This excerpt taken from the MBI 8-K filed Mar 3, 2009.
Liquidity and Capitalization
As of December 31, 2008, MBIA Insurance Corporation held approximately $1.1 billion in cash and cash equivalents and an additional $1.4 billion of short-term investments. Its investment portfolio remains well diversified, liquid and of average Double-A-rated credit quality. As of the same date, the Corporate segment of MBIA Inc. had $95 million in cash and cash equivalents and an additional $321 million of short-term investments after deploying $600 million to enhance the liquidity of the ALM portfolio in November. The total is approximately equal to holding company debt service requirements for the next five years.
The Company enhanced the liquidity of the ALM business throughout 2008 by selling assets, accessing cash and liquidity resources of the Corporate segment of the holding company, MBIA Inc., and establishing an intercompany repurchase agreement facility with MBIA Insurance Corporation under which MBIA Inc. can transfer ALM assets to MBIA Insurance Corporation for up to $2 billion in cash. As a result of these actions, the Company believes that its resources, along with cash flows generated from the ALM assets will adequately provide for the cash outflows and collateral posting requirements of the business, irrespective of ratings.
As a result of the ALM asset portfolio rebalancing activities that took place in the second and third quarters of 2008 and other steps taken to enhance the liquidity of the ALM program, the Company was well positioned to absorb the impact of Moody’s downgrade of MBIA Insurance Corporation to Baa1 on November 7, 2008. Following the downgrade, $5.5 billion of Guaranteed Investment Contract (GIC) liabilities were terminated in accordance with their terms. As of December 31, 2008, MBIA had $12.0 billion in remaining outstanding liabilities related to its ALM business, of which $2.4 billion were terminable GICs and $2.6 billion were intercompany and inter-segment liabilities. The $2.4 billion in terminable GICs were eligible to be terminated by the GIC holders, but the GIC holders did not exercise their option to do so. Assets totaled $11.4 billion at December 31, 2008, excluding unrealized losses. Cash and short-term investments in the ALM portfolio totaled $3.8 billion at December 31, 2008, an amount sufficient to fund all potential GIC terminations. The remaining $9.6 billion in ALM liabilities consists of medium-term notes (MTNs) issued by MBIA Global Funding, LLC, (GFL), intercompany and inter-segment liabilities, term repurchase agreements and GICs that are not subject to termination provisions or collateralization upon a further downgrade.
In the fourth quarter, MBIA exercised its put option on its Committed Preferred Custodial Trust facility and sold to the related trusts $400 million of the perpetual preferred stock of MBIA Insurance Corporation. On December 22, 2008, the trusts distributed their assets to their investors and were dissolved. MBIA subsequently paid $12 million to repurchase perpetual preferred stock with a liquidation preference of $125 million. MBIA Insurance Corporation’s claims-paying resources totaled $15.0 billion at December 31, 2008 up $414 million from December 31, 2007, reflecting proceeds received from surplus notes and equity offerings offset by claims on insured second lien RMBS and the commutation of certain insured credit derivatives.
MBIA Inc. maintained a $500 million revolving credit line with a group of highly rated banks which was scheduled to expire in May 2011. The facility contained certain covenants related to the Company’s net worth and leverage whose calculation were affected by the Company's mark-to-market adjustments on insured derivatives, among other things. The Company had been seeking to amend the terms of the facility to exclude mark-to-market adjustments on insured credit derivatives from the definition of net worth. After consideration of the terms and conditions required to obtain such an amendment, MBIA elected to terminate the facility effective February 27, 2009. There were no outstanding borrowings under the credit line, and there were no early termination fees or premiums paid as a result of MBIA’s decision to terminate the facility.