MBIA, Inc. (MBI) Hits New Lows

MBIA, Inc. (NYSE: MBI) hit fresh, year-to-date lows Thursday, falling about 5% on the session to $10.30 per share. The decline follows Moody's Investors Service's downgrade of Puerto Rico GO bonds to B2 from Ba2 on Tuesday. Concurrently, commonwealth agencies and public corporations have been downgraded, affecting about $46 billion of non-GO bonds,

In a research note yesterday, analyst Mark Palmer of BTIG commented on developments, saying Prepa paying coupon doesn't mean restructuring has been avoided.

"In the aftermath of Puerto Rico’s enactment of the Puerto Rico Public Company Debt Enforcement and Recovery Act last Saturday, investors have been keeping watch for an announcement that a restructuring of PREPA had been initiated. As such, the focus of investors involved in the situation has been on whether PREPA would make the coupon payment that was due yesterday. While market speculation was rife throughout the day about whether the coupon had been paid or not, Reuters at 4:59pm ET reported that bondholders had received the scheduled payment; Bloomberg News reported the same shortly thereafter," said Palmer.

"So does the payment of PREPA’s coupon mean that a restructuring of the entity has been avoided? We think not. Indeed, Puerto Rico on Monday evening released its Basic Financial Statements and Required Supplementary Information for the fiscal year ended June 30. The report acknowledged that “PREPA currently faces heightened liquidity and market access risk as a result of the maturity in July and August 2014 of two short-term credit lines of credit in an aggregate principal amount of $671 million," he continued.

"The report added that the potential inability of PREPA to renew these lines of credit “raises substantial doubt about its ability to continue as a going concern.”

"In spite of PREPA paying its July 1 bond coupon, we believe that the authority’s liquidity issues will ultimately drive it to file for protection under Chapter 2 of the newly enacted law. So then why did PREPA make the payment rather than preserve the cash required to do so? We think PREPA made the payment to give itself additional time to “get its ducks in a row” ahead of its financial restructuring. And we recommend that investors not make their decisions about their investments in the bond insurers based on what we would characterize as a head fake," he said.

More from Mark Palmer can be found here.

You May Also Be Interested In

• MBIA Inc. (MBI) PT Lowered to $7 at Keefe, Bruyette & Woods
• MongoDB (MDB) PT Raised at RBC Capital; 'Shares represent an attractive buying opportunity'
• OptimizeRX (OPRX) PT Lowered to $12 at Stifel, Buy Rating Maintained