<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1996.
Commission file number 1-9583
MBIA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Connecticut 06-1185706
(State of Incorporation) (I.R.S. Employer Identification No.)
113 King Street, Armonk, New York 10504
(Address of principal executive offices) (Zip Code)
(914) 273-4545
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, par value $1 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___.
---
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 17, 1997 was $ 4,219,666,628.00.
As of March 17, 1997, 43,323,066 shares of Common Stock, par value $1 per
share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE. Portions of Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1996 are incorporated by
reference into Parts I and II. Portions of the Definitive Proxy Statement of the
Registrant, dated March 31, 1997 are incorporated by reference into Parts I and
III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (SS 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]
<PAGE>
PART I
------
ITEM 1. BUSINESS
MBIA Inc. (the "Company") is engaged primarily in providing financial
guarantees for municipal bonds, asset-backed and mortgage-backed securities,
selected corporate debt, including investor-owned utility bonds, and debt of
selected financial institutions. The Company provides these services both in the
new issue and secondary markets and both domestically and internationally. These
financial guarantees are provided through the Company's wholly-owned subsidiary,
MBIA Insurance Corporation ("MBIA Corp."). MBIA Corp. is the successor to the
business of the Municipal Bond Insurance Association (the "Association") which
began writing financial guarantees for municipal bonds in 1974.
Effective as of December 31, 1989, the Company purchased Bond
Investors Guaranty Insurance Company ("BIG Ins."), another municipal bond
insurance company. Subsequently, MBIA Corp. reinsured the net exposure on the
municipal bond insurance policies previously issued by BIG Ins. (See "Business--
Reinsurance" below) and changed the name of BIG Ins. to MBIA Insurance Corp. of
Illinois ("MBIA Illinois").
In 1990, the Company formed a French company, MBIA Assurance S.A.
("MBIA Assurance"), to write financial guarantee insurance in the countries of
the European community. MBIA Assurance, which is a subsidiary of MBIA Corp.,
writes policies insuring public infrastructure financings, asset-backed
transactions and certain obligations of financial institutions. In September
1995, MBIA Corp. entered into a joint venture agreement with AMBAC Indemnity
Corporation for the purpose of jointly marketing financial guarantee insurance
within the European Community and the Pacific Rim countries. Generally,
throughout the text references to MBIA Corp. include the activities of its
subsidiaries, MBIA Illinois and MBIA Assurance.
Financial guarantee insurance provides an unconditional and
irrevocable guarantee of the payment of the principal of and interest on insured
obligations when due. MBIA Corp.'s primary business is insuring obligations
issued by states, municipalities and other governmental authorities,
instrumentalities and agencies. Such obligations are secured by the issuer's
taxing power in the case of general obligation or special tax supported bonds,
or by the issuer's ability to impose and collect fees and charges for public
services or specific projects in the case of most revenue bonds. MBIA Corp. also
provides financial guarantees for structured finance transactions (principally
mortgage-backed and asset-backed securities), investor-owned utility debt and
obligations of high-quality financial institutions. The principal economic value
of financial guarantee insurance to the entity offering the obligations is the
saving in interest costs resulting from the difference in the market yield
between an insured obligation and the same obligation on an uninsured basis. In
addition, for complex financings and for obligations of issuers that are not
well-known by investors, insured obligations receive greater market acceptance
than uninsured obligations. The financial guarantee industry is subject to the
direct and indirect effects of governmental regulation, including changes in tax
laws affecting the municipal and asset-backed debt markets. No assurance can be
given that future legislative or regulatory changes might not adversely affect
the results of operations and financial conditions of the Company.
MBIA Corp.'s substantial capital base permits it to support a large
portfolio of insured obligations and to write new business. MBIA Corp. primarily
insures obligations which are sold in the new issue and secondary markets, or
which are held in unit investment trusts ("UIT") and by mutual funds. It also
provides surety bonds for debt service reserve funds.
The Association was the first issuer of financial guarantees to
receive both the AAA claims-paying rating from Standard and Poor's Corporation
("S&P"), which it received in 1974, and the Aaa claims-paying rating from
Moody's Investors Service, Inc. ("Moody's"), which it received in 1984. Both
rating agencies have continuously issued Triple-A claims-paying ratings for MBIA
Corp. and Triple-A ratings to obligations guaranteed by MBIA Corp. Both rating
agencies have also continued the Triple-A rating on MBIA Illinois guaranteed
bond issues which have been reinsured by MBIA Corp. In addition, in 1995 MBIA
Corp. received a Triple-A claims-paying rating from Fitch Investors Services,
L.P. ("Fitch").
Over the last six years, the Company has undertaken the development of
investment management services and products which capitalize on its
capabilities, reputation and marketplace relationships. The Company is
delivering these services to the public sector through a group of subsidiary
companies. These services include cash
<PAGE>
management, municipal investment agreements, discretionary asset management and
administrative services. MBIA Municipal Investors Service Corporation ("MBIA-
MISC") provides cash management services and investment placement services to
local governments and school districts, and provides those clients with fund
administration services. In 1996, MBIA-MISC acquired American Money Management
Associates, Inc. ("AMMA") which offers investment and treasury management
consulting services to municipal and quasi-municipal clients. Both MBIA-MISC and
AMMA are registered investment advisors. MBIA Investment Management Corp.
("IMC") offers guaranteed investment agreements primarily for bond proceeds to
states and municipalities. MBIA Capital Management Corp. ("CMC") performs
investment management services for the Company, MBIA-MISC, IMC and selected
external clients.
MBIA CORP. INSURED PORTFOLIO
At December 31, 1996, the net par amount outstanding on MBIA Corp.'s
insured obligations (including insured obligations of MBIA Illinois and MBIA
Assurance but excluding the guarantee of $3.3 billion of obligations of IMC (see
"Operations--Miscellaneous")) was $233.2 billion, comprised of $204.2 billion in
new issues and $29.0 billion in secondary market issues. Net insurance in force
was $411.1 billion.
MBIA Corp. guarantees to the holder of the underlying obligation the
timely payment of the principal of and interest on such obligation in accordance
with its original payment schedule. Accordingly, in the case of a default on an
insured obligation, payments under the insurance policy cannot be accelerated by
the holder. MBIA Corp. will be required to pay principal and interest only as
originally scheduled payments come due.
MBIA Corp. seeks to maintain a diversified insured portfolio designed
to spread risk based on a variety of criteria including revenue source, issue
size, type of bond and geographic area. As of December 31, 1996, MBIA Corp. had
31,929 policies outstanding. These policies are diversified among 7,637
"credits," which MBIA Corp. defines as any group of issues supported by the same
revenue source.
The table below sets forth information with respect to the original
par amount written per issue in MBIA Corp.'s portfolio as of December 31, 1996:
MBIA CORP. ORIGINAL PAR AMOUNT PER ISSUE
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF NUMBER OF NET PAR % OF NET
ORIGINAL PAR AMOUNT ISSUES ISSUES AMOUNT PAR AMOUNT
WRITTEN PER ISSUE OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING
(IN BILLIONS)
<S> <C> <C> <C> <C>
Less than $10 million 26,609 83.4% $ 38.7 16.6%
$10-25 million 2,553 8.0 31.6 13.6
$25-50 million 1,317 4.1 34.4 14.7
$50-100 million 838 2.6 42.5 18.2
Greater than $100 million 612 1.9 86.0 36.9
------ ----- ------ -----
Total 31,929 100.0% $233.2 100.0%
====== ======
</TABLE>
MBIA Corp. underwrites financial guarantee insurance on the assumption
that the insurance will remain in force until maturity of the insured
obligations. MBIA Corp. estimates that the average life (as opposed to the
stated maturity) of its insurance policies in force at December 31, 1996 was
11.2 years. The average life was determined by applying a weighted average
calculation, using the remaining years to maturity of each insured obligation,
and weighting them on the basis of the remaining debt service insured. No
assumptions were made for any future refundings of insured issues. Average
annual debt service on the portfolio at December 31, 1996 was $22.3 billion.
2
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The table below shows the diversification of MBIA Corp.'s insured
portfolio by bond type:
MBIA CORP. INSURED PORTFOLIO BY BOND TYPE
AS OF DECEMBER 31, 1996 (1)
BOND TYPE
<TABLE>
<CAPTION>
NUMBER NET PAR % OF NET
OF ISSUES AMOUNT PAR AMOUNT
DOMESTIC OUTSTANDING OUTSTANDING OUTSTANDING
- --------
(IN BILLIONS)
<S> <C> <C> <C>
MUNICIPAL
General obligation 11,763 $ 64.9 27.8%
Utilities 4,799 36.5 15.7
Health care 2,386 28.7 12.3
Transportation 1,520 15.7 6.7
Special Revenue 1,543 15.6 6.7
Higher Education 1,309 9.8 4.2
Housing 2,455 7.9 3.4
Industrial Development &
Pollution Control Revenue 931 6.8 2.9
Other 169 2.1 0.9
------ ------ -----
TOTAL MUNICIPAL 26,875 188.0 80.6
------ ------ -----
STRUCTURED FINANCE* 349 30.2 12.9
OTHER 4,536 9.6 4.3
------ ------ -----
TOTAL DOMESTIC 31,760 227.8 97.8
------ ------ -----
INTERNATIONAL
- -------------
INFRASTRUCTURE 121 1.8 0.7
STRUCTURED FINANCE* 22 1.7 0.7
OTHER 26 1.9 0.8
------ ------ -----
TOTAL INTERNATIONAL 169 5.4 2.2
------ ------ -----
TOTAL 31,929 $233.2 100.0%
====== ======
</TABLE>
* Asset/mortgage-backed
___________________
(1) Excludes IMC's $3.3 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
As illustrated by the table above, approximately 44% of the net par
amount outstanding of the MBIA Corp. insured portfolio consists of general
obligation bonds, which are supported by the full faith and credit and taxing
power of state and local governmental issuers, and water, sewer and electric
revenue bonds, which are secured by a pledge of revenues imposed and collected
by state and local public entities for the provision of essential services. MBIA
Corp. seeks to avoid bond issues which entail excessive single project risk,
over-capacity or customer contract disputes.
3
<PAGE>
MBIA Corp. engages primarily in insuring municipal bonds. As of
December 31, 1996, of the $233.2 billion outstanding net par amount of
obligations insured, $188 billion, or 81%, consisted of municipal bonds, $39.8
billion, or approximately 17%, consisted primarily of asset/mortgage-backed
transactions and investor-owned utility obligations and $5.4 billion or
approximately 2% consisted of transactions done in the European market.
The table below shows the diversification by type of insurance written
by MBIA Corp. in each of the last five years:
MBIA CORP. NET PAR AMOUNT BY BOND TYPE (1)
<TABLE>
<CAPTION>
BOND TYPE 1992 1993 1994 1995 1996
(In millions)
<S> <C> <C> <C> <C> <C>
DOMESTIC
- --------
MUNICIPAL
General obligation $ 8,951 $11,952 $11,086 $10,127 $12,807
Utilities 5,975 9,293 4,858 5,018 6,731
Health care 4,401 6,342 3,655 2,913 4,147
Special Revenue 2,776 3,246 1,888 1,935 3,761
Transportation 2,283 3,419 1,747 2,624 3,146
Higher Education 1,532 2,126 1,346 1,264 2,106
Housing 592 469 876 1,962 1,802
Industrial Development &
Pollution Control Revenue 744 1,533 1,486 1,155 693
Other 86 --- 575 1,240 401
------- ------- ------- ------- -------
TOTAL MUNICIPAL 27,340 38,380 27,517 28,238 35,594
------- ------- ------- ------- -------
STRUCTURED FINANCE* 2,842 3,581 4,832 7,766 18,765
OTHER 1,305 1,548 1,355 1,289 4,603
------- ------- ------- ------- -------
TOTAL DOMESTIC 31,487 43,509 33,704 37,293 58,962
------- ------- ------- ------- -------
INTERNATIONAL
- -------------
INFRASTRUCTURE --- 190 243 591 788
STRUCTURED FINANCE* --- --- 725 479 896
OTHER --- --- 980 444 765
------- ------- ------- ------- -------
TOTAL INTERNATIONAL --- 190 1,948 1,514 2,449
------- ------- ------- ------- -------
TOTAL $31,487 $43,699 $35,652 $38,807 $61,411
======= ======= ======= ======= =======
</TABLE>
* Asset/mortgage-backed
(1) Par amount insured by year, net of reinsurance.
