The storm clouds have finally lifted for holders of bonds insured by National Public Finance Guaranty Corporation (NPFG).
On Wednesday, May 8th, Standard & Poor’s raised National’s financial strength rating to “BBB” from “BB”, and placed the insurer on “Credit Watch Positive.” Today, S&P upgraded National’s rating again, to “A” with a “Stable Outlook.”
The upgrade came as MBIA, Inc., National’s parent, announced earlier in the week it had settled a $1.7 billion dispute with Bank of America.
Bank of America, along with a number of other financial institutions, had filed litigation in 2009 contesting the split of MBIA into two business units: NPFG, which covers the insurer’s municipal finance business, and MBIA Corp., for mostly junk-quality mortgage-backed transactions. MBIA had contended in countersuits that the banks obtained MBIA insurance without adequately disclosing the weak nature of the underlying collateral behind the mortgage-backed securities in question.
With the Bank of America settlement, MBIA, Inc. received $1.7 billion, which it will use to repay an intercompany loan to NPFG from MBIA Corp. That loan had been viewed by S&P as weakening National’s capital position – a concern no longer standing in National’s way.
Since S&P’s announcement, MBIA, Inc. reached agreement with Societe Generale, the last of the 18 banks that sought to reverse MBIA’s 2009 split-off of National. MBIA will pay Societe Generale $350 million to settle their dispute.
National has not written new policies since the MBIA split and it is not clear when it is likely to do so. However, for holders of existing National insured bonds, this news strengthens the security and ratings of such bonds and rewards holders for their patience.