A group of financial institutions that are counterparties with MBIA Insurance Corp. yesterday met with officials from the New York Insurance Department to lodge complaints over MBIA’s recent restructuring.
Under the restructuring plan, MBIA split off its public finance book by ceding its portfolio to MBIA Insurance Corp. of Illinois and adding additional capital. Many had said after the move that it would draw the ire of all of MBIA’s other policyholders and counterparties — such as those with credit-default swaps on structured finance products — that were left behind in MBIA Insurance with the remaining book of business.
A spokesman for the Insurance Department said the meeting was “productive.” Talks will continue, according to the Wall Street Journal, which first reported plans of the meeting.
The meeting came one day after a separate group of hedge funds filed a lawsuit against MBIA Inc., saying the restructuring plan stuck them with guarantees from “a moribund and insolvent MBIA Insurance company left largely with guaranty exposures to toxic securities and instruments and no prospect of writing new business.”
MBIA Inc. said Wednesday night that the “allegations in the complaint are without merit” and it intends to defend itself “vigorously.” MBIA has said it has the ability to pay all expected claims as they come due and noted the New York Insurance Department approved the transaction.
“The complaint makes various broad-based and unsubstantiated allegations with regard to the transformation,” MBIA said.
Through the transformation, MBIA ceded its entire $537 billion public finance book to MBIA Illinois, which will be renamed National Public Finance Guarantee Corp. and write only new public finance business. MBIA paid MBIA Illinois $2.89 billion for reinsuring the public finance book and capitalized it with an additional $2.09 billion.
Elsewhere, Moody’s Investors Service yesterday withdrew its ratings on approximately 11,000 municipal bonds MBIA identified as legally defeased. MBIA said it recently made a determination that its “liability under municipal bond insurance policies is extinguished upon a legal defeasance of insured debt.”
Other investment-grade municipal bond insurers told Moody’s that “at the present time, their companies’ insurance policies remain available to pay claims, notwithstanding a legal defeasance by the issuer.”