4
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MBIA Corp. is licensed to write business in all 50 states, the
District of Columbia, Guam, the Northern Mariana Islands, the U.S. Virgin
Islands, Puerto Rico the Kingdom of Spain and the Republic of France. MBIA
Illinois is licensed to write business in 48 states, the District of Columbia
and Puerto Rico. MBIA Assurance is licensed to write business in France. The
following table sets forth by state those states in which MBIA Corp. has at
least 2% of its total net par amount outstanding:
MBIA CORP. INSURED PORTFOLIO BY STATE
AS OF DECEMBER 31, 1996 (1)
<TABLE>
<CAPTION>
NUMBER OF NET PAR % OF NET
ISSUES AMOUNT PAR AMOUNT
OUTSTANDING OUTSTANDING OUTSTANDING
(IN BILLIONS)
<S> <C> <C> <C>
STATE
California 3,378 $ 30.8 13.2%
New York 4,819 17.0 7.3
Florida 1,632 16.1 6.9
Pennsylvania 2,216 11.5 4.9
Texas 2,052 11.4 4.9
Illinois 1,145 10.2 4.4
New Jersey 1,863 10.0 4.3
Ohio 1,032 6.4 2.8
Massachusetts 1,100 6.0 2.6
Michigan 1,021 5.0 2.1
All other states 11,502 103.4 44.4
------ ------ -----
Total United States 31,760 227.8 97.8
International 169 5.4 2.2
------ ------ -----
Total 31,929 $233.2 100.0%
====== ======
</TABLE>
_____________________
(1) Excludes IMC's $3.3 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
MBIA Corp. has underwriting guidelines that limit the net insurance in
force for any one insured credit. MBIA Corp. has not exceeded any applicable
regulatory single-risk limit with respect to any bond issue insured by it. As of
December 31, 1996, MBIA Corp.'s net par amount outstanding for its ten largest
insured municipal credits totalled $10.0 billion, representing 4.3% of MBIA
Corp.'s total net par amount outstanding, and for its ten largest structured
finance credits, the net par outstanding was $7.4 billion, or 3.2% of the total.
MBIA CORP. INSURANCE PROGRAMS
MBIA Corp. offers financial guarantee insurance in both the new issue
and secondary markets. At present, no new financial guarantee insurance is being
offered by MBIA Illinois, but it is possible that MBIA Illinois will insure
transactions in the future. MBIA Corp. and MBIA Assurance offer financial
guarantee insurance in Europe and other areas outside the United States. Set
forth below are the different types of programs through which insurance
presently is offered.
New Issue Programs:
------------------
Direct Purchase Program. Under the Direct Purchase Program, an
-----------------------
issuer or underwriter purchases a policy directly from MBIA Corp. and pays the
premium itself. Substantially all MBIA Corp. insured issues that are sold
through a negotiated offering utilize this program. Of those issues which sell
through competitive bidding, some use this program but the majority use the
Optional Bidding Program described below. The critical elements
5
<PAGE>
in the Direct Purchase Program are that the issuer or underwriter determines to
use insurance well before the sale date and then works closely with MBIA Corp.
in developing documentation and legal structure.
Optional Bidding Program. Under the Optional Bidding Program,
------------------------
MBIA Corp. offers insurance as an option to the underwriters bidding on an
issue. It is used only for issues sold through competitive bidding. Under this
program, the MBIA Corp. policy is purchased and the premium paid by the
successful underwriter who chooses to use MBIA Corp. insurance. The flexibility
of this program, where insurance may be chosen or rejected until sale time,
makes adjustment to current market conditions easy for underwriters. In
addition, this program eliminates any need for the issuer to budget for or
allocate bond proceeds to pay the premium.
Secondary Market Programs:
-------------------------
Unit Investment Trusts. MBIA Corp. offers insurance to the UIT
----------------------
market through ongoing arrangements with investment banking and financial
service companies which are UIT sponsors. MBIA Corp. insurance covers all of the
bond issues in each of the insured unit trusts through one of two programs.
Under one program, each issue in a trust is insured until maturity and, under
the other program, each issue is insured only while it is held in the UIT.
Mutual Funds. MBIA Corp. offers insurance in the mutual fund
-------------
sector through ongoing arrangements with fund sponsors, which are investment
advisers to individual mutual funds or families of mutual funds. All premiums
for insuring bond issues in mutual funds are paid on the "while-in-trust" basis
and consist of monthly charges. Under certain of these policies, MBIA Corp. is
committed to offer insurance to maturity to the sponsor on issues sold out of
the fund for an additional premium payable at the time of sale.
Other Secondary Market Insurance. MBIA Corp. provides insurance
--------------------------------
on whole and partial maturities for bond issues which are being traded in the
secondary market in response to requests from bond traders and institutions.
MBIA Corp. charges the purchaser of this insurance a single premium payable upon
issuance of the policy for insuring the designated bonds to maturity.
The following table indicates the percentage of net par outstanding
with respect to each type of insured program:
MBIA CORP. TYPES OF INSURED PROGRAMS
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
NET PAR % OF NET
AMOUNT PAR AMOUNT
TYPE OF PROGRAM OUTSTANDING OUTSTANDING
(IN BILLIONS)
<S> <C> <C>
New issue $204.2 87.6%
Secondary market issues
Unit investment trusts 5.2 2.2
Mutual funds 0.4 0.2
Other secondary market issues 23.4 10.0
------ -----
Total $233.2 100.0%
======
</TABLE>
OPERATIONS
The operations of MBIA Corp. are conducted through the Insurance
Operations Division. The Insurance Operations Division includes the Public
Finance and the Packaged Products Groups, the Structured Finance and the
International Departments, and the Underwriting Policy and Review Department
("UPR"). The functions of each are more fully described below.
6
<PAGE>
The Public Finance Group and the Packaged Products Group each have
underwriting authority with respect to certain categories of business and with
respect to credits up to a certain par amount per category. As a result, the
business units within these groups are responsible for analyzing and approving
approximately 79% of the number of issues insured (representing 45% of the gross
par value insured). With respect to larger, complex or unique credits,
underwriting is performed by a committee drawn from outside the business unit
originating the transaction. For all transactions done by the Structured Finance
or International Departments, MBIA Corp.'s review and approval procedure has two
stages. The first stage consists of transaction screening and in-depth credit
review and structuring by the appropriate department within the Insurance
Operations Division. The second stage, final review and approval of credit and
structure, is performed by UPR. Pricing, in all cases, is carried out by the
Market Research Group in the Insurance Operations Division, and the continuing
review of insured issues is administered by the Insured Portfolio Management
Group within UPR.
Marketing and Credit Review:
---------------------------
MBIA Corp.'s marketing activities and initial credit review
functions for insured transactions are carried out primarily by various
departments within the Insurance Operations Division. They are also involved in
structuring credits on negotiated new issue business and in insuring secondary
market issues. These groups employ research analysts who have extensive
experience in the industry and who develop business within established credit
analysis criteria. Market intelligence and client contact related to
identifying, screening and developing candidates for insurance are also handled
by the various departments within the Insurance Operations Division. The primary
factors in issue screening are credit quality, legal security and transaction
structure, as well as evaluation of the potential for interest cost savings
through the use of insurance.
Premium rates are determined by the Market Research Department,
MBIA Corp.'s pricing and syndicate unit, which focuses on the type of business
and credit strength of the bond issue, the maturity and structure of the issue,
and other credit and market factors. Premium rates are based upon established
premium ranges, which take into account capital charges, rating agency models
and degrees of perceived risk. The Market Research Group also conducts extensive
consultation with analysts on the issue and considers updated market
intelligence developed from daily contact with syndicate managers and traders to
help form the most accurate view of the value of MBIA Corp.'s guarantee on each
issue. Minimum pricing standards are established at levels that management
believes should generate an appropriate level of return on capital.
The Company recognizes that adherence to its pricing and quality
standards may result in the loss of business to other insurers offering
insurance at rates or on terms that the Company does not believe to be
appropriate. The Company gives primary emphasis to maintaining its pricing and
quality standards and secondary emphasis to market share.
Underwriting Review:
-------------------
UPR, which consists of the Structured Finance Underwriting
Department, the International Underwriting Analysis Department, the Corporate
Risk Department and the Insured Portfolio Management Group, is responsible for
adherence to MBIA Corp.'s underwriting guidelines and procedures, which are
designed to maintain an insured portfolio with low risk characteristics and for
monitoring the insured portfolio. MBIA Corp. maintains underwriting guidelines
based on those aspects of credit quality that it deems important for each
category of obligation considered for insurance. These include economic and
social trends, debt management, financial management, adequacy of anticipated
cash flow, satisfactory legal structure and other security provisions, viable
tax and economic bases, adequacy of loss coverage and project feasibility,
including a satisfactory consulting engineer's report, if applicable. Such
guidelines are subject to periodic review. An inter-divisional committee, the
Credit Policy Committee, is responsible for establishing and maintaining
underwriting standards and criteria for all insurance products.
In order to ensure that the existing guidelines are followed, UPR
monitors and periodically reviews underwriting decisions made by the Insurance
Operations Division. The Corporate Risk Group underwrites and monitors MBIA
Corp.'s direct and indirect exposure to financial institutions and other
corporate entities with respect to investment contracts, letters of credit and
liquidity facilities supporting MBIA-insured issues, and recommends limits on
such exposures. The department provides in-depth financial analyses of financial
institutions for which there is existing or proposed exposure and gives advice
on related contract terms, transfers of these instruments to new institutions
and renewal dates and procedures.
7
<PAGE>
Insured Portfolio Management:
----------------------------
The Insured Portfolio Management Group is responsible for
monitoring outstanding issues insured by MBIA Corp. This group's first function
is to detect any deterioration in credit quality or changes in the economic or
political environment which could interrupt the timely payment of debt service
on an insured issue. Once a problem is detected, the group then works with the
issuer, trustee, bond counsel, underwriters and other interested parties to deal
with the concern before it develops into a default.
Although MBIA Corp. has to date had only ten insured issues
requiring claim payments for which it has not been fully reimbursed, there are
eight additional insured issues for which case loss reserves have been
established (see "Losses and Reserves" below). Other potential losses have been
avoided through the early detection of problems and subsequent negotiations with
the issuer and other parties involved. In a limited number of instances, the
solution involved the restructuring of insured issues or underlying security
arrangements. More often, MBIA Corp. utilizes a variety of other techniques to
resolve problems, such as enforcement of covenants, assistance in resolving
management problems and working with the issuer to develop potential political
solutions. Issuers are under no obligation to restructure insured issues or
underlying security arrangements in order to prevent losses. Moreover, MBIA
Corp. is obligated to pay amounts equal to defaulted interest and principal
payments on insured bonds on their respective due dates even if the issuer or
other parties involved refuse to restructure or renegotiate the terms of the
insured bonds or related security arrangements. The Company believes that early
detection and continued involvement by the Insured Portfolio Management Group
are crucial in avoiding or minimizing claims on insurance policies.
