Ambac Financial Group Inc. (Ambac) and MBIA Inc. (MBIA) have both faced recent difficulties in connection with their plans to separate their municipal bond units from their respective companies.
Ambac announced on Monday that it would postpone launch of its municipal bond entity, Everspan Financial Guarantee Corp., due to rating agency concerns that the unit would not be sufficiently “separate” from its parent. Ambac stated that it will seek to obtain third party investor funds in order to satisfy the rating agencies.
Although MBIA launched its separate municipal bond unit, National Public Finance Guarantee Corp. (National Public), earlier this year as part of a larger restructuring that was approved by the New York State Insurance Department, MBIA continues to battle lawsuits filed earlier this spring by Third Avenue Trust and Aurelius Capital Master Fund Ltd. (in a class action), each of which claim that the transfer of the municipal bond portfolio from MBIA's subsidiary, MBIA Insurance Corp., to National Public was a “fraudulent transfer” that left National Public unfairly capitalized by over $5 billion and MBIA Insurance Corp. insolvent. MBIA has reiterated is vigorous denials of the allegations in the lawsuits filed against it in a press release issued earlier this week.
MBIA also announced earlier this week a tender offer for several series of perpetual preferred stock issued by MBIA Insurance Corp., which retains substantially all of MBIA’s non-municipal bond businesses. In the tender offer, MBIA Insurance Corp. is offering to acquire the preferred shares at a price equal to 10% of their liquidation preference, plus accrued but unpaid dividends, if any, up to, but not including, the date the shares are purchased. The tender offer will expire on June 11.
Update 5/14/09: MBIA was sued yesterday in New York state court by a consortium of banks, including ABN Amro, J.P. Morgan Chase, Bank of America, Morgan Stanley, Canadian Imperial Bank of Commerce, Barclays and UBS, alleging the split between the municipal bond unit and the structured finance unit was a "fraudulent restructuring" and seeking recission of the transaction.