NPFGC

From Mary Williams Walsh at the NYT:

In a step that many investors hope will help unfreeze the municipal bond markets, the mortgage insurer MBIA said Wednesday that it had separated its traditional municipal business from its younger and more troubled line of insuring structured-finance products.

In the future, MBIA said, an independent-operating subsidiary called the National Public Finance Guarantee Corporation would offer insurance for municipal bonds. Its headquarters will be in New York.

Meanwhile in jeffco and bham:

Bond insurers and a trustee for Jefferson County sewer debt creditors filed a motion today in federal court objecting to the county’s request to cancel a Feb. 25 hearing on whether the bond insurers are entitled to have a receiver placed over the county’s troubled sewer system.

The county said in a motion this week a full trial is required instead of a hearing. In the Wednesday filing, bond insurers say the county’s continued failure to take appropriate action to generate additional revenues and reduce expenses has caused substantial damage to the insurers.

The filing said the hearing should proceed as scheduled to minimize further harm to insurers and bondholders and speed up a resolution to the sewer system’s financial crisis.

From Peter Lattman at the WSJ blogs on the rescue of Mellon Bank:

In 1988, the Pittsburgh bank, reeling from a portfolio of bad real-estate loans, ring-fenced $1.4 billion of troubled assets and transferred them into a newly capitalized “bad bank” called “Grant Street National Bank.” As part of the recapitalization, Warburg purchased about $150 million in Mellon convertible preferred stock that it later converted into shares, becoming one of Mellon’s largest shareholders.

The troubled loans were marked down about 50% when sold to Grant Street and sold off over time. Then being the late 1980s, Michael Milken, of course, had a hand in the deal, capitalizing the “bad bank” with the sale of about $500 billion of bonds. By 1995, Grant Street’s positions were sold off and the entity was liquidated.

Meanwhile, Mellon’s stock flatlined for several years before recovering over the course of the 1990s. Warburg exited its investment in 1998 for about $1.5 billion, generating 10 times its original investment over the course of a decade. (Mellon merged with Bank of New York in 2006 to become Bank of New York Mellon.)

Apparently, the junk bond engine still works:

NEW YORK (Fortune) — Corporations struggled mightily to sell their debt last year, and high yield bonds, which are rated BB and below by S&P, were no exception – prices fell 33% and yields soared to 20 percentage points above those on Treasurys. Now that premium is luring investors, who bought $4.3 billion worth of new junk bonds in January, according to research firm Dealogic…

One potential roadblock to a junk-bond recovery would be a decline in Treasury prices; if government bonds begin to offer decent yields, investors are less likely to buy corporates. Yields on 10-year Treasurys have risen 12% since the beginning of the year, and, with massive new issuances planned and a likely decline in foreign buyers, it’s possible that they’ll continue to rise.

With $6 trillion parked worldwide in low yield money market funds and who knows how much in worse performing savings accounts, it looks good.