Once an obligation is insured, the issuer and the trustee are
asked, or in some cases required, to furnish financial information, including
audited financial statements, annually to the Insured Portfolio Management Group
for review. Potential problems uncovered through this review, such as low
operating fund balances, covenant violations, trustee or servicer problems, tax
certiorari proceedings or excessive litigation, could result in an immediate
surveillance review and an evaluation of possible remedial actions. The Insured
Portfolio Management Group also monitors state finances and budget developments
and evaluates their impact on local issuers.
The Company's computerized credit surveillance system records
situations where follow-up is needed, such as letter of credit renewal,
construction status and the receipt of additional data after the closing of a
transaction. Further, issues that experience financial difficulties,
deteriorating economic conditions, excessive litigation or covenant violations
are placed on the appropriate review list and are subject to surveillance
reviews at intervals commensurate to the problem which has been detected.
There are two departments within the Insured Portfolio Management
Group: the Public Finance Portfolio Management Department handles the more
traditional types of issues such as general obligation, utility, special revenue
and health care bonds; and the Structured Finance Portfolio Management
Department is responsible for housing and asset-backed issues.
The Public Finance Portfolio Management Department reviews and
reports on the major credit quality factors of risks insured by the Company,
evaluates the impact of new developments on insured weaker credits and carries
out remedial activity. In addition, it performs analysis of financial statements
and key operating data on a large scale basis and maintains various databases
for research purposes. It responds to consent and waiver requests and monitors
pool programs. This department is responsible for preparing special reports
which include analyses of regional economic trends, proposed tax limitations,
the impact of employment trends on local economies or legal developments
affecting bond security.
The Structured Finance Portfolio Management Department monitors
insured structured finance programs, focusing on the adequacy of reserve
balances and investment of earnings, the status of mortgage or loan
delinquencies and underlying insurance coverage and the performance of the
trustee for insured issues. Monitoring of issues typically involves review of
records and statements, review of transaction documents with regard to
compliance, analysis of cash flow adequacy and communication with trustees.
Review of servicer performance is also conducted through review of servicer
financial statements, review of servicer reports where available and
8
<PAGE>
contacts with program administrators and trustees. The department also carries
out remedial activity on weaker credits.
Other
-----
In 1996, the Company established Strategic Services, Inc. ("SSI")
to develop the areas of tax collection and administration for state and local
governments. In May, SSI acquired an equity interest in Capital Asset Holdings,
an entity engaged in the purchase and servicing of delinquent taxes for
municipal entities. In January, 1997, SSI acquired a 95% interest in the
entities of the Municipal Tax Bureau, which provide tax revenue compliance and
collection services to the public sector.
INVESTMENT MANAGEMENT SERVICES
Over the last six years, the Company's investment management
businesses have expanded their services to the public sector and added new
revenue sources. Average assets under management for these businesses have
increased from $3.2 billion in 1994 to $6.2 billion in 1996. These assets
include IMC's municipal investment agreements, pooled public funds and third-
party accounts. With the growth in investments under management, these
businesses generated increases in operating income in 1996.
MBIA-MISC provides cash management services and fixed-rate investment
placement services directly to local governments and school districts. In
addition, MBIA-MISC performs investment fund administration services for
clients, which provide an additional source of revenue. In late 1996, MBIA-MISC
acquired American Money Management Associates, Inc. ("AMMA"), which provides
investment and treasury management consulting services for municipal and quasi-
public sector clients. Both MBIA-MISC and AMMA are Securities and Exchange
Commission registered investment advisers. MBIA-MISC operates in 20 states
and the Commonwealth of Puerto Rico and, at year-end 1996, had $4.2 billion of
client assets under management.
IMC provides guaranteed investment agreements for bond proceeds of
states and municipalities. At year-end 1996, principal and accrued interest
outstanding on investment agreements was $3.3 billion. At amortized cost, the
assets supporting IMC's investment agreement liabilities were $3.3 billion at
December 31, 1996. These assets are comprised of high-quality securities with an
average credit quality rating of AA.
CMC provides investment management services for IMC's investment
agreements, MBIA-MISC's municipal cash management programs and MBIA Corp.'s
insurance related fixed-income investment portfolios, as well as third-party
accounts. CMC assumed full management for MBIA Corp.'s insurance related fixed-
income investment portfolios in 1996, which was previously managed externally.
CMC is also a registered investment advisor and at year-end 1996 was managing
over $10 billion of assets.
COMPETITION
The financial guarantee insurance business is highly competitive. In
1996 MBIA Corp. was the largest insurer of new issue long-term municipal bonds,
accounting for 40% of the par amount of such insured bonds. The other principal
insurers in 1996 were AMBAC Indemnity Corporation, Financial Guaranty Insurance
Company, Financial Security Assurance Inc. and Capital Guaranty Insurance Co.,
all of which, like MBIA Corp., have Aaa and AAA claims-paying ratings from
Moody's and S&P, respectively. According to Asset Sales Report, in 1996 MBIA
Corp. was the leading insurer of new issue asset/mortgage-backed securities. The
three principal competitors in this area in 1996 were Capital Markets Assurance
Corp., Financial Security Assurance and Financial Guaranty Insurance Company.
Financial guarantee insurance also competes with other forms of credit
enhancement, including over-collateralization, letters of credit and guarantees
(for example, mortgage guarantees where pools of mortgages secure debt service
payments) provided by banks and other financial institutions, some of which are
governmental agencies or have been assigned the highest credit ratings awarded
by one or more of the major rating agencies.
9
<PAGE>
Letters of credit are most often issued for periods of less than 10 years,
although there is no legal restriction on the issuance of letters of credit
having longer terms. Thus, financial institutions and banks issuing letters of
credit compete directly with MBIA Corp. to guarantee short-term notes and bonds
with a maturity of less than 10 years. To the extent that banks providing credit
enhancement may begin to issue letters of credit with commitments longer than 10
years, the competitive position of financial guarantee insurers, such as MBIA
Corp., could be adversely affected. Letters of credit also are frequently used
to assure the liquidity of a short-term put option for a long-term bond issue.
This assurance of liquidity effectively confers on such issues, for the short
term, the credit standing of the financial institution providing the facility,
thereby competing with MBIA Corp. and other financial guarantee insurers in
providing interest cost savings on such issues. Financial guarantee insurance
and other forms of credit enhancement also compete in nearly all instances with
the issuer's alternative of foregoing credit enhancement and paying a higher
interest rate. If the interest savings from insurance or another form of credit
enhancement are not greater than the cost of such credit enhancement, the issuer
will generally choose to issue bonds without enhancement. MBIA Corp. also
competes in the international market with composite (multi-line) insurers.
There are minimum capital requirements imposed on a financial
guarantee insurer by Moody's and S&P to obtain Triple-A claims-paying ratings.
Also, under a New York law, multi-line insurers are prohibited from writing
financial guarantee insurance in New York State, except during a transitional
period which, subject to certain specific conditions, will expire in May 1997.
See "Business--Regulation." However, there can be no assurance that major multi-
line insurers or other financial institutions will not participate in financial
guarantee insurance in the future, either directly or through monoline
subsidiaries.
REINSURANCE
State insurance laws and regulations, as well as Moody's and S&P,
impose minimum capital requirements on financial guarantee companies, limiting
the aggregate amount of insurance which may be written and the maximum size of
any single risk exposure which may be assumed. MBIA Corp. increases its capacity
to write new business by using treaty and facultative reinsurance to reduce its
gross liabilities on an aggregate and single risk basis.
From its reorganization in December 1986 through December 1987, MBIA
Corp. reinsured a portion of each policy through quota and surplus share
reinsurance treaties. Each treaty provides reinsurance protection with respect
to policies written by MBIA Corp. during the term of the treaty, for the full
term of the policy. Under its quota share treaty MBIA Corp. ceded a fixed
percentage of each policy insured. Since 1988, MBIA Corp. has entered into only
surplus share treaties under which a variable percentage of risk over a minimum
size is ceded, subject to a maximum percentage specified in the treaty.
Reinsurance ceded under the treaties is for the full term of the underlying
policy.
MBIA Corp. also enters into facultative reinsurance arrangements from
time to time primarily in connection with issues which, because of their size,
require additional capacity beyond MBIA Corp.'s retention and treaty limits.
Under these facultative arrangements, portions of MBIA Corp.'s liabilities are
ceded on an issue-by-issue basis. MBIA Corp. utilizes facultative arrangements
as a means of managing its exposure to single issuers to comply with regulatory
and rating agency requirements, as well as internal underwriting and portfolio
management criteria.
As a primary insurer, MBIA Corp. is required to honor its obligations
to its policyholders whether or not its reinsurers perform their obligations to
MBIA Corp. The financial position of all reinsurers is monitored by MBIA Corp.
on a regular basis.
As of December 31, 1996, MBIA Corp. retained approximately 88% of the
gross debt service outstanding of all transactions insured by it, MBIA Assurance
and MBIA Illinois, and ceded approximately 12% to treaty and facultative
reinsurers. MBIA Corp.'s and MBIA Illinois' principal reinsurers are Enhance
Reinsurance Company, Capital Re Management Corporation, Asset Guaranty
Reinsurance Co., Capital Mortgage Reinsurance Company and Axa Re Finance. The
first two of these reinsurers, whose claims-paying ability is rated Triple-A by
S&P and Moody's, reinsured approximately 63% of the total ceded insurance in
force at December 31, 1996. The other principal reinsurers are rated AA by S&P.
All other reinsurers reinsured less than 5% of the total ceded insurance
10
<PAGE>
in force at December 31, 1996 and are diversified geographically and by lines of
insurance written. MBIA Corp.'s net retention on the policies it writes varies
from time to time depending on its own business needs and the capacity available
in the reinsurance market. The amounts of reinsurance ceded at December 31, 1996
and 1995 by bond type and by state are set forth in Note 12 to the Consolidated
Financial Statements of MBIA Inc. and Subsidiaries.
In connection with the BIG Ins. acquisition, MBIA Corp. and MBIA
Illinois entered into a reinsurance agreement under which MBIA Corp. agreed to
reinsure 100% of all business written by MBIA Illinois, net of cessions by MBIA
Illinois to third party reinsurers, in exchange for MBIA Illinois' transfer of
the assets underlying the related unearned premium and contingency reserves.
Pursuant to such reinsurance agreement with MBIA Illinois, MBIA Corp. reinsured
all of the net exposure of $30.9 billion, or approximately 68% of the gross debt
service outstanding, of the municipal bond insurance portfolio of MBIA Illinois,
the remaining 32% having been previously ceded to treaty and facultative
reinsurers of MBIA Illinois (see preceding paragraph). MBIA Corp. retroceded 3%
and 1% of this portfolio to its treaty and facultative reinsurers in 1990 and
1991, respectively; additionally, in 1990, 10% of this portfolio was ceded back
to MBIA Illinois to comply with regulatory requirements.
MBIA Corp. and MBIA Assurance have both a reinsurance agreement and a
net worth maintenance agreement.
