I stumbled upon an intriguing development with MBIA (ticker symbol MBI), where they declared a substantial dividend distribution of $8 per share. At the time of the announcement, the stock was trading slightly above $7. This news triggered a significant surge, pushing the stock to close at over $13 on Friday.
Let's first understand MBIA's current situation. The company has ceased generating new business and is essentially waiting for existing insurance policies to expire. Consequently, MBIA is currently devoid of income and profit.
However, the crux of the matter lies in the substantial cash reserves the company holds, currently held by a subsidiary called National. While its balance sheet may show a significant amount of debt, it's crucial to recognize that a significant portion of this debt belongs to MBIA CORP, a subsidiary. There is a legal structure in place ensuring that the parent company, MBIA INC, does not bear any financial responsibility for MBIA Corp. If you remove the debt held by MBIA CORP, the true book value per share is estimated to be in the range of $24-27.
It's common for investors to anticipate a post-dividend dip in stock value equal to the distributed amount. However, at its current price, it does not seem rational that the stock would trade lower than the price previous to the announcement. If anything, the management's capability to unlock substantial cash reserves, particularly from National, serves as a catalyst for future financial opportunities.
In essence, the announcement of a significant cash dividend of $8 by MBIA presents a compelling opportunity in this unique situation.
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