MBIA bonds rise sharply on BofA settlement news; TXU debt powers up; broad market stays strong

By Stephanie N. Rotondo

Phoenix, May 6 - MBIA Inc. was the nom du jour Monday following news of a $1.6 billion settlement with Bank of America Corp.

The news resulted in big gains for the bond insurer's debt and even trickled down into other names in that sector.

Away from MBIA, Energy Future Holdings Corp.'s Texas Competitive Electric Holdings paper was "up pretty big" on a percentage basis. Late last week, the parent company reported a huge loss - the ninth consecutive quarterly loss, to be exact - and did not address the mounting troubles at the subsidiary.

MBIA boosted by settlement

MBIA bonds got a boost Monday after the company said it had reached a $1.6 billion settlement with Bank of America.

One trader saw the 6.4% notes due 2022 rising about 12 points to end at 96 3/8.

"They were very thinly traded, though," he said.

Another trader said the name was "the bond of the day," with the debt "up quite a bit."

He pegged the 6.4% notes in the mid- to high-90s, versus previous levels in the low-80s. As for the 0% surplus notes due 2033, they jumped up into a 65 to 70 range, compared to levels around 25 previously.

"Big, big move," the trader said.

The bond insurer's settlement with BofA was in regard to a variety of disputes, including MBIA's liability as a counterparty on swap deals done with the bank.

Under the terms of the settlement, MBIA will receive $1.6 billion in cash from BofA and the bank will have the right to purchase a 4.9% equity stake in MBIA. BofA will also cancel $137 million of MBIA's senior debt that the bank bought in December.

BofA will also provide MBIA with a $500 million line of credit.

The settlement is one of the last remaining hurdles the company has to undertake in order to complete a restructuring effort. The deal will also allow MBIA to avoid liquidation.

The news sent shockwaves throughout the bond-insurance sector, helping names like PMI Group Inc. climb higher.

A trader saw PMI's bonds - which tend to trade on top of one another - at 28 bid, 29 offered.

TXU inches up

Energy Future's Texas Competitive Electric had some upward momentum going on Monday.

A trader said the 15% notes due 2021 were "up pretty big for the price," rising nearly 2 points to 34.

Another trader pegged the issue around 341/2.

On Thursday, Dallas-based Energy Future - the parent of Texas Competitive - reported a net loss of $569 million for the first quarter of 2013.

That compared to a loss of $304 million the year before.

Interest payments related to the 2007 $45 billion private-equity buyout of TXU Corp. meantime totaled $84 million, Total long-term debt increased to $38 billion.

The parent company also failed to address what was going on at the subsidiaries. In mid-April, the company had said that it was in talks with creditors on a proposed restructuring plan. Those talks failed, however, and there has been no word since on how Energy Future expects to deal with its TXU problem.

Broad market stays firm

Elsewhere in the distressed space, NII Holdings Inc.'s 7 5/8% notes due 2021 remained active following last week's earnings announcement.

A trader said at least $30 million of the bonds changed hands, moving up over half a point to close at 91 3/8.

Sector peer Axtel SAB de CV saw its 7 5/8% notes due 2017 rising almost 3 points to end at 831/2.

Meanwhile, Clear Channel Communications Inc.'s debt was unchanged to better, according to a trader.

The trader saw the 11% notes due 2016 holding steady at 89, while the 10¾% notes due 2016 gained a point to finish at 881/2.

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