INVESTMENTS AND INVESTMENT POLICY
The Finance Committee of the Board of Directors of the Company
approves the general investment objectives and policies of the Company, and also
reviews more specific investment guidelines. On January 1, 1996 CMC assumed full
management of all of MBIA Corp.'s consolidated investment portfolios. Certain
investments of the Company and MBIA Assurance related to non-U.S. insurance
operations are managed by independent managers.
To continue to provide strong capital resources and claims-paying
capabilities for its insurance operations, the investment objectives and
policies for insurance operations set quality and preservation of capital as the
primary objective subject to an appropriate degree of liquidity. Maximization of
after-tax investment income and investment returns are an important but
secondary objective.
Investment objectives, policies and guidelines related to the
Company's municipal investment agreement business are also subject to review and
approval by the Finance Committee of the Board of Directors. The primary
investment objectives are to preserve capital, to achieve an investment duration
that closely approximates the expected duration of related liabilities, and to
maintain appropriate liquidity. The investment agreement assets are managed by
CMC subject to an investment management agreement between IMC and CMC.
For 1996, approximately 68% of the Company's net income was derived
from after-tax earnings on its investment portfolio (excluding the amounts
earned on investment agreement assets which are recorded as a component of
investment management services revenues). The following table sets forth
investment income and related data for the years ended December 31, 1994, 1995
and 1996:
11
<PAGE>
INVESTMENT INCOME OF THE COMPANY (1)
<TABLE>
<CAPTION>
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Investment income before expenses (2) $196,662 $222,704 $250,415
Investment expenses 2,809 2,846 2,854
-------- -------- --------
Net investment income before income taxes 193,853 219,858 247,561
Net realized gains 10,335 11,312 11,740
-------- -------- --------
Total investment income before income taxes $204,188 $231,170 $259,301
======== ======== ========
Total investment income after income taxes $175,007 $196,269 $219,798
======== ======== ========
</TABLE>
_________________________
(l) Excludes investment income and realized gains and losses from
investment management services.
(2) Includes taxable and tax-exempt interest income.
The tables below set forth the composition of the Company's investment
portfolios. The weighted average yields in the tables reflect the nominal yield
on book value as of December 31, 1996, 1995 and 1994.
INVESTMENT PORTFOLIO BY SECURITY TYPE
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENT
INSURANCE MANAGEMENT SERVICES
INVESTMENT CATEGORY FAIR VALUE WEIGHTED FAIR VALUE WEIGHTED
(IN THOUSANDS) AVERAGE YIELD (1) (IN THOUSANDS) AVERAGE YIELD (1)
<S> <C> <C> <C> <C>
Fixed income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations $ 340,397 7.30% $1,121,511 6.32%
GNMAs 71,080 7.62 71,315 7.35
Other mortgage & asset backed 125,382 7.14 767,271 5.92
securities
Corporate obligations 468,386 6.78 706,574 6.82
Foreign obligations (2) 152,392 6.87 182,885 7.37
---------- ----------
Total 1,157,637 7.04 2,849,556 6.43
Tax-exempt bonds:
State & municipal 2,992,063 8.03 -- --
---------- ----------
Total long-term investments 4,149,700 7.76 2,849,556 6.43
Short-term investments (3) 176,088 5.96 443,742 5.65
---------- ----------
Total fixed income investments 4,325,788 7.69% 3,293,298 6.33%
Other investments (4) 29,101 -- -- --
---------- ----------
Total investments $4,354,889 -- $3,293,298 --
========== ==========
</TABLE>
(1) Prospective market yields as of December 31, 1996. Yield on tax-exempt
bonds is presented on a taxable equivalent basis using a 35% federal income
tax rate.
(2) Includes direct obligations of foreign governments and foreign
corporations.
(3) Taxable and tax-exempt investments, including bonds with a remaining
maturity of less than one year.
(4) Consists of marketable equity securities and interests in limited
partnerships; yield information not meaningful.
12
<PAGE>
INVESTMENT PORTFOLIO BY SECURITY TYPE
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
INVESTMENT
INSURANCE MANAGEMENT SERVICES
INVESTMENT CATEGORY FAIR VALUE WEIGHTED FAIR VALUE WEIGHTED
(IN THOUSANDS) AVERAGE YIELD (1) (IN THOUSANDS) AVERAGE YIELD (1)
<S> <C> <C> <C> <C>
Fixed income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations $ 265,209 6.82% $1,028,805 5.90%
GNMAs 58,853 7.07 141,957 7.01
Other mortgage & asset backed securities 137,542 6.71 702,144 5.58
Corporate obligations 366,076 6.12 520,236 6.29
Foreign obligations (2) 98,620 6.08 122,692 6.86
---------- ----------
Total 926,300 6.46 2,515,834 6.00
Tax-exempt bonds:
State & municipal 2,726,321 7.76 --- --
---------- ----------
Total long-term investments 3,652,621 7.44 2,515,834 6.00
Short-term investments (3) 198,035 6.49 226,792 5.48
---------- ----------
Total fixed income investments 3,850,656 7.39% 2,742,626 5.96%
Other investments (4) 14,064 -- --- --
---------- ----------
Total investments $3,864,720 -- $2,742,626 --
========== ==========
</TABLE>
(1) Prospective market yields as of December 31, 1995. Yield on tax-exempt
bonds is presented on a taxable equivalent basis using a 35% federal income
tax rate.
(2) Consists of U.S. demoninated foreign governments and corporate securities.
(3) Taxable and tax-exempt investments, including bonds with a remaining
maturity of less than one year.
(4) Consists of equity investments and other fixed income investments; yield
information not meaningful.
13
<PAGE>
INVESTMENT PORTFOLIO BY SECURITY TYPE
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
INVESTMENT
INSURANCE MANAGEMENT SERVICES
INVESTMENT CATEGORY FAIR VALUE WEIGHTED FAIR VALUE WEIGHTED
(IN THOUSANDS) AVERAGE YIELD (1) (IN THOUSANDS) AVERAGE YIELD (1)
<S> <C> <C> <C> <C>
Fixed income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations $ 180,405 8.52% $ 477,530 7.15%
GNMAs 70,476 8.76 102,903 8.38
Other mortgage & asset backed securities 111,611 8.69 680,530 7.27
Corporate obligations 235,839 8.44 208,371 8.70
Foreign obligations (2) 98,558 8.46 53,916 8.70
---------- ----------
Total 696,889 8.54 1,523,250 7.55
Tax-exempt bonds:
State & municipal 2,355,017 9.46 --- --
---------- ----------
Total long-term investments 3,051,906 9.25 1,523,250 7.55
Short-term investments (3) 121,384 5.56 152,685 6.48
---------- ----------
Total fixed income investments 3,173,290 9.11% 1,675,935 7.46%
Other investments (4) 17,550 -- --- --
---------- ----------
Total investments $3,190,840 -- $1,675,935 --
========== ==========
</TABLE>
(1) Prospective market yields as of December 31, 1994. Yield on tax-exempt
bonds is presented on a taxable equivalent basis using a 35% federal income
tax rate.
(2) Includes direct obligations of foreign governments and foreign
corporations.
(3) Taxable and tax-exempt investments, including bonds with a remaining
maturity of less than one year.
(4) Consists of marketable equity securities and interests in limited
partnerships; yield information not meaningful
14
<PAGE>
The average maturity of the insurance fixed income portfolio excluding
short-term investments as of December 31, 1996 was 10.2 years. After allowing
for estimated principal pre-payments on mortgage pass-through securities, the
duration of the portfolio was 6.7 years.
The table below sets forth the distribution by maturity of the
Company's consolidated fixed income investments:
FIXED INCOME INVESTMENTS BY MATURITY
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENT
INSURANCE MANAGEMENT SERVICES
MATURITY FAIR VALUE % OF TOTAL FAIR VALUE % OF TOTAL
(IN THOUSANDS) FIXED INCOME (IN THOUSANDS) FIXED INCOME
INVESTMENTS INVESTMENTS
<S> <C> <C> <C> <C>
Within 1 year $ 176,088 4.1% $ 443,742 13.5%
Beyond 1 year but within 5 years 638,568 14.8 1,063,272 32.3
Beyond 5 years but within 10 years 1,482,941 34.3 426,650 13.0
Beyond 10 years but within 15 years 978,739 22.6 300,988 9.1
Beyond 15 years but within 20 years 867,268 20.0 405,712 12.3
Beyond 20 years 182,184 4.2 652,934 19.8
---------- ----- ---------- -----
Total fixed income investments $4,325,788 100.0% $3,293,298 100.0%
========== ==========
</TABLE>
The quality distribution of the Company's fixed income investments
based on ratings of S&P was as shown in the table below:
FIXED INCOME INVESTMENTS BY QUALITY RATING (1)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENT
INSURANCE MANAGEMENT SERVICES
QUALITY RATING FAIR VALUE % OF TOTAL FAIR VALUE % OF TOTAL
(IN THOUSANDS) FIXED INCOME (IN THOUSANDS) FIXED INCOME
INVESTMENTS INVESTMENTS
<S> <C> <C> <C> <C>
AAA $1,934,591 45.7% $2,054,403 64.2%
AA 1,027,764 24.3 225,838 7.1
A 1,045,042 24.7 841,309 26.3
BBB 227,119 5.3 78,071 2.4
---------- ----- ---------- -----
Total $4,234,516 100.0% $3,199,621 100.0%
========== ==========
</TABLE>
(1) Excludes short-term investments with an original maturity of less
than one year, but includes bonds having a remaining maturity of
less than one year.
REGULATION
MBIA Corp. is licensed to do insurance business in, and is subject to
insurance regulation and supervision by, the State of New York (its state of
incorporation), the 49 other states, the District of Columbia, Guam, the
Northern Mariana Islands, the U.S. Virgin Islands, Puerto Rico, the Kingdom of
Spain and the Republic of France. MBIA Illinois is licensed in, and is subject
to insurance regulation and supervision by, the State of Illinois (its state of
incorporation), 47 other states, the District of Columbia and Puerto Rico. MBIA
Assurance is licensed to do insurance business in France and is subject to
regulation under the corporation and insurance laws of the Republic of France.
The extent of state insurance regulation and supervision varies by jurisdiction,
but New York, Illinois
15
<PAGE>
and most other jurisdictions have laws and regulations prescribing minimum
standards of solvency, including minimum capital requirements, and business
conduct which must be maintained by insurance companies. These laws prescribe
permitted classes and concentrations of investments. In addition, some state
laws and regulations require the approval or filing of policy forms and rates.
MBIA Corp. is required to file detailed annual financial statements with the New
York Insurance Department and similar supervisory agencies in each of the other
jurisdictions in which it is licensed. MBIA Illinois is required to file
detailed annual financial statements with the Illinois Department of Insurance
and similar supervisory agencies in each of the other jurisdictions in which it
is licensed. The operations and accounts of both MBIA Corp. and MBIA Illinois
are subject to examination by these regulatory agencies at regular intervals.
MBIA Corp. is licensed to provide financial guarantee insurance under
Article 69 of the New York Insurance Law. Article 69 defines financial guarantee
insurance to include any guarantee under which loss is payable upon proof of
occurrence of financial loss to an insured as a result of certain events. These
events include the failure of any obligor on or any issuer of any debt
instrument or other monetary obligation to pay principal, interest, premium,
dividend or purchase price of or on such instrument or obligation, when due.
Under Article 69, MBIA Corp. is licensed to transact financial guarantee
insurance, residual value insurance, surety insurance and credit insurance and
such other kinds of business to the extent necessarily or properly incidental to
the kinds of insurance which MBIA Corp. is authorized to transact. In addition,
MBIA Corp. is empowered to assume or reinsure the kinds of insurance described
above.
