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What: Shares of MBIA Inc (NYSE:MBI) 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.

 

Jordan Wathen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.