MBIA Inc. (NYSE: MBI) has tanked after Bank of America Corp. (NYSE: BAC) has tendered for the 5.70% MBIA notes due in 2034. The bank is asking note holders to sell their 2004 MBIA notes to BofA rather than consent to certain proposed amendments to the 2004 Indenture being sought by MBIA in connection with MBIA’s consent solicitation.
As it turns out, affiliates of BofA are party to certain credit default swap transactions under MBIA, which provided credit support with a notional value of $6.15 billion. The bank said it has established credit valuation adjustments for a significant portion of that figure, but it also believes the risk of MBIA Insurance Corporation being placed in rehabilitation or liquidation will increase. This would jeopardize all policyholder claims, including Bank of America’s claims under these transactions.
If you want to know just how scared this makes the market, MBIA is down 17% at $6.99. That also takes the stock to a new 52-week low as the prior range was $7.10 to $13.50. Today’s news is down $0.01 to $9.38 after having been positive on the day.
JON C. OGG