NEW YORK - Assured Guaranty Corp. won’t seek to appeal the New York State court’s ruling that it must honor coverage of defaulted debt issued by Iowa’s Xenia Rural Water District.
The court ordered on June 15 that Assured would have to pony up the cash to reinsure the bonds — $83.3 million worth — that were originally wrapped by defunct bond insurer CIFG Assurance North America, Inc.
The decision was open to appeal but Assured believed it is “in the best interests of our policyholders and Assured Guaranty to resolve our reinsurance dispute with CIFG and end our litigation,” according to spokesperson Ashweeta Durani on Wednesday morning.
The issue stemmed from a January 2009 agreement in which Assured agreed to reinsure more than $11 billion of investment-grade, CIFG-backed bonds.
Xenia’s water bonds carried the requisite BBB ratings from Standard & Poor’s, yet the district had dipped into reserves as early as December 2007. That move, Assured argued, rendered the rating improper and the bonds ineligible for reinsurance.
The court rejected that argument and ordered Assured to recompensate CIFG.
The next step, according to Assured’s news release Wednesday, is for Assured to replace the CIFG guarantee with a wrap from Assured — a process known as novation.
“AGC will reinsure CIFG for 100% of the Xenia Policy,” the Wednesday press release stated, “and CIFG and AGC will seek to novate the Xenia Policy to AGC according to the terms and procedures adopted by CIFG and AGC with respect to the novation of other CIFG policies covered by the Reinsurance Agreement.”
