May 9, 2013 / 12:10 AM / 4 years ago

UPDATE 1-S&P upgrades National Public Finance, says may get A rating

3 Min Read

May 8 (Reuters) - Following a cash settlement between MBIA Inc and Bank of America, Standard & Poor's Rating upgraded on Wednesday the financial strength ratings of MBIA Insurance Corp and National Public Finance Guarantee.

The rating agency, which had slashed the two ratings into junk in March, added that the BB financial strength rating of National Public Finance can be upgraded further to A once litigation is over.

"If a settlement is achieved, National's financial strength rating would be 'A' with a stable outlook, reflecting its stand-alone credit profile," the rating agency said in a statement explaining that it had National Public Finance on "CreditWatch Positive."

The financial strength rating on MBIA insurance Corp was raised to B from CCC with a stable outlook.

On Monday Bank of America has agreed to pay $1.6 billion in cash to MBIA Inc, settling long-standing litigation and providing the insurer with much-needed cash in its current restructuring process.

MBIA had long been in the sleepy business of guaranteeing municipal debt against default, but last decade it began guaranteeing riskier structured bonds, such as repackaged mortgage securities, in a bid to add revenue and profit.

That backfired as MBIA lost its top credit ratings and banks sought to hold it liable for losses after the housing bubble burst. To survive, MBIA won approval in 2009 to split into a municipal bond insurer to underwrite new deals and a guarantor of structured finance products that would handle old claims.

But 18 banks objected, saying it would leave MBIA insolvent and unable to pay its mortgage-related claims. On Wednesday MBIA agreed to pay Societe Generale, the last remaining of the 18 banks, $350 million to settle litigation over its restructuring.

"Our rating action on MBIA Corp reflects our view that potential stress on the company's liquidity position has lessened as a result of the announced settlement with Bank of America," said S&P in its statement. The outlook on MBIA Corp is stable.

MBIA Insurance bonds rose in response to Monday's settlement. The 25-year MBIA 11.54 percent bond, maturing in January 2033 rose on Wednesday to 78 cents to the dollar from 26 cents to the dollar on Monday.

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