About 179 U.S. structured finance transactions guaranteed by bond insurer MBIA (MBI) have been downgraded by Moody's Investors Service (MCO).

Overall, the downgrades will impact $9.33 billion in securities backed by first or second-lien U.S. residential mortgages, private student loans, residential mortgage-backed securities, commercial mortgage-backed securities and other asset-backed deals, Moody's noted.

MBIA, which remains involved in hefty litigation with Bank of America (BAC) over mortgage bonds that MBIA insured, had no comment on the downgrades.

"This action is solely driven by Moody's announcement on November 19, 2012 that it has downgraded the insurance financial strength rating of MBIA Insurance Corporation to Caa2 from B3," Moody's explained.

To date, MBIA Insurance Corp. remains stuck in a game of pickle with Bank of America as the two firms fight in court over MBIA's push to be compensated on losses tied to mortgage bonds it insured containing toxic Countrywide (now BofA) mortgages.

Recently, MBIA announced that it would like senior-note holders of debt to name the company's newer subsidiary National Public Finance Guarantee as the restricted subsidiary. Analysts believed the move was designed to replace MBIA Insurance Corp. as the restricted subsidiary, so National Public Finance could serve as the restricted subsidiary that is inextricably tied to the parent company, MBIA Corp. They claimed this move was designed to shield MBIA from the potential negative impact of having its Mortgage Insurance Corp. subsidiary as the restricted sub.

By asking senior-note holders to name the National Public Finance subsidiary as the "restricted sub" instead, analysts believed MBIA was essentially telling Bank of America it has options outside facing a liquidity freeze or a major restructuring if the bank continues to delay payments to MBIA Insurance Corp. related to the firms' ongoing dispute about MBIA-insured mortgage securities.

In response, BofA shortly thereafter announced that it would offer to buy for cash all of the outstanding 5.70% senior notes due in 2034 issued by MBIA. However, MBIA fired back not long after recommending a rejection of BofA's cash offer.

"We believe the purpose of BOA's tender offer is not to make an economic investment in MBIA Inc.'s debt securities, but rather to affect the outcome of MBIA Corp.'s RMBS-related put-back claims against BOA and obtain a preferential settlement of those claims and its other MBIA Corp. exposure," MBIA said at the time.

kpanchuk@housingwire.com

 

kpanchuk@housingwire.com