February 27, 2013 / 10:06 PM / in 5 years

UPDATE 3-MBIA flags 'going concern' doubts, liquidation risk for unit

* Says structured finance unit liquidation likely, failing BofA settlement

* Flags substantial going concern doubts for structured finance unit

* Q4 profit $3.26/shr vs loss of $3.23/shr a year earlier

* U.S. public finance insurance segment premium rises 8 pct

* Shares fall 2 percent

Feb 27 (Reuters) - Bond insurer MBIA Inc said there was a significant risk that its structured finance insurance unit would be put into liquidation or rehabilitation by its New York regulator if it was unable to settle its claims with Bank of America.

The company, which was the largest bond insurer in the United States before the financial crisis set in, has been mired in a string of lawsuits involving a host of banks, most notably Bank of America, following its restructuring in 2009.

Bank of America and the other lenders have asked for the restructuring to be annulled and sued the company contending that it was intended to defraud policy holders.

The bond insurer has blamed its liquidity issues on the fact that the bank has refused to buy back billions of ineligible loan in securitizations that MBIA insured.

The bond insurer also said there was an increased probability that the unit would be asked to pay substantial claims on commercial mortgage bond securitizations in the near term, raising the risk that it would be put into rehabilitation.

In a filing with the U.S. Securities and Exchange Commission, the insurer said it had notified the New York State Department of Financial Services of a $140 million deficit of qualifying assets that support contingency reserves at the structured finance unit, called MBIA Insurance Corp.

“Substantial doubt exists about MBIA Corp.’s ability to continue as a going concern,” the insurer said in a statement.

New York regulators declined to comment.

Though MBIA has made changes to some bond indentures to eliminate the clause that it would be in default if the structured finance unit was put into rehabilitation, Bank of America has sued to prevent those amendments from taking effect.

Bank of America alleges that the insurer is already in default on the notes and that case is currently being fought in court.

Even with the indenture amendment, MBIA’s counterparties in credit default swaps could terminate the contracts and make market-based claims damages, which could total up to $7 billion or more, MBIA said in its securities filing.

MBIA reported a quarterly profit in the fourth-quarter driven mainly by a less favorable market perception of MBIA Insurance Corp’s credit quality.

Shares of the Armonk, New York-based company, which have risen about 22 percent since the beginning of the year, closed at $9.98 on Wednesday on the New York Stock Exchange.

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