MBIA Restructuring A Sticking Point For Guarantee Holders
12 Marzo 2009 - 6:22PM
Dow Jones News
Financial institutions that see themselves as losers in bond
insurer MBIA Inc.'s (MBI) split into two companies met with the
insurer's regulator Thursday to ask for a redo.
According to people familiar with the matter, the meeting didn't
result in a resolution, but talks will continue. MBIA's chief
executive didn't attend.
The issue is New York State Insurance Superintendent Eric
Dinallo's approval last month of MBIA's plan to separate its U.S.
municipal-bond insurance business from its commitments to insure
mortgage-backed bonds and other structured securities. The
financial institutions are counterparties to MBIA on derivatives
called credit-default swaps that were written on securities they
own, many of which have deteriorated since the onset of the credit
crisis.
MBIA and New York State's insurance regulator are facing a
growing backlash from banks, investment funds and other
policyholders. These institutions were left holding contracts with
a financially weaker insurer when MBIA transferred about $5 billion
in capital from its main unit to its newly relaunched business that
will guarantee only U.S. municipal bonds. A spokesman for Dinallo
declined to comment about the meeting.
Adding to the pressure to come to some kind of solution is a
lawyer representing a group of bond owners that filed a lawsuit in
New York federal court Wednesday that seeks to reverse the
restructuring.
The suit seeks class action status, and one of the lead
attorneys said he has been in discussions with some financial
institutions to try to persuade them to join the suit.
The split is "nothing short of a looting" of MBIA Insurance
Corp., the firm's main operating unit, by its parent company, the
lawsuit said. The plaintiffs, a group of hedge funds, are asking
the court to reverse MBIA's plan and to award damages that the
suit's lead attorney said could rise to billions of dollars. The
value of MBIA-insured bonds dropped after the company announced its
restructuring, the suit said.
An MBIA spokesman said the company believes the allegations in
the lawsuit are "without merit" and intends to defend itself
vigorously. He added that MBIA's restructuring was approved by
state regulators "after a thorough examination, including an
assessment ... of its ability to meet its obligations to all
policyholders."
MBIA wouldn't comment on Thursday's meeting.
MBIA undertook restructuring in mid-February as part of an
attempt to restart its business of selling financial guarantees on
bonds issued by cities, water authorities and other public-finance
entities. Its main unit was left with fewer claims-paying resources
for its troubled mortgage exposures, and was downgraded by several
credit-ratings firms.
Shares of MBIA traded down 2.1% recently, while shares of rival
Ambac Financial Group (ABK) were up 6.2%.
Ambac also announced a plan to launch a new municipal-only
insurer, called Everspan, which will operate as a subsidiary of its
main insurance business, rather than the separate structure of
MBIA's new insurer.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141;
lavonne.kuykendall@dowjones.com