What happened
MBIA (MBI -3.80%) saw its share price plummet 14.5% this week through Sept. 22, according to data provided by S&P Global Market Intelligence. It closed on Thursday at $9.75 and was trending lower in early trading on Friday. Year to date, the stock price is down about 40%.
Overall, it was a negative week as the S&P 500 fell 2.9% through Thursday.
So what
MBIA provides insurance for bonds, primarily municipal, as well as fixed-income investment management. It is one of the leading bond insurers in the United States.
The stock price declined early this week after mediation talks between the Puerto Rico Electric Power Authority (PREPA) and its bondholders ended over the weekend without a deal on debt restructuring. The lack of a deal led to speculation that litigation could ensue between the two parties. As MBIA insures the bonds, this sent the stock price falling.
The stock price also took a hit with the larger market when the Federal Reserve Board raised interest rates on Wednesday by another 75 basis points. Rising interest has had the effect of decreasing MBIA's book value due to net unrealized losses on investments, which occurred due to higher interest rates and wider credit spreads.
Now what
It has been a difficult year for MBIA, but analysts expect the stock to bounce back in 2023, with a median price target of $15.50 as interest rates start to plateau in 2023.
In the near term, look for action related to the aforementioned situation in Puerto Rico. Later in the week, after the mediation ended, the judge in the case ordered further mediation between the two sides to come up with a deal. So that crisis seems to be at least temporarily averted. PREPA is MBIA's last significant exposure in Puerto Rico through its subsidiary, National Public Finance Guarantee Corporation.