MBIA Illinois is licensed to provide fidelity and surety and other
miscellaneous lines of insurance under Section 4 of the Illinois Insurance Code.
Section 4 defines fidelity and surety insurance to include becoming surety or
guarantor for any person, co-partnership or corporation in any position or place
of trust or as custodian of money or property, public or private; or becoming a
surety or guarantor for the performance of any person, co-partnership or
corporation of any lawful obligation, undertaking, agreement or contract of any
kind, except contracts or policies of insurance; and underwriting blanket bonds.
Under Section 9, MBIA Illinois is licensed to transact any business activity
reasonably complementary or supplementary to its insurance business. In
addition, MBIA Illinois is empowered to assume or reinsure the kinds of
insurance described above.
As financial guarantee insurers, MBIA Corp. and MBIA Illinois are
required by the laws of New York, California, Connecticut, Florida, Illinois,
Iowa, New Jersey and Wisconsin to maintain contingency reserves on their
municipal bond and other financial guarantee liabilities. Under New Jersey,
Illinois and Wisconsin regulations, contributions by such an insurer to its
contingency reserves are required to equal 50% of earned premiums on its
municipal bond business. Under New York law, such an insurer is required to
contribute to contingency reserves 50% of premiums as they are earned on
policies written prior to July 1, 1989 (net of reinsurance) and, with respect to
policies written on and after July 1, 1989, must make contributions over a
period of 15 or 20 years (based on issue type), or until the contingency reserve
for such insured issues equals the greater of 50% of premiums written for the
relevant category of insurance or a percentage of the principal guaranteed,
varying from 0.55% to 2.5%, depending upon the type of obligation guaranteed
(net of reinsurance, refunding, refinancings and certain insured securities).
California, Connecticut, Iowa and Florida law impose a generally similar
requirement. In each of these states, MBIA Corp. and MBIA Illinois may apply for
release of portions of the contingency reserves in certain circumstances.
The laws and regulations of these states also limit both the aggregate
and individual municipal bond risks that MBIA Corp. and MBIA Illinois may insure
on a net basis. California, Connecticut, Florida, Illinois and New York, among
other things, limit insured average annual debt service on insured municipal
bonds with respect to a single entity and backed by a single revenue source (net
of qualifying collateral and reinsurance) to 10% of policyholders' surplus and
contingency reserves. In New Jersey, Virginia and Wisconsin, the average annual
debt service on any single issue of municipal bonds (net of reinsurance) is
limited to 10% of policyholders' surplus. Other states that do not explicitly
regulate financial guarantee or municipal bond insurance do impose single risk
limits which are similar in effect to the foregoing. California, Connecticut,
Florida, Illinois and New York also limit the net insured unpaid principal
issued by a single entity and backed by a single revenue source to 75% of
policyholders' surplus and contingency reserves.
Under New York, California, Connecticut, Florida, Illinois, New Jersey
and Wisconsin law, aggregate insured unpaid principal and interest under
policies insuring municipal bonds (in the case of New York,
16
<PAGE>
California, Connecticut, Florida and Illinois, net of reinsurance) are limited
to certain multiples of policyholders' surplus and contingency reserves. New
York, California, Connecticut, Florida, Illinois and other states impose a 300:1
limit for insured municipal bonds, although more restrictive limits on bonds of
other types do exist. For example, New York, California, Connecticut and Florida
impose a 100:1 limit for certain types of non-municipal bonds.
The Company, MBIA Corp. and MBIA Illinois are also subject to
regulation under insurance holding company statutes of New York, Illinois and
other jurisdictions in which MBIA Corp. and MBIA Illinois are licensed to write
insurance. The requirements of holding company statutes vary from jurisdiction
to jurisdiction but generally require insurance holding companies, such as the
Company, and their insurance subsidiaries, to register and file certain reports
describing, among other information, their capital structure, ownership and
financial condition. The holding company statutes also generally require prior
approval of changes in control, of certain dividends and other intercorporate
transfers of assets, and of transactions between insurance companies, their
parents and affiliates. The holding company statutes impose standards on certain
transactions with related companies, which include, among other requirements,
that all transactions be fair and reasonable and that those exceeding specified
limits receive prior regulatory approval.
Prior approval by the New York Insurance Department is required for
any entity seeking to acquire "control" of the Company or MBIA Corp. Prior
approval by the Illinois Department of Insurance is required for any entity
seeking to acquire "control" of the Company, MBIA Corp. or MBIA Illinois. In
many states, including New York and Illinois, "control" is presumed to exist if
10% or more of the voting securities of the insurer are owned or controlled by
an entity, although the supervisory agency may find that "control" in fact does
or does not exist when an entity owns or controls either a lesser or greater
amount of securities.
The laws of New York and Illinois regulate the payment of dividends by
MBIA Corp. and MBIA Illinois, respectively, and provide that a New York domestic
stock property/casualty insurance company (such as MBIA Corp.) or an Illinois
domestic stock insurance company (such as MBIA Illinois) may not declare or
distribute dividends except out of statutory earned surplus. In the case of MBIA
Corp., New York law provides that the sum of (i) the amount of dividends
declared or distributed during the preceding 12-month period and (ii) the
dividend to be declared may not exceed the lesser of (a) 10% of policyholders'
surplus, as shown by the most recent statutory financial statement on file with
the New York Insurance Department, and (b) 100% of adjusted net investment
income for such 12-month period (the net investment income for such 12-month
period plus the excess, if any, of net investment income over dividends declared
or distributed during the two-year period preceding such 12-month period),
unless the New York Superintendent of Insurance approves a greater dividend
distribution based upon a finding that the insurer will retain sufficient
surplus to support its obligations and writings. See Note 8 to the Consolidated
Financial Statements of MBIA Inc. and Subsidiaries. In the case of MBIA
Illinois, Illinois law provides that the fair market value of the dividend to be
declared, together with other dividends declared or distributed during the
preceding 12-month period, may not exceed the greater of (a) 10% of
policyholders' surplus as of the previous December 31, and (b) net income during
the previous calendar year (which does not include pro rata distributions of any
class of the Company's own securities) without the approval of the Illinois
Director of Insurance. The foregoing restrictions are currently the most
restrictive limitations on the ability of MBIA Corp. and MBIA Illinois to
declare and pay dividends.
The foregoing dividend limitations are determined in accordance with
Statutory Accounting Practices ("SAP"), which generally produce statutory
earnings in amounts less than earnings computed in accordance with Generally
Accepted Accounting Principles ("GAAP"). Similarly, policyholders' surplus,
computed on a SAP basis, will normally be less than net worth computed on a GAAP
basis. See Note 3 to the Consolidated Financial Statements of MBIA Inc. and
Subsidiaries.
MBIA Corp. and MBIA Illinois are exempt from assessments by the
insurance guarantee funds in the majority of the states in which they do
business. Guarantee fund laws in most states require insurers transacting
business in the state to participate in guarantee associations which pay claims
of policyholders and third-party claimants against impaired or insolvent
insurance companies doing business in the state. In most states, insurers
licensed to write only municipal bond insurance, financial guarantee insurance
and other forms of surety insurance are exempt from assessment by these funds
and their policyholders are prohibited from making claims on these funds.
17
<PAGE>
LOSSES AND RESERVES
The Company's policy is to provide for loss reserves to cover losses
that may be reasonably estimated on its insured obligations over the lives of
such obligations. The loss reserve, at any financial statement date, is the
Company's estimate of the identified and unidentified losses on the obligations
it has insured, including expected costs of settlement.
To the extent that specific insured issues are identified as currently
or likely to be in default, the present value of the expected payments,
including costs of settlement, net of expected recoveries, is allocated within
the total loss reserve as a case basis reserve. At December 31, 1996, $20.2
million of the $59.3 million reserve for loss and loss adjustment expense
represents case basis reserves, of which $17.6 million is attributable to a
health care financing in Pennsylvania. The remaining case basis reserves
represent various housing financings and structured finance transactions, the
largest of which is $1.1 million.
The Company believes that the reserves for losses and loss adjustment
expenses are adequate to cover the ultimate net cost of claims. Such reserves
are based on estimates, and there can be no assurance that the ultimate
liability will not exceed such estimates. To the extent that actual case losses
for any period are less than the unallocated portion of total loss reserve,
there will be no impact on the Company's earnings for that period other than an
addition to the reserve which results from applying the loss rate factor to new
debt service insurance. To the extent that case losses, for any period, exceed
the unallocated portion of the total loss reserve, the excess will be charged
against the Company's earnings for that period. The Company periodically
evaluates the appropriateness of the loss rate factor based on actual case loss
experience.
18
<PAGE>
SAP RATIOS
The financial statements in this Form 10-K are prepared on the basis
of GAAP. For reporting to state regulatory authorities, SAP is used. See Note 3
to the Consolidated Financial Statements of MBIA Inc. and Subsidiaries.
The SAP combined ratio is a traditional measure of underwriting
profitability for insurance companies. The SAP loss ratio (which is losses
incurred divided by premiums earned), SAP expense ratio (which is underwriting
expenses divided by net premiums written) and SAP combined ratio (which is the
sum of the loss and expense ratios) for MBIA Corp. and for the financial
guarantee industry, which includes the monoline primary insurers (including MBIA
Corp.) and monoline reinsurers, are shown in the table below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1994 1995 1996
<S> <C> <C> <C> <C>
MBIA Corp.
Loss ratio (3.5)% 9.8% 0.4% 2.0%
Expense ratio 17.6 22.9 20.6 17.6
Combined ratio 14.1 32.7 21.0 19.6
Financial guarantee industry (1)
Loss ratio 0.7% 11.3% 5.3% *
Expense ratio 23.8 36.3 32.7 *
Combined ratio 24.5 47.6 38.0 *
</TABLE>
________________________
(1) Industry statistics were taken from the 1995 Annual Report of the
Association of Financial Guaranty Insurors.
* Not Available.
The SAP loss ratio differs from the GAAP loss ratio because the GAAP
ratio recognizes a provision for unidentified losses. The SAP expense ratio
varies from the GAAP expense ratio because the GAAP ratio recognizes the
deferral of policy acquisition costs and includes the amortization of purchase
accounting adjustments, principally goodwill. In addition, the SAP expense
ratio is calculated using premiums written while the GAAP expense ratio uses
premiums earned.
Net insurance in force, qualified statutory capital (which is
comprised of policyholders' surplus and the contingency reserve), and
policyholders' leverage ratios for MBIA Corp. and for the financial guarantee
industry are shown in the table below:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1993 1994 1995 1996
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
MBIA Corp.
Net insurance in force $266,784 $304,502 $344,037 $411,106
Qualified statutory capital 1,517 1,731 2,018 2,360
Policyholders' leverage ratio 176:1 176:1 171:1 174:1
Financial guarantee industry (1)
Net insurance in force $704,569 $785,126 $895,559 *
Qualified statutory capital 5,195 5,807 6,494 *
Policyholders' leverage ratio 136:1 135:1 138:1 *
</TABLE>
_________________________
(1) Industry statistics were taken from the 1995 Annual Report of the
Association of Financial Guaranty Insurors.
* Not Available.
The policyholders' leverage ratio is the ratio of net insurance in
force to qualified statutory capital. This test is sometimes focused on as a
measure of a company's claims-paying capacity. The Company believes that the
leverage ratio has significant limitations since it compares the total debt
service (undiscounted) coming due over the next 30 years or so to a company's
current capital base. It thereby fails to recognize future capital that will be
19
<PAGE>
generated during the period of risk being measured, arising from unearned
premium reserve and future installment premium commitments. Further, the
leverage ratio does not consider the underlying quality of the issuers whose
debt service is insured and thereby does not differentiate among the risk
characteristics of a financial guarantor's insured portfolio, nor does it give
any benefit for third-party commitments such as standby lines of credit.
