BTIG: MBIA Is A Buy Following PREPA Agreement

Mark Palmer of BTIG upgraded shares of MBIA MBI to Buy from Neutral with a $12 price target following Puerto Rico's electric power authority (PREPA) agreement with its creditors to delay a $671 million payment until March.

Additionally, PREPA received from a group representing over 60 percent of its bondholders and insurers an amendment that will allow it to use approximately $280 million held in its construction fund to pay current expenses.

Under the terms of the deal, PREPA will appoint a chief restructuring officer to present a five-year business plan by mid December while a debt restructuring plan is due in early March.

PREPA had to utilize $100 million from its capital fund in May to purchase fuel and later made use of new bankruptcy laws to make some of its debts disappear.

Palmer explained in his note:

“Our upgrade is motivated by our view that the likelihood of a major loss om MBI's $1.53 billion of net insured exposure to the Puerto Rico Electric Power Authority has declined, as the agreement that the authority reached with a group of its creditors announced last evening, combined with our believe that private capital will be available to fund the conversion of the authority's generating facilities from oil to natural gas, has significantly increased the probability of a relatively benign outcome for the company.”

The agreement that PREPA undertook is significant for MBIA as it should alleviate investor concern that the company's request to the New York State Department of Financial Services to make a dividend from National Public Finance Guarantee to its holding company will not be approved.

Shares of MBIA were seen trading at $10.33, up 4.55 percent.