Where Legal Analysis Drives Investment Value

How Does Your BATNA Look Now, Bank or investment company of America? I have recently posted regarding a mediator’s perspective of the MBIA v. Bank or investment company of America (BAC) litigation here, and a possible strategy for MBIA to “mail the keys” to MBIA Insurance (Securitization Sub) here. In my own last mediator’s perspective post, I provided a framework by which I thought both BAC and MBIA could obtain from settlement what they needed, although not all that they needed always. Let’s assume that this settlement value is correct for the sake of analysis, BAC would compare this settlement value to the worthiness of BAC’s BATNA.

However, it would appear that BAC will lose this article 78 (though we should wait for Justice Kapnick’s decision to be certain), and MBIA eliminated the cross-default scenario with its completed notice consent solicitation lately. First, it’s important to tell apart between NYDFS liquidation and rehabilitation proceedings. When I make reference to the “mail the keys” strategy, I am discussing a voluntary rehabilitation proceeding initiated under Section 7402(a) of the NY Insurance Law.

In order to comprehend what a voluntary rehabilitation of Securitization Sub would appear to be, this FAQ site on FGIC’s website is an excellent spot to start. Essentially, the rehabilitator (NYDFS or its designee) would think of a rehabilitation arrange for Securitization Sub, much like a debtor-in-possession federal bankruptcy proceeding.

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1.6 billion secured loans to Securitization Sub). Just consider what this should do to BAC’s computation of the value of its BATNA? EASILY were BAC at a settlement negotiation with MBIA and I heard that MBIA was intimidating to commence a voluntary rehabilitation proceeding, I’d consider this to be a credible threat. Indeed, one might think that BAC has shown us it identifies this as a credible danger by publicly saying that any successful consummation of the MBIA consent solicitation would make a treatment proceeding of Securitization Sub “more likely”.

In any “full litigation setting” treatment plan pursued by NYDFS, one might consider that BAC’s BATNA should be respected significantly less than its arrangement value (ie producing a much greater net payment to MBIA). Moreover, any “full litigation mode” treatment plan would also expose BAC to further harmful legal precedents for its other existing and potential litigation (see here and here). So, how exactly does your BATNA look now, BAC?

NB: this blog is not designed to be investment advice, and really should not be relied upon by anyone to constitute investment advice. Investing is a tough game, and everyone should do and “own” their own work, because you will surely own your investments. Disclosure: long MBI. Follow me on twitter. Posted by Christian S. Herzeca, Esq.

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