killing

Bank of America, MBIA, skirmish over bonds covenants

Tools

There's been some interesting skirmishing going on in the increasingly heated Bank of America-MBIA war over put backs.

The latest is an attempt by Bank of America to buy a majority of about $329 million in bonds to block MBIA from moving forward with a "cross-default provision" in the bonds. As the covenants now stand, creditors can demand payment from the parent company if the MBIA Insurance unit is seized by regulators. MBIA would rather such demands be made of its municipal unit, National Public Finance Guarantee Corp. So this is a way of protecting the main company.

Sensing weakness, Bank of America is aiming to keep the pressure on the parent by buying up all the bonds in order to block the change in covenants. Bank of America is offering a 22 percentage point premium on the bonds in question, according to Bloomberg. That followed an attempt by MBIA to incent bondholders to approve the change by offering to pay $10 per $1,000 of notes to those who agree.

Who has the upper hand in this?

The MBIA stock sold off earlier this week, as Mr. Market seemed to give Bank of America the advantage in this high profile putback battle. But even if Bank of America prevails on this "cross-default" issue, MBIA is still fighting from some strength.

One analyst, who has a buy rating on MBIA, believes "the selloff was unwarranted. He (along with credit ratings agency Standard & Poor's) continues to believe MBIA's structured products unit has sufficient liquidity to last well into 2013, which should be enough time to force a settlement with Bank of America," notes TheStreet.com.

For more:
- here's TheStreet.com article
- here's the Bloomberg article

Related articles:
Mortgage put back concerns weigh on Bank of America
 

Filed Under