MBIA Drops as Regulator Balks on Note Payment

MBIA Inc. fell the most in 11 months after the bond insurer said a regulator hasn't decided whether to allow a unit that backed soured mortgage debt to make an interest payment on notes.

The insurer dropped as much as 12 percent to $9.35 before climbing back to $9.48 as of 10:39 a.m. in New York. The shares have declined 18 percent this year.

Payments on the 14 percent surplus notes maturing in 2033 are scheduled for July 16, MBIA said today in a regulatory filing. No cash is due from the company's MBIA Insurance Corp. unit if the New York State Department of Financial Services doesn't approve of the step, the Armonk, New York-based insurer said. Kevin Brown, an MBIA spokesman, declined to comment further.

The guarantor sold the notes in 2008 to bolster capital amid soaring defaults on subprime home loans, delaying a reduction of its insurance unit's then-top credit ratings. Surplus notes are bonds issued by insurance companies that state insurance regulators consider equity. In the event of a bankruptcy, the notes are repaid after other creditors and before stockholders.

MBIA, which was shut out of the business of backing municipal debt because of the losses on home-loan and commercial-mortgage securities, split its MBIA Insurance subsidiary in 2009 with the blessing of the regulator in an effort to revive the muni business.

Lenders including Bank of America Corp. and Societe Generale SA, which bought protection against losses on mortgage- debt from MBIA, sued the insurer and regulator to reverse the split. That case is now being considered by a New York State Supreme Court judge after a four-week trial that concluded June 7. The banks claimed the restructuring exposed policyholders to losses by transferring $5 billion in assets out of MBIA Insurance and into the municipal unit.

MBIA Insurance now carries speculative-grade ratings from both Moody's Investors Service and Standard & Poor's.

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