What: Shares of MBIA Inc (MBI -2.24%) traded higher by nearly 15% after the market open and are now higher by about 12%.
So what: MBIA is getting a bid today thanks to an agreement between Puerto Rico's Electric Power Authority and some of its bondholders.
The agreement will result in a roughly 15% haircut for investors and replace some of the company's outstanding debt with lower-interest notes. The agreement is expected to save the utility about $700 million in principal and interest over the next five years, according to Bloomberg.
MBIA has insured a number of Puerto Rican municipal bonds; among these, PREPA bonds are its second-largest single exposure. The bond insurance company broke out its exposures in its quarterly filings, showing that it had insured roughly $2.1 billion in PREPA bonds and nearly $10 billion in Puerto Rican municipal bonds in total.
|
Bond |
Debt Service Outstanding (millions) |
|---|---|
|
Sales Tax Financing Corporation |
$4,170 |
|
Electric Power Authority |
$2,099 |
|
Commonwealth General Obligation |
$1,573 |
|
Highway and Transportation Authority Transportation Revenue |
$1,499 |
|
All others |
$635 |
|
Total |
$9,976 |
Source: Page 70 of MBIA's quarterly report.
Now what: Importantly, this is one of the first agreements between Puerto Rico and its bondholders, and only 35% of the bonds were represented in the agreement. Future agreements may result in larger haircuts to principal amounts or interest rates. But, at least for now, MBIA shareholders can breathe a little easier, having at least some idea of what the eventual losses might look like.
