By Rick Rothacker
Dec 12 A long-running legal dispute between Bank
of America Corp and insurer MBIA Inc could be
settled in early 2013 after recent maneuvers involving MBIA's
bonds, analysts at research firm CreditSights wrote.
MBIA won the necessary consent of bondholders to change the
terms of some of its debt last month, despite a move by Bank of
America to thwart the change. That outcome has reduced the
bank's negotiating leverage, increasing the likelihood of a
settlement, the analysts wrote in a report dated Tuesday.
Bank of America, the second largest U.S. bank by assets,
last week also said that it was proceeding with an offer to buy
some of MBIA's bonds, which could be part of a settlement
strategy, according to the report. [ID: L1E8N6098] The bank took
a similar approach in a pact this year with insurer Syncora
Holdings Ltd, CreditSights said.
"We speculate that BofA is adding exposure to MBIA's capital
structure to conceal the amount of a settlement so as to not set
a precedent for negotiations with other litigants," analysts Rob
Haines and Eric Axon wrote.
MBIA and Bank of America declined comment.
The legal wrangling is a major cloud hanging over both
companies, which have struggled to recover from mortgage-related
troubles from the financial crisis.
MBIA claims that Bank of America owes it billions of dollars
over soured mortgages that it wants the bank to buy back. Bank
of America says the insurer owes it billions over certain credit
default swap transactions.
CreditSights said it expects a comprehensive settlement that
would cover both issues.
MBIA proposed the changes to its debt on Nov. 7 to eliminate
the risk that it might be considered in default if a troubled
insurance unit were put into rehabilitation or liquidation by
the New York State Department of Financial Services.
MBIA said at the time that if there were such a default, it
would have insufficient liquidity to make good on the notes and
would probably immediately pursue other actions, including
Bank of America countered with an offer to buy MBIA bonds,
saying it believed the changes would increase the risk of MBIA's
insurance unit being placed in rehabilitation or liquidation.
That would jeopardize all policyholder claims, including Bank of
America's, the bank said. But on Nov. 26, MBIA said it won the
necessary consent of bondholders to make the changes.
On December 5, Bank of America said it waived certain
conditions in order to continue with its offer to buy MBIA bonds
through Tuesday. It has not said whether it has extended the
CreditSights said MBIA could avoid regulatory seizure for
three to four years or potentially altogether if a settlement
with Bank of America occurs.
Meanwhile, lawyers for MBIA were in New York State court on
Wednesday arguing that at least $12.7 billion of the loans in
question were defective. Bank of America's Countrywide mortgage
unit disputed that fact.
The hearing is set to resume on Thursday.
Bank of America bought subprime lender Countrywide Financial