To assist state insurance departments in overseeing the financial
condition of the insurance companies in their respective states, the National
Association of Insurance Commissioners (the "NAIC") has developed a system
intended to provide an early warning of impending financial trouble, the
Insurance Regulatory Information System ("IRIS"). IRIS identifies eleven
financial ratios and specifies "usual values" for each ratio. These are derived
from financial statements prepared on a SAP basis. For each of the years 1987 to
1992, MBIA Corp. had financial ratio values within the usual values established
by the NAIC for all of the applicable financial ratio tests with the exception
of the test that measures the change in net premiums written. For the year ended
December 31, 1992 the growth in net premiums written exceeded NAIC test range
values of -33% to +33% due to an extremely favorable business environment marked
by a surge in municipal financings and strong demand for insurance. MBIA Corp.
also had values outside of the normal range for premiums written for the years
ended December 31, 1987, 1990 and 1991. These were due to the assumption by MBIA
Corp. of most of the book of net insured obligations of its predecessor, the
Association, in 1986, and upon the assumption of the entire book of net insured
obligations of MBIA Illinois in 1990 following its acquisition by the Company.
In 1993, MBIA Corp. had financial ratio values within the NAIC test
ranges for all ratios except loss-related ratios. MBIA Corp. fell below the
NAIC test range values of 0% to +25% for the three loss reserve development
ratios due to the reduction in expected losses related to salvage.
In 1994 and 1995, MBIA Corp. had financial ratio values within the NAIC test
ranges for all ratios. In 1996, MBIA Corp. had financial ratio values within
the usual values established by the NAIC for all of the applicable financial
ratio tests with the exception of the test that measures the change in net
premium written. For the year ended December 31, 1996, the growth in net
premiums written equalled NAIC test range values of -33% to +33% due to a
favorable business environment marked by a strong demand for insurance.
MBIA CORP. INSURANCE POLICIES
The insurance policies issued by MBIA Corp. provide an unconditional
and irrevocable guarantee of the payment to a designated paying agent for the
bondholders of an amount equal to the principal of and interest on insured bonds
not paid when due. In the event of a default in payment of principal or interest
by an issuer, MBIA Corp. promises to make funds available in the amount of the
default on the next business day following notification. MBIA Corp. has a Fiscal
Agency Agreement with State Street Bank and Trust Company, N.A. to provide for
this payment upon receipt of proof of ownership of the bonds, as well as upon
receipt of instruments appointing MBIA Corp. as agent for the bondholders and
evidencing the assignment of bondholder rights with respect to the debt service
payments made by MBIA Corp. Even if bondholders are permitted by the indenture
securing the bonds to have the full amount of principal of the bonds, together
with accrued interest, declared due and payable immediately in the event of a
default, MBIA Corp. is required to pay only the principal and interest scheduled
to be paid, but not in fact paid, on each original principal and interest
payment date.
The MBIA Illinois insurance policies provide for payments on default
in substantially the same manner as the MBIA Corp. policies. The paying agent on
MBIA Illinois policies is Bankers Trust Company. MBIA Assurance writes
policies that are substantially similar in coverage and manner of payment to the
MBIA Corp. policies.
RATING AGENCIES
Moody's, S&P and Fitch perform periodic reviews of MBIA Corp. and
other companies providing financial guarantee insurance. Their reviews focus on
the insurer's underwriting policies and procedures and on the issues insured.
Additionally, each rating agency has certain criteria as to exposure limits and
capital requirements for financial guarantors.
20
<PAGE>
The rating agencies have reaffirmed their Triple-A claims-paying
ratings assigned to MBIA Corp., MBIA Illinois and to MBIA Assurance. The rating
for MBIA Illinois is based in significant part on the reinsurance agreement
between MBIA Corp. and MBIA Illinois. The rating of MBIA Assurance is based in
significant part on the reinsurance agreement between MBIA Corp. and MBIA
Assurance and the net worth maintenance agreement between the two parties. See
"Business--Reinsurance."
Although MBIA Corp. intends to comply with the requirements of the
rating agencies, no assurance can be given that these requirements will not
change or that, even if MBIA Corp. complies with these requirements, one or more
rating agencies will not reduce or withdraw their rating. MBIA Corp.'s ability
to attract new business and to compete with other financial guarantors, and its
results of operations and financial condition would be materially adversely
affected by any reduction in its ratings.
CREDIT AGREEMENT
MBIA Corp. entered into a Credit Agreement, dated as of December 29,
1989, which has been amended from time to time (the "Credit Agreement") with
Credit Suisse, New York Branch ("Credit Suisse") to provide MBIA Corp. with an
unconditional, irrevocable line of credit. The Credit Agreement was amended and
restated by the First Restated Credit Agreement, dated as of October 1, 1993 as
amended by the First Amendment, dated as of September 23, 1994 among MBIA Corp.,
Credit Suisse, as Agent and a consortium of highly rated banks, including Credit
Suisse. The line of credit is available to be drawn upon by MBIA Corp., in an
amount up to $725 million, after MBIA Corp. has incurred, during the period
commencing October 1, 1996 and ending September 30, 2003, cumulative losses (net
of any recoveries) in excess of the greater of $500 million or 6.25% of average
annual debt service. The obligation to repay loans made under the Credit
Agreement is a limited recourse obligation of MBIA Corp. payable solely from,
and secured by a pledge of, recoveries realized on defaulted insured
obligations, from certain pledged installment premiums and other collateral.
Borrowings under the Credit Agreement are repayable on the expiration date of
the Credit Agreement. The current expiration date of the Credit Agreement is
September 30, 2003, subject to annual extensions under certain circumstances.
The Credit Agreement contains covenants that, among other things, restrict MBIA
Corp.'s ability to encumber assets or merge or consolidate with another entity.
EMPLOYEES
As of March 27, 1997, the Company had 551 employees. No employee is
covered by a collective bargaining agreement. The Company considers its employee
relations to be satisfactory.
EXECUTIVE OFFICERS
The executive officers of the Company and their present ages and
positions with the Company are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION AND TERM OF OFFICE
---- --- ---------------------------
<S> <C> <C>
David H. Elliott 55 Chairman and Chief Executive Officer (officer since 1986)
Richard L. Weill 54 President (officer since 1989)
James E. Malling 55 Senior Executive Vice President (officer since 1991)
Neil G. Budnick 42 Executive Vice President (officer since 1992)
Janis S. Christensen 47 Executive Vice President (officer since 1992)
Louis G. Lenzi 48 General Counsel and Secretary (officer since 1986)
Thomas O. Scherer 50 Senior Vice President (officer since 1992)
Kevin D. Silva 43 Senior Vice President (officer since 1995)
Julliette S. Tehrani 50 Executive Vice President, Chief Financial Officer
and Treasurer (officer since 1987)
</TABLE>
21
<PAGE>
David H. Elliott is Chairman and Chief Executive Officer of the
Company and of MBIA Corp. From 1986 to 1991, he served as the President and
Chief Operating Officer of the Company and MBIA Corp. He is a director of MBIA
Corp. and was the President of the Association from 1976 to 1980 and from 1982
through 1986.
Richard L. Weill is President of the Company and of MBIA Corp., in
charge of the Insurance Operations Division of MBIA Corp., and a director of
MBIA Corp. From 1989 through 1991, Mr. Weill was General Counsel and Corporate
Secretary of the Company. Mr. Weill was previously a partner with the law firm
of Kutak Rock, with which he had been associated from 1969 to 1989.
James E. Malling is Senior Executive Vice President of the Company and
the head of the Corporate Marketing, Corporate Development and Investment
Management Services Division, as well as a director of MBIA Corp. Mr. Malling
was the President of the International Finance Division of CIGNA Corporation
from 1984 to 1990 and also served as a director of the Company from December of
1986 to December 31, 1990.
Kevin D. Silva is Senior Vice President of the Company and MBIA Corp.
and a director of MBIA Corp. He has been in charge of the Management Services
Division of MBIA Corp. since joining the Company in late 1995.
Neil G. Budnick is Executive Vice President of the Company and MBIA
Corp., head of the Public Finance Group and a director of MBIA Corp. Mr.
Budnick has been involved in the insurance operations area of MBIA Corp. since
joining the Company in 1983.
Janis S. Christensen is Executive Vice President of the Company and
MBIA Corp., head of the Underwriting Policy and Review Group and a director of
MBIA Corp. Ms. Christensen has been responsible for the underwriting function at
MBIA Corp. since joining the Company in 1987.
Louis G. Lenzi is General Counsel and Secretary of the Company and
MBIA Corp. He is also a director of MBIA Corp. Mr. Lenzi has held various legal
positions within MBIA Corp. since July of 1984.
Thomas O. Scherer is Senior Vice President and head of the Internal
Audit and Investment Risk Management Group of the Company and MBIA Corp.
Mr. Scherer has held many positions with the Company and its predecessors since
joining in 1977.
Julliette S. Tehrani is Executive Vice President, Chief Financial
Officer and Treasurer of the Company and of MBIA Corp. and a director of MBIA
Corp. From 1986 to 1995, Ms. Tehrani held the position of Senior Vice President
and Controller. Ms. Tehrani has held various positions in the Company's Finance
Division since 1978, including the offices of Vice President and Treasurer from
1982 through 1985.
ITEM 2. PROPERTIES
MBIA Corp. owns the 157,500 square foot office building on
approximately 15.5 acres of property in Armonk, New York, in which the Company
and MBIA Corp. have their offices. The Company believes that this office
building is adequate and suitable for its current needs.
ITEM 3. LEGAL PROCEEDINGS
There are no material lawsuits pending or, to the knowledge of the
Company, threatened to which the Company or any of its subsidiaries is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
22
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information concerning the market for the Company's Common Stock
and certain information concerning dividends appears under the heading
"Shareholder Information" on the inside back cover of the Company's 1996 Annual
Report to Shareholders and is incorporated herein by reference. As of March
27, 1997, there were 446 shareholders of record of the Company's Common Stock.
The information concerning dividends on the Company's Common Stock is under
"Business--Regulation" in this report.
ITEM 6. SELECTED FINANCIAL DATA
The information under the heading "Selected Financial and Statistical
Data" as set forth on pages 32-33 of the Company's 1996 Annual Report to
Shareholders is incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" as set forth on pages
34-39 of the Company's 1996 Annual Report to Shareholders is incorporated by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, the Report of
Independent Accountants thereon by Coopers & Lybrand L.L.P. and the unaudited
"Quarterly Financial Information" are set forth on pages 40-57 of the Company's
1996 Annual Report to Shareholders and are incorporated by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is set forth under "Election of
Directors" in the Company's Proxy Statement, dated March 31, 1997, which is
incorporated by reference.
Information regarding executive officers is set forth under Item 1,
"Business--Executive Officers," in this report.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of the Company's executive officers
is set forth under "Compensation of Executive Officers" in the Company's Proxy
Statement, dated March 31, 1997, which is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management is set forth under "Election of Directors" and "Security
Ownership of Certain Beneficial Owners" in the Company's Proxy Statement, dated
March 31, 1997, which is incorporated by reference.
23
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding relationships and related transactions is set
forth under "Certain Relationships and Related Transactions" in the Company's
Proxy Statement dated March 31, 1997, which is incorporated by reference.
