B of A Sues MBIA Over Changes to Senior Debt

Bank of America (BAC) has escalated a longstanding dispute with MBIA (MBI) over securities backed by residential mortgages.

The nation's No. 2 bank by assets on Thursday sued the insurer in New York state court in White Plains for allegedly interfering with a tender offer by the bank to buy some of MBIA's senior debt.

In November, Bank of America offered to buy the debt to counter what the bank said was a risk regulators would seize MBIA if changes it sought to the terms of the debt succeeded.

The changes, which required the consent of note holders, aimed to eliminate the risk MBIA would be in default if the company, which has struggled financially, were put into rehabilitation or liquidation by state regulators.

MBIA recommended that note holders reject the tender offer, which MBIA described in a Nov. 20 statement as an effort by Bank of America "to affect the outcome of MBIA's RMBS-related put-back claims" against the bank.

In its lawsuit, Bank of America accused MBIA of engaging "in a series of wrongful acts, including false and misleading public statements for the purpose of defeating the tender offer."

According to the bank, MBIA also failed to obtain the votes of a majority of note holders that the insurer needed to amend the terms of the indenture. MBIA said on Nov. 26 it had obtained the approvals.

In a statement on its website, Bank of America also accused MBIA of defaulting on the debt when the insurer changed the indentures.

"Like its purported notice of default, Bank of America's latest lawsuit is meritless and we will respond to both accordingly," MBIA spokesman Kevin Brown said in an email.

The changes to the indentures may have lowered leverage Bank of America holds over MBIA by virtue of the bank's refusal to yield to MBIA's demand that it repurchase allegedly defective securities issued by Countrywide, the mortgage lender Bank of America acquired in 2008.

MBIA insured principal and interest payments on mortgage-backed securities issued by Countrywide. The insurer has sued Bank of America to recover billions of dollars MBIA paid to investors who bought the securities, which dropped significantly in value.

Bank of America said Thursday it had purchased roughly $136 million of the notes MBIA sought to change, via the bank's tender offer.