NEW YORK (
(MBI - Get Report)
scored a convincing victory Monday in its latest skirmish with
Bank of America
(BAC - Get Report)
, so the somewhat muted response in the shares since then is surprising.
MBIA shares hit a 52-week low of $6.78 on Nov. 13 after Bank of America made a tender offer for some of its bonds, hoping to block MBIA from changing the terms of certain bond issues to protect its municipal bond insurance unit in the event of a default by its securitization business.
MBIA successfully fought off Bank of America's tender offer, sparking a rally in its shares. MBIA shares hit $9.18 on Monday, but then gave back some of those gains and closed at $8.56 on Tuesday.
Many investors may still see MBIA as facing a bankruptcy threat without realizing that it is only MBIA Insurance--the securitization subsidiary--that risks insolvency at this point. That was what MBIA accomplished Monday when it convinced a sufficient number of bondholders to agree to amend the terms of their obligations to prevent a default by MBIA Insurance from triggering a "cross default" by the parent company at the same time.
"Now, a default or liquidity event at MBIA Insurance Corp will have no ramifications for the obligations of the holding company," wrote MKM Partners analyst Harry Fong in a note published Tuesday.
Fong has price target of $18 for MBIA --a gain of more than 100% versus Tuesday's close. That assumes a 50% discount to Fong's estimated 2013 adjusted book value (ABV) for National--MBIA's municipal bond insurance unit of $25.94, and 30% of the $12.99 trailing ABV of MBIA Insurance. Even if MBIA Insurance is forced into bankruptcy, 50% of National's ABV alone would be worth $13.
Still, most analysts believe MBIA Insurance will survive and win a $3 billion settlement from Bank of America--greater than the entire $2.6 billion in shareholders equity at MBIA's parent company as of Sept. 30.
There are still a couple of lawsuits that need to be resolved before MBIA's municipal bond insurance business is completely in the clear, but it is hard to see at this point how it comes apart.