Bank of America Corp. (BAC) announced a comprehensive settlement with MBIA Inc. to resolve all outstanding representations and warranties claims and all other claims between the parties.
Bank of America stated that as part of the settlement, it will pay MBIA approximately $1.6 billion in cash and remit to MBIA all of the outstanding MBIA 5.70% Senior Notes due 2034 that Bank of America acquired through a tender offer in December 2012.
In addition, Bank of America will terminate all of its outstanding credit default swap or CDS protection agreements purchased from MBIA on commercial mortgage-backed securities, as well as terminate certain other trades in order to close out positions between the companies.
Bank of America said it will be issued warrants by MBIA to purchase 9.94 million shares of MBIA common stock, or about 4.9% of its currently outstanding shares, at an exercise price of $9.59 per share. The warrants may be exercised at any time prior to May 2018. Also, Bank of America will provide a senior secured $500 million credit facility to MBIA Insurance Corp.
Bank of America will record $1.6 billion in additional pretax charges in the first quarter of 2013, of which $1.3 billion is related to the settlement and the remainder is related to other monolines.
The after-tax effect of the additional charges will reduce the company's first-quarter 2013 net income to $1.5 billion, or $0.10 per diluted common share, from the $2.6 billion, or $0.20 per diluted common share reported on April 17, 2013, the bank stated.
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