MBIA hasn’t chalked up losses on Puerto Rico ... yet

The New York insurer says it is exposed to almost $4 billion, but hasn’t yet taken a hit on defaulted debt.

New York insurer MBIA dodged the first bullet in what could turn into the Puerto Rico debt crisis.

"We had no exposure to Puerto Rico that has defaulted," said the insurer's managing director of media and investor relations, Greg Diamond.

But, it isn't out of the woods yet.

Pedestrians walk past a store that is under liquidation in San Juan, Puerto Rico, April 30, 2016.
Erika P. Rodriguez | Bloomberg | Getty Images
Pedestrians walk past a store that is under liquidation in San Juan, Puerto Rico, April 30, 2016.

"We currently have just under $4 billion in gross par exposure spread across eight different credit profiles," the company said in its annual letter to "owners," adding that, for one, "the first payments are not coming due until 2040."

So far, the type of debt Puerto Rico has defaulted on doesn't yet represent potential contagion to MBIA. There is a big difference between the debt that MBIA insured in Puerto Rico, and the paper that the island defaulted on earlier this week.

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"That was not debt guaranteed under Puerto Rico's constitution," pointed out Mark Palmer, managing director and financials analyst at BTIG. "Puerto Rico has been very careful to not default on guaranteed debt."

It's good news for MBIA, just so long as the defaults don't spread to debt that is supported by its constitution. But MBIA is in with Puerto Rico debt investors for the long haul, the insurer admitted in its annual shareholder letter. Some of the debt it has insured is "not coming due until 2040," according to its shareholder letter.

There are other debt deadlines in Puerto Rico coming and in varying sizes. Diamond pointed out that the next deadline, in June, is for a $1 million payment due on bonds issued by the University of Puerto Rico; another for $350 million of "debt service" comes due the following month.

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However, in its shareholder letter in March, executives were optimistic: "While we acknowledge that the potential for losses from our Puerto Rico credits presents our biggest current challenge, we continue to believe that the market has overstated the likely impact on MBIA."

So far this year, MBIA shares are up about 17 percent.