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Why MBIA's Shares Plunged

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of bond insurer MBIA (NYSE: MBI  ) were taking their lumps today, falling as much as 12% in intraday trading after the New York State Department of Financial Services (NYSDFS) said it may force MBIA to delay an interest payment on its debt.

So what: On its face, this news sounds really bad. It sounds like MBIA may not have the liquidity to meet its debt payments and could be on the verge of default or even bankruptcy and NYSDFS is stepping in to protect policyholders. Reality isn't nearly as ugly.

What's true is that NYSDFS is looking out for policyholders and wants to make sure that they're covered. It's also true that MBIA still isn't in tip-top shape overall. However, as the company's press release makes clear, the payment on the notes simply isn't due if NYSDFS doesn't approve the payment -- thus, no default. Further, as MKM Partners analyst Harry Fong pointed out in a research note, it does appear that MBIA has enough liquidity to make the payment.

Now what: If nothing else, this is a reminder to investors that MBIA still isn't on particularly firm footing. That said, it doesn't sound like this particular payment issue will have a lasting impact on MBIA whether NYSDFS causes the company to push it back or not.

What investors do need to watch, though, is whether banks, including Bank of America (NYSE: BAC  ) , that have been fighting MBIA's 2009 restructuring, jump on this as evidence emerges that the company never should have been given the go-ahead to restructure.

Want to keep up to date on MBIA? Add it to your Watchlist.

The Motley Fool owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Bank of America but has nofinancial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter, @KoppTheFool, or on Facebook. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.

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Related Tickers

10/24/2016 4:02 PM
MBI $8.17 Up +0.08 +0.99%
MBIA CAPS Rating: **
BAC $16.77 Up +0.10 +0.60%
Bank of America CAPS Rating: ****