PART IV
-------
ITEM 14.
(a) Financial Statements and Financial Statement Schedules and
Exhibits.
1. Financial Statements
--------------------
MBIA Inc. has incorporated by reference from the 1996 Annual Report to
Shareholders the following consolidated financial statements of the Company:
<TABLE>
<CAPTION>
Annual Report to Shareholders
Page(s)
<S> <C>
MBIA INC. AND SUBSIDIARIES
Report of independent accountants. 40
Consolidated statements of income for the years ended 41
December 31, 1996, 1995 and 1994.
Consolidated balance sheets as of December 31, 1996 and 42
1995.
Consolidated statements of changes in shareholders' 43
equity for the years ended December 31, 1996, 1995 and
1994.
Consolidated statements of cash flows for the years 44
ended December 31, 1996, 1995 and 1994.
Notes to consolidated financial statements. 45-57
</TABLE>
2. Financial Statement Schedules
-----------------------------
The following financial statement schedules are filed as part of
this report.
Schedule Title
-------- -----
I Summary of investments, other than investments in related
parties, as of December 31, 1996.
II Condensed financial information of Registrant for December
31, 1996, 1995 and 1994.
IV Reinsurance for the years ended December 31, 1996, 1995 and
1994.
The report of the Registrant's independent accountants with
respect to the above listed financial statement schedules is included with the
schedules.
All other schedules are omitted because they are not applicable
or the required information is shown in the consolidated financial statements or
notes thereto.
3. Exhibits
--------
(An exhibit index immediately preceding the Exhibits indicates
the page number where each exhibit filed as part of this report can be found.)
24
<PAGE>
3. Articles of Incorporation and By-Laws.
-------------------------------------
3.1. Restated Certificate of Incorporation, dated August 17, 1990,
incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1990 (Comm. File 1-9583) (the "1990
10-K").
3.2. By-Laws as Amended as of May 7, 1992, incorporated by
reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 (Comm. File 1-9583) (the "1992 10-K").
10. Material Contracts
------------------
10.02. Reinsurance Agreements, each dated as of December 30, 1986,
between the Company and each of The Aetna Casualty and Surety Company, Fireman's
Fund Insurance Company, Aetna Insurance Company and The Continental Insurance
Company, incorporated by reference to Exhibit 10.09 to the 1987 S-1.
10.03. Reinsurance Assumption Agreements, each dated as of December
30, 1986, among the Company, Municipal Bond Investors Assurance Corporation
("MBIA Corp.") and each of The Aetna Casualty and Surety Company, Fireman's Fund
Insurance Company, Aetna Insurance Company and The Continental Insurance
Company, incorporated by reference to Exhibit 10.10 to the 1987 S-1.
10.04. Endorsement No. 1 to the December 30, 1986 Reinsurance
Agreements, dated as of July 1, 1987, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, Aetna Insurance
Company and The Continental Insurance Company, incorporated by reference to
Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987 (Comm. File No. 1-9583) (the "1987 10-K").
10.05. Endorsement No. 2 to the December 30, 1986 Reinsurance
Agreements, dated as of October 1, 1987, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, Aetna
Insurance Company and The Continental Insurance Company, incorporated by
reference to Exhibit 10.35 to the 1987 10-K.
10.06. Endorsement No. 3 to the December 30, 1986 Reinsurance
Agreements, dated as of December 31, 1987, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA
Property and Casualty Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.06 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1989 (Comm. File No. 1-9583) (the "1989 10K")
10.07. Endorsement No. 4 to the December 30, 1986 Reinsurance
Agreements, dated as of January 1, 1988, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA
Property and Casualty Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.07 to the
1989 10-K.
10.08. Endorsement No. 5 to the December 30, 1986 Reinsurance
Agreements, dated as of January 1, 1988, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA
Property and Casualty Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.08 to the
1989 10-K.
10.09. Endorsement No. 6 to the December 30, 1986 Reinsurance
Agreements, dated as of January 1, 1988, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA
Property and Casualty Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.09 to the
1989 10-K.
25
<PAGE>
10.10. Endorsement No. 7 to the December 30, 1986 Reinsurance
Agreements, effective September 30, 1989, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA
Property and Casualty Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.10 to the
1989 10-K.
10.11. First Amended and Restated Investment Management Agreement,
dated as of December 30, 1986, between Aetna Financial Services, Inc. and MBIA
Corp., incorporated by reference to Exhibit 10.11 to the 1989 10-K, as amended
by Amendment No. 2 to the First Amended and Restated Investment Management
Agreement, dated as of October 1, 1994, as modified by a Consent, effective
February 28, 1994, incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994
(Comm. File No. 1-9583) (the "1994 10-K").
10.12. Restated Management Agreement, dated as of January 5, 1987,
between MISC and Municipal Bond Insurance Association (the "Association"), as
further amended by Supplement to the Restated Management Agreement, dated
September 30, 1989, incorporated by reference to Exhibit 10.16 to the 1989 10-K.
as amended by Second Amendment and Restatement of Management Agreement, dated
as of August 31, 1993, incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993 (Comm. File No. 1-9583) (the "1993 10-K").
10.13. License Agreement, dated as of December 30, 1986, between the
Company and the Association, incorporated by reference to Exhibit 10.15 to the
1987 S-l.
10.14. MBIA Inc. 1987 Stock Option Plan, incorporated by reference to
Exhibit 10.13 to the 1987 S-1.
10.15. MBIA Inc. Deferred Compensation and Excess Benefit Plan,
incorporated by reference to Exhibit 10.16 to the 1988 10-K, as amended as of
July 22, 1992, incorporated by reference to Exhibit 10.15 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (Comm.
File No. 1-9583) (the "1992 10-K").
10.16. MBIA Inc. Employees Pension Plan, amended and restated
effective January 1, 1987, incorporated by reference to Exhibit 10.28 of the
Company's Amendment No. 1 to the 1987 S-1, as further amended and restated as of
December 12, 1991, incorporated by reference to Exhibit 10.18 to the 1991
10-K, as further amended and restated effective January 1, 1994, incorporated by
reference to Exhibit 10.16 to the 1994 10-K.
10.17. MBIA Inc. Employees Profit Sharing Plan, as amended and
restated effective January 1, 1987, incorporated by reference to Exhibit 10.29
to Amendment No. 1 to the 1987 S-1, as further amended by Amendment dated
December 8, 1988, incorporated by reference to Exhibit 10.21 to the 1989 10-K,
as further amended and restated as of December 12, 1991, incorporated by
reference to Exhibit 10.19 to the 1991 10-K, as further amended and restated as
of May 7, 1992, incorporated by reference to Exhibit 10.17 to the 1992 10K, as
further amended and restated effective January 1, 1994, incorporated by
reference to Exhibit 10.17 to the 1994 10-K.
10.18. MBIA Corp. Split Dollar Life Insurance Plan, dated as of
February 9, 1988, issued by Aetna Life Insurance and Annuity Company,
incorporated by reference to Exhibit 10.23 to the 1989 10-K.
10.19. Stock Option Agreement, dated as of March 2, 1987, between the
Company and David H. Elliott, incorporated by reference to Exhibit 10.32 to
Amendment No. 1 to the 1987 S-1.
10.20. Indemnification Agreement, dated as of January 5, 1987, among
MISC, The Aetna Casualty and Surety Company, Fireman's Fund Insurance Company,
The Travelers Indemnity Company, Aetna Insurance Company, The Continental
Insurance Company and the Company, incorporated by reference to Exhibit 10.33
to Amendment No. 1 to the 1987 S-l.
10.21. Amended and Restated Shareholders' Agreement, dated as of May
21, 1987, among the Company, Aetna Life and Casualty Company, The Aetna Casualty
and Surety Company, Fireman's Fund Insurance Company, CIGNA Guaranty Holdings,
Inc., Aetna Insurance Company, The Continental Insurance
26
<PAGE>
Company and The Fidelity and Casualty Company of New York, incorporated by
reference to Exhibit 10.30 to Amendment No. I to the 1987 S-1, as amended by
Amendment No. 1 to the Amended and Restated Shareholders' Agreement, dated as
of April 1, 1989, as amended by Amendment No. 2 to the Amended and
Restated Shareholders' Agreement, dated November 21, 1989, incorporated by
reference to Exhibit 10.41 to the 1989 10-K, as amended by Amendment No. 3 to
the Amended and Restated Shareholders' Agreement, dated as of November 30,
1990, incorporated by reference to Exhibit 10.28 to the 1990 10-K and as amended
by Amendment No. 4 to the Amended and Restated Shareholders' Agreement, dated as
of September 30, 1991, incorporated by reference to Exhibit 10.28 to the 1991
10-K.
10.22. Assignment of Warranties, dated April 7, 1989, from Trafalgar
House Real Estate, Inc. to MBIA Corp., incorporated by reference to Exhibit
10.48 to the 1989 10-K.
10.23. Stock Purchase Agreement, dated as of October 27, 1989, among
Government Employees Insurance Company, Bankers Trust New York Corporation,
Xerox Credit Corporation, American International Group, Inc., Salomon Inc and
the Company, as amended by Letter Agreement dated as of January 5, 1990,
incorporated by reference to Exhibit 10.53 to the 1989 10-K.
10.24. Trust Agreement, effective as of December 31, 1989, among BIG
Ins., MBIA Corp. and Morgan Guaranty Trust Company of New York, incorporated by
reference to Exhibit 10.55 to the 1989 10-K, as amended by Amendment to Trust
Agreement, dated as of February 28, 1995, incorporated by reference to Exhibit
10.25 of the Company's Annual Report Form 10-K for the fiscal year ended
December 31, 1995 (Comm. File No. 1-9583) (the "1995 10-K").
10.25. Investment Management Agreement, dated as of January 5, 1990,
between Aetna Financial Services, Inc. and BIG Ins., incorporated by reference
to Exhibit 10.57 to the 1989 10-K, as modified by a Consent, effective February
28, 1994, incorporated by reference to Exhibit 10.27 to the 1994 10-K.
10.26. Surety Bond, dated December 28, 1989, issued by MBIA Corp. to
Citibank, N.A. with regard to the payment obligations of Continental Insurance
Company (the "Continental Surety Bond"), incorporated by reference to Exhibit
10.62 to the 1989 10-K.
10.27. The Fiscal Agency Agreement, dated December 27, 1989, between
MBIA Corp. and Citibank, N.A., with regard to the Continental Surety Bond,
incorporated by reference to Exhibit 10.63 to the 1989 10-K.
10.28. Surety Bond, dated December 28, 1989, issued by MBIA Corp. to
Citibank, N.A. with regard to the payment obligations of CIGNA Property and
Casualty Insurance Company (the "CIGNA Surety Bond"), incorporated by reference
to Exhibit 10.64 to the 1989 10-K.
10.29. Fiscal Agency Agreement, dated December 27, 1989, between MBIA
Corp. and Citibank, N.A., with regard to the CIGNA Surety Bond, incorporated by
reference to Exhibit 10.65 to the 1989 10-K.
10.30. Amended and Restated Tax Allocation Agreement, dated as of
January 1, 1990, between the Company and MBIA Corp., incorporated by reference
to Exhibit 10.66 to the 1989 10-K.
10.31. Endorsement No. 8 to the December 30, 1986 Reinsurance
Agreements, effective June 30, 1988, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA Property
and Casualty Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.51 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990
(Comm. File No. 1-9583) (the "1990 10 K").
