care of the childrens while bringing up all kinds of frivolous cases to bleed her to death to not continue her case. That is not my definition of justice. If Moynihan was simply saying that they offered similar terms as to what has been offered to other muni insurers, Berkowitz and other investors would take care of reasoning Brown.

 

Also in that case, I think it would be smart for BAC to offer a little more than what was paid to others. The case in court is simply much further down the road and every indication points to a victory for MBI. We should know early next year which means that MBI has all the financial means to wait for the judgement. MBI also knows that BAC would likely appeal a negative verdict so they will have to move from trying to extract every penny from that case to putting the company back into growth mode. 3 more years or so is a very long time in business and even if the verdict was upheld and MBI was entitled to more interest as compensation it is likely not worth it.

 

Cardboard