Bank of America sets aside terms to tender offer for MBIA's 5.7% notes

By Susanna Moon

Chicago, Dec. 5 - Bank of America Corp. said it waived all conditions to its cash tender offer for the 5.7% senior notes due 2034 issued by MBIA Inc.

Originally, the tender offer was conditioned on tenders for at least a majority of the outstanding notes and on MBIA not having obtained the needed consents to amend the notes.

The tender offer will end at 11:59 p.m. ET on Dec. 11. The offer began Nov. 13.

According to a previous press release, the purpose of the offer is to induce holders of the 5.7% notes to sell their notes to the bank rather than consent to the proposed amendments under MBIA's solicitation.

The bank's affiliates are party to credit default swaps for which MBIA Insurance Corp., a subsidiary of MBIA, has provided credit support with a notional value of $6.15 billion, against which the bank has established credit valuation adjustments for a significant portion, the release noted.

If MBIA's consent solicitation goes through, the risk of MBIA Insurance being placed in rehabilitation or liquidation will rise, which would jeopardize all policyholder claims, including Bank of America's claims under these transactions, according to the release.

The total purchase price is par in cash for each $1,000 of notes tendered by 11:59 p.m. ET on Nov. 27. The total payment includes an early tender premium of $50 in cash per $1,000 principal amount.

Those who tender after the early deadline will receive $950 in cash per $1,000 of notes.

Holders also will receive accrued interest in cash up to but excluding the settlement date.

D.F. King & Co., Inc. (800 848-3416,banks and brokers only, call collect 212 269-5550 or mbia@dfking.com) is the tender agent and information agent. Bank of America Merrill Lynch (888 292-0070 or 980 388-4813) is the dealer manager.

MBIA recommendation

MBIA Inc. said on Nov. 20 that it recommended that holders reject the unsolicited tender offer by Bank of America Corp. for MBIA's 5.7% senior notes due 2034, saying that it is not in the best interest of the bondholders.

The move came a day after MBIA said it was being reviewed for a downgrade due to the company's consent solicitation for the notes, which is being blocked by Bank of America.

On Nov. 20, Moody's Investors Service said it downgraded MBIA's senior debt rating to a distressed level of Caa1 from B2.

The same day, MBIA said the holders were best-served by rejecting the bank's offer because "the purpose of [the bank'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 [the bank] and obtain a preferential settlement of those claims and its other MBIA Corp. exposure," according to a company press release.

The "outcome would be detrimental to all policyholders other than [the bank]," the release continued.

MBIA said it is evaluating its legal options regarding the bank's tender offer, including whether it violates any laws, and may take actions to protect the interests of its insurance subsidiaries' policyholders and its security holders.

Holders may call MBIA's investor relations department at 914 765-3190.

Review for downgrade

If Bank of America succeeds in inducing holders to sell their notes to the bank rather than consent to the proposed amendments, MBIA and its subsidiaries will be "exposed to the risk of an event of default under the indentures caused by a rehabilitation or liquidation proceeding involving MBIA Insurance Corp.," according to an 8-K filing Monday with the Securities and Exchange Commission.

The tender offer also could mean that the company is less likely to reach a favorable settlement of its disputes and insurance policies with the bank, the filing continued.

Consent solicitation

As noted before, MBIA began a consent solicitation on Nov. 7 for its 6.4% senior notes due 2022, 7% debentures due 2025, 7.15% debentures due 2027, 6 5/8% debentures due 2028 and 5.7% senior notes due 2034.

The company is proposing to substitute MBIA Insurance Corp. for National Public Finance Guarantee Corp., both company subsidiaries, in the definition of "restricted subsidiary" in the indenture dated Aug. 1, 1990 and the definition of "principal subsidiaries" in the senior indenture dated Nov. 24, 2004. MBIA said in a press release that the amendments will be beneficial to both the company and the noteholders.

If the amendments go through, MBIA will pay a consent fee of $10.00 per $1,000 principal amount.

In connection with the solicitation, the company entered into a lock-up agreement with holders of about 25.4% principal amount of the outstanding notes under the 1990 indenture and about 3.5% principal amount of the outstanding notes under the 2004 indenture to deliver consents and not withdraw those consents for 30 days, unless the terms of the consent solicitation have been materially modified.

The consent solicitation will end at 5 p.m. ET on Nov. 21.

Deutsche Bank Securities (855 287-1922 or 212 250-7527) is the solicitation agent. i-Deal LLC (888 593-9546 or 212 849-5000) is the information agent.

Armonk, N.Y.-based MBIA is a holding company whose subsidiaries provide financial guarantee insurance and related reinsurance, advisory and portfolio services for the public and structured finance markets as well as asset management advisory services.

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