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SocGen Settlement Could Get National an A Rating

MBIA Inc. has reached an agreement with the last of the 18 banks that filed a lawsuit challenging the bond insurer’s 2009 restructuring, according to a filing with the Securities & Exchange Commission.

The company has agreed to pay Societe General $350 million to settle the dispute, according to Dow Jones Newswires, which cited an unnamed source.

Societe General and Bank of America Corp. had been the remaining two banks in the lawsuit, which had filed a notice to appeal a March ruling that dismissed the lawsuit.

After B of A agreed to drop its remaining litigation with MBIA as part of the $1.7 billion settlement announced earlier this week, Societe Generale was the last plaintiff in the case.

The banks filed suit in 2009 challenging the approval by Eric Dinallo, then superintendent of the New York State Insurance Department, of MBIA’s split into two business, which created National Public Finance Guarantee Corporation. The restructuring also transferred $5 billion to National from its sister company, MBIA Insurance Corp.

The banks claimed the move harmed them as policyholders.

Kevin Brown, a spokesman for MBIA, declined to comment to The Bond Buyer.

The news of the settlement comes after Standard & Poor’s placed MBIA Inc. on CreditWatch positive, and gave a three-notch upgrade to MBIA Corp. and National. The agency said it may further upgrade the ratings if the remaining litigation over the restructuring is resolved.

“The positive CreditWatch on National and MBIA Inc. reflects our view that the companies will likely settle with the remaining plaintiff in its transformation case in the near term given the recent settlement with BofA,” according to the ratings report by credit analyst David Veno.

If the settlement is achieved, S&P said it would raise the rating on MBIA Inc. to BBB, and it would also raise National’s financial strength rating to A with a stable outlook, reflecting its stand-alone credit profile, since MBIA Corp. would no longer act as an anchor to the rating.

“We believe that the settlement and subsequent resolution of litigation would allow National to be recognized as a separate legal entity, maintain the assumed book of business and capital, and begin writing business once it demonstrates favorable market acceptance and competitive characteristics,” Veno wrote.

A spokesperson for the ratings agency does not have any comment beyond their earlier report.

MBIA Corp.’s financial strength rating was upgraded to B, with a stable outlook, from CCC, with a negative outlook. National’s financial strength rating was upgraded to BBB, with a CreditWatch positive, from BB.

The agency affirmed MBIA Inc.’s B-.

In its report released Wednesday afternoon, S&P said the rating action on National reflects its view of the company’s strengthened capital adequacy position and financial risk profile following MBIA Corp.’s repayment of the intercompany loan. Upon receiving the $1.7 billion in its settlement with BAC, MBIA said it plans to repay its $1.6 billion loan from National.

The agency said the rating action on MBIA Corp. reflects its view that potential stress on the company’s liquidity position has lessened as a result of the settlement with Bank of America, and that the bond insurer is unlikely to come under regulatory control during the next 12 months.

“The rating also reflects our view of the company’s small capital base relative to the risk of its insured portfolio, poor operating performance, which we expect to continue, and lack of competitive advantage to improve its financial position in the next 12 months,” S&P said.

The agency believes that MBIA Corp.’s capital and liquidity is adequate to meet claim payments for the next 12 months, although it expects MBIA Corp.’s capital to remain under stress.

If MBIA’s capital stabilizes, S&P would view it as a positive. If the company exhibits increased losses and diminished liquidity, the agency could lower the ratings.

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