But such an event would hardly mean MBIA is out of bullets, says BTIG analyst Mark Palmer, who has a buy rating on MBIA and believes the selloff was unwarranted. He (along with credit ratings agency Standard & Poor's) continues to believe MBIA's structured products unit has sufficient liquidity to last well into 2013, which should be enough time to force a settlement with Bank of America.
In fact, while the selloff in MBIA shares speaks to the market perception of MBIA's vulnerability, Palmer argues Bank of America's offer to buy the bonds at a premium shows it is actually the bank that is the vulnerable party.
"It says something about the strength of MBIA's position that Bank of America is willing to shell out $100 million more than the bonds are worth," to block MBIA from amending its bonds, Palmer said.
-- Written by Dan Freed in New York.Follow @dan_freed