NEW YORK - (Mealey's) Bank of America Corp. (BoA) will
pay nearly $1.7 billion to MBIA Inc. and certain of its subsidiaries to settle
claims in New York State court that BoA misrepresented the investment quality
of and risk associated with certain mortgage-backed securities (MBS) it sold to
MBIA, according to press releases issued by both parties May 6 (MBIA
Insurance Corp. v. Countrywide Home Loans Inc., et al., No. 602825-2008,
N.Y. Sup., New York Co.).
According to the MBIA press release, MBIA and
subsidiaries MBIA Insurance Corp. and National Public Finance Guarantee Corp.
(collectively, MBIA) will receive "a net payment of approximately $1.7 billion,
consisting of approximately $1.6 billion in cash and $137 million principal
amount of MBIA Inc.'s 5.70% Senior Notes due 2034."
"In exchange for the $1.7 billion net payment, MBIA Corp.
will dismiss the litigation commenced in September 2008 against Countrywide
Home Loans, Inc. (Countrywide), among other parties, and later amended to
include claims against Bank of America, relating to breaches of representations
and warranties on certain MBIA-insured securitizations sponsored by
Countrywide," according to the press release.
Credit Default Swaps
In addition, according to the MBIA press release, the
parties have agreed to the "commutation of all of the MBIA Corp. policies held
by Bank of America, which have a notional insured amount of approximately $7.4
billion, and of which $6.1 billion are policies insuring credit default swaps
held by Bank of America referencing commercial real estate exposures."
The settlement agreement is subject to "certain
approvals" of the New York State Department of Financial Services, which both
parties believe will be received shortly.
MBIA sued Countrywide Home Loans in the New York County
Supreme Court, alleging that it sold MBIA risky MBS, misrepresenting the risk
involved with the investment.
MBIA is represented by Peter E. Calamari, Philippe Z.
Selendy, Manisha M. Sheth, Jonathan B. Oblak and Daniel P. Cunningham of Quinn
Emanuel Urquhart & Sullivan in New
BoA is represented by Theodore N. Mirvis and Elaine P.
Golin of Wachtell Lipton Rosen & Katz; and Jonathan Rosenberg, William J.
Sushon, Allen W. Burton and Asher L. Rivner of O'Melveny & Myers. All
are in New York.
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