Moody's: MBIA, SocGen Settlement a Credit Positive

MBIA Inc.'s settlement last week with Societe General is a credit positive for the company and its municipal insurance writer, National Public Finance Guarantee, Moody's Investors Service said Monday.

The ratings agency maintained its Caa1 rating on MBIA Inc. and Baa2 rating on National. Both ratings are still on review for downgrade.

The settlement is a credit positive because the risk that National would have to be recombined with its much weaker affiliate, MBIA Insurance Corporation, is essentially eliminated, according to a report from Helen Remeza, vice president and senior analyst at Moody's.

"The settlements with [Bank of America Corporation] and SocGen are milestones for MBIA in bringing to a close the protracted litigation that has prevented National from getting back on its feet to resume normal business operations," Remeza wrote.

Under the settlement, SocGen agreed to dismiss litigation challenging MBIA's 2009 restructuring that split the group's resources and risks. This agreement, along with an earlier settlement with B of A, ends all of MBIA's restructuring litigation with bank plaintiffs.

"The resolution of the litigation and the possible resumption of business would enhance National's ability to pay dividends, benefiting MBIA Inc.," Remeza wrote.

National's pre-tax net income was $142 million in the first quarter of this year, and $569 million in 2012, based on MBIA's reported results. As of March 31, National's statutory surplus was $2.1 billion.

MBIA Inc. and National's ratings have been on review for downgrade since March, when Moody's cited MBIA Inc.'s "substantial debt burden relative to its stand-alone financial resources" and the uncertainty about the financial condition of its subsidiaries and their related ability to pay dividends. The agency said the action on National reflected the adverse credit effect of its substantial linkages with its weaker affiliates.

Moody's said in March that the ratings could stabilize if MBIA's financial condition, including its liquidity and capital profile, improved or if the direct and indirect credit linkages between the affiliates and MBIA Corp. were to materially reduce.

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