$BAC Issues Default Notice to $MBI

“Bank of America Corp. (BAC) said it’s issued a notice of default to MBIA Inc. (MBI) after buying some of the bond insurer’s notes in an attempt to block a legal maneuver in their three-year dispute over toxic mortgage assets.

Bank of America, which failed to persuade investors to sell it a majority of the $329 million of 5.7 percent bonds due in 2034 that were outstanding early in November, said in a statement yesterday that it has acquired $136 million of the notes. MBIA said on Nov. 26 that it repurchased $170 million of the securities, leaving $159 million in investors’ hands, according to data compiled by Bloomberg.

MBIA was seeking consent from its bondholders to alter terms of the securities to protect itself from the threat of a regulatory seizure of MBIA Insurance Corp., its unit that insured real estate-related debt that soured during the worst financial crisis since the Great Depression. After Bank of America bid to buy the December 2034 bonds, potentially providing holders with a better deal than the $10 per $1,000 of face value solicitation fee from MBIA, the insurer purchased about 52 percent of the debt in order to ensure it had sufficient support.

BofA Objection

The bank is objecting to MBIA’s buying back notes at or above par from a select group of holders after discouraging bondholders in a Nov. 20 statement from accepting Bank of America’s tender offer at face value, according to a person familiar with the matter, who asked not to be identified because the discussions are private.

Bank of America also asserts the consent solicitation is invalid because their bond indenture dictates that if MBIA beneficially owns any portion of the notes, they don’t count as outstanding for purposes of changing the terms, according to the person.”

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