Sean Farinaccio

MBIA: Can Litigation Create Shareholder Value?

Tom, there are other factors at word besides the litigation.. Such as the large losses on MBIA OldCo's ABS CDO portfolio that have not been recognized as impairments and are in excess of statutory surplus.

Reading MBIA's published "CDO Strategy" on their website would lead one to believe they were not so hapless as to guarantee billions of dollars of deals that turned so horrifically bad. I'm sure ML will cite the in-depth description of the arduous due diligence performed by MBIA before wrapping a CDO. Nowhere in that document does it state that low premium rates mean less due diligence is feasible, and no where does it say that it does less scrutiny of deals with longstanding partners.

MBIA's paid 2nd-lien claims in '08 relative to '09 reserves show the farce here. Transformation amounted to looting precarious insurance sub and leaving it definitively undercapitalized to try to establish a legally distinct firm to write new business.

Ambac's approach (direct ownership of NewCo by OldCo, not like MBIA where National is owned by an intermediate holding co which is held by MBIA HoldCo) is more equitable.

Insolvency at OldCo accelerates debt and would force HoldCo into bankruptcy. 5/12 should be interesting and you do make good points -- I have no position but am watchign closely.

Good luck.


On May 04 08:04 AM Tom Armistead wrote:

> Most of the suits mention an implied warranty of good faith and fair
> dealing. Obviously any legal victories based on such a doctrine would
> totally destabilize Walll Street. One more thing to worry about.
>

Evaluating Ambac: Intrinsic Value Withstanding Market Volatility

I would say to my friend Martin Z that a stipulation of all Ambac CDS contracts provides for no collateral posting whatsoever.
To vc4u2c I would say that until ultimate losses are more quantifiable, a hard-and-fast target is elusive. In the near term, catalysts would include Q2 earnings (which may be bad, considering large MTM losses on CDO of ABS remarked upon by Citi, Merrill and SCA) capitalization of Connie Lee (which looks more likely than when I wrote, with Moody's having said it would be more likely to give AAA to a muni-only insurer, according to DJ newswires) and the outcome of commutation talks which I'm fairly certain are ongoing.
The SCA situation was extremely encouraging -- however, the fact that the company would have become insolvent were it not for XL infusion, it may actually have had MORE leverage with counterparties, as it could simply have been taken over and had its CDS paid out as stipulated in contracts. Ambac/MBIA better capital position could be adverse in this limited sense, ironically.