10.32. Endorsement No. 9 to the December 30, 1986 Reinsurance
Agreements, effective December 31, 1988, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA
Property and Casualty Insurance Company (formerly Aetna Insurance Company) and
The Continental Insurance Company, incorporated by reference to Exhibit 10.52 to
the 1990 10-K.
10.33. Endorsement No. 10 to the December 30, 1986 Reinsurance
Agreements, effective January 1, 1990, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA Property
and Casualty Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.53 to the
1990 10-K.
27
<PAGE>
10.34. Reinsurance Agreement, dated as of December 31, 1990, between
MBIA Corp. and Bond Investors Guaranty Insurance Company, incorporated by
reference to Exhibit 10.54 to the 1990 10-K.
10.35. Surety Bond, dated August 24, 1990, issued by MBIA Corp. to
Citibank, N.A. with regard to the payment obligations of The Travelers Indemnity
Company (the "Travelers Surety Bond"), incorporated by reference to Exhibit
10.59 to the 1990 10-K.
10.36. Insurer Fiscal Agency Agreement, dated August 24, 1990,
between MBIA Corp. and Citibank, N.A. with regard to the Travelers Surety Bond,
incorporated by reference to Exhibit 10.60 to the 1990 10-K.
10.37. Custody Agreement, dated as of December 30, 1986, between MBIA
Corp. and Morgan Guaranty Trust Company of New York, as amended by the First
Amendment to Custody Agreement, dated as of December 1, 1989, incorporated by
reference to Exhibit 10.62 to the 1990 10-K.
10.38. Closing Agreement, dated September 28, 1990, between Trafalgar
House Property, Inc. and MBIA Corp., incorporated by reference to Exhibit 10.64
to the 1990 10-K.
10.39. Guaranty of Trafalgar House Holdings, Inc., dated as of
September 28, 1990, between Trafalgar House Holdings, Inc. and MBIA Corp.,
incorporated by reference to Exhibit 10.67 to the 1990 10-K.
10.40. Land-Banked Parking Agreement, dated September 28, 1990,
between MBIA Corp. and the Town of North Castle, incorporated by reference to
Exhibit 10.69 to the 1990 10-K.
10.41. Surety Bond, dated April 5, 1991, issued by MBIA Corp. to
Citibank, N.A. with regard to the payment obligations of The Aetna Casualty and
Surety Company (the "Aetna Surety Bond"), incorporated by reference to Exhibit
10.73 to the 1991 10-K.
10.42. The Fiscal Agency Agreement, dated April 5, 1991, between MBIA
Corp. and Citibank, N.A. with regard to the Aetna Surety Bond, incorporated by
reference to Exhibit 10.74 to the 1991 10-K.
10.43. Revolving Credit Agreement, dated as of February 15, 1991,
between the Company and Credit Suisse, New York Branch, incorporated by
reference to Exhibit 10.76 to the 1991 10-K, as amended by the First Amendment
to Revolving Credit Agreement, dated as of September 30, 1992, incorporated by
reference to Exhibit 10.61 to the 1992 10-K, as further amended by the Second
Amendment to Revolving Credit Agreement, dated as of September 30, 1994,
incorporated by reference to Exhibit 10.48 to the 1994 10-K, as further amended
by the Third Amendment to Revolving Credit Agreement, dated as of May 23, 1996.
10.44. Rights Agreement, dated as of December 12, 1991, between the
Company and Mellon Bank, N.A., incorporated by reference to the Company's
Current Report on Form 8-K, filed on December 31, 1991, incorporated by
reference to Exhibit 10.62 to the 1993 10-K, as amended by Amendment to Rights
Agreement, dated as of October 24, 1994, incorporated by reference to Exhibit
10.49 to the 1994 10-K.
10.45. Owner/Contractor Agreement, dated as of June 1, 1991, between
MBIA Corp. and Trafalgar House Construction Management, Inc., incorporated by
reference to Exhibit 10.77 to the 1991 10-K.
10.46. Trust Agreement, dated as of December 31, 1991, between MBIA
Corp. and Fidelity Management Trust Company, incorporated by reference to
Exhibit 10.64 to the 1992 10-K, as amended by the Amendment to Trust Agreement,
dated as of April 1, 1993, incorporated by reference to Exhibit 10.64 to the
1993 10-K, as amended by First Amendment to Trust Agreement, dated as of January
21, 1992, as further amended by Second Amendment to Trust Agreement, dated as of
March 5, 1992, as further amended by Third Amendment to Trust Agreement, dated
as of April 1, 1993, as further amended by the Fourth Amendment to Trust
Agreement, dated as of July 1, 1995, incorporated by reference to Exhibit 10.47
to the 1995 10-K, as amended by Fifth Amendment to Trust Agreement, dated as of
November 1, 1995, as further amended by Sixth Amendment to Trust Agreement,
dated as of January 1, 1996.
10.47. MBIA Inc. Employees Change of Control Benefits Plan, effective
as of January 1, 1992, incorporated by reference to Exhibit 10.65 to the 1992
10-K.
28
<PAGE>
10.48. Investment Management Agreement, dated as of October 8, 1992,
between Aetna Financial Services, Inc. and the Company, incorporated by
reference to Exhibit 10.66 to the 1992 10-K, as modified by a Consent, effective
February 28, 1994, incorporated by reference to Exhibit 10.53 to the 1994 10-K.
10.49. Endorsements to the December 30, 1986 Reinsurance Agreements
(i) Nos. 11 and 12, both effective June 30, 1992; (ii) No. 14, effective
November 30, 1990; and (iii) No. 16, effective September 30, 1992, each, between
the Company (except with respect to No. 14 which was subsequently assumed by
MBIA Corp.) and each of The Aetna Casualty and Surety Company, Fireman's Fund
Insurance Company, CIGNA Property and Casualty Insurance Company (formerly Aetna
Insurance Company), the Continental Insurance Company, incorporated by
reference to Exhibit 10.69 to the 1992 10-K.
10.50. Surety Bond, dated October 15, 1992, issued by MBIA Corp. to
Citibank, N.A. with regard to the payment obligations of Fireman's Fund
Insurance Company (the "Fireman's Surety Bond"), incorporated by reference to
Exhibit 10.70 to the 1992 10-K.
10.51. Fiscal Agency Agreement, dated October 15, 1992, between MBIA
Corp. and Citibank, N.A. with regard to the Fireman's Surety Bond, incorporated
by reference to Exhibit 10.71 to the 1992 10-K.
10.52. Indenture, dated as of August 1, 1990, between MBIA Inc. and
The First National Bank of Chicago, Trustee, incorporated by reference to
Exhibit 10.72 to the 1992 10-K.
10.53. Reinsurance Agreement. dated as of August 31, 1993, between
The Travelers Indemnity Company and MBIA Corp., incorporated by reference to
Exhibit 10.73 to the 1993 10-K.
10.54. Endorsement No. 15 to the December 30, 1986 Reinsurance
Agreements, effective January 1, 1992, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA Property
and Casualty Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.74 to the
1993 10-K.
10.55. Endorsement No. 17 to the December 30, 1986 Reinsurance
Agreements, effective January 1, 1993, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA Property
and Casualty Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.75 to the
1993 10-K.
10.56. Endorsement No. 18 to the December 30, 1986 Reinsurance
Agreements, effective April 1, 1993, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA Property
and Casualty Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.76 to the
1993 10-K.
10.57. First Restated Credit Agreement, dated as of October 1, 1993,
among MBIA Corp., Credit Suisse, New York Branch, as Agent, Credit Suisse, New
York Branch, Caisse Des Depots Et Consignations, Deutsche Bank AG, Bayerische
Landesbank Girozentrale and Landesbank Hessen-Thuringen Girozentrale, as
amended by an Assignment and Assumption Agreement, dated as of December 31,
1993, among MBIA Corp., Credit Suisse, New York Branch, as Agent and Assignor
and Deutsche Bank AG, New York Branch, as further amended by a Modification
Agreement, dated as of January 1, 1994, among Deutsche Bank, AG, New York
Branch, MBIA Corp. and Credit Suisse, New York Branch, as Agent, as amended by a
Joinder Agreement, dated December 31, 1993, among Credit Suisse, New York
Branch, as Agent, Sudwestdeutsche Landesbank Girozentrale and MBIA Corp.,
incorporated by reference to Exhibit 10.78 to the 1993 10-K, as amend, dated
December 31, 1993, among Credit Suisse, New York Branch, as Agent,
Sudwestdeutsche Landesbank Girozentrale and MBIA Corp., incorporated by
reference to Exhibit 10.78 to the 1993 10-K, as amended by the First Amendment
to First Restated Credit Agreement, dated as of September 23, 1994, incorporated
by reference to Exhibit 10.63 to the 1994 10-K, as further amended by the
Second Amendment to the First Restated Credit Agreement, dated as of January 1,
1996, and as further amended by the Third Amendment to the First Restated Credit
Agreement, dated as of October 1, 1996.
10.58. Net Worth Maintenance Agreement, dated as of November 1, 1991,
between MBIA Corp. and MBIA Assurance S.A., as amended by Amendment to Net Worth
Agreement, dated as of November 1, 1991, incorporated by reference to Exhibit
10.79 to the 1993 10-K.
10.59. Reinsurance Agreement, dated as of January 1, 1993, between
MBIA Assurance S.A. and MBIA Corp., incorporated by reference to Exhibit 10.80
to the 1993 10-K.
29
<PAGE>
10.60. Credit Agreement, dated as of August 31, 1994, among Municipal
Bond Investors Assurance Corporation, the Company, Wachovia Bank of Georgia,
N.A., Banco Santander, The Sumitomo Bank, Ltd., New York Branch, The Chase
Manhattan Bank, N.A., Commerzbank Aktiengesellschaft, The Industrial Bank of
Japan, Limited New York Branch and NBD Bank, N.A., and as further amended by the
First Amendment to Credit Agreement, dated as of October 14, 1994, incorporated
by reference to Exhibit 10.66 to the 1994 10-K, as amended by the Second
Amendment to Credit Agreement, dated as of October 31, 1995, incorporated by
reference to Exhibit 10.61 to the 1995 10-K.
10.61. Endorsement No. 13 to the December 30, 1986 Reinsurance
Agreements, effective December 1, 1990, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA Property
and Casualty Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, dated as of March, 1993, incorporated by
reference to Exhibit 10.67 to the 1994 10-K.
10.62. Endorsement No. 16 to the December 30, 1986 Reinsurance
Agreements, effective September 30, 1992, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA
Property and Casualty Insurance Company (formerly Aetna Insurance Company) and
The Continental Insurance Company, dated as of February 28, 1993, incorporated
by reference to Exhibit 10.68 to the 1994 10-K.
10.63. Endorsement No. 19 to the December 30, 1986 Reinsurance
Agreements, effective October 1, 1993, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA Property
and Casualty Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, dated as of June 30, 1994, incorporated by
reference to Exhibit 10.69 to the 1994 10-K.
10.64. Investment Services Agreement, effective as of April 28, 1995,
between MBIA Insurance Corporation and MBIA Securities Corp., as amended by
Amendment No. 1, dated as of December 29, 1995, incorporated by reference to
Exhibit 10.65 to the 1995 10-K.
10.65. Investment Services Agreement, effective January 2, 1996,
between MBIA Insurance Corp. of Illinois and MBIA Securities Corp., incorporated
by reference to Exhibit 10.66 to the 1995 10-K.
10.66. Custody Agreement, as of March 1, 1995, between MBIA Corp. and
The Chase Manhattan Bank, N.A, incorporated by reference to Exhibit 10.67 to the
1995 10-K.
10.67. Custody Agreement, as of March 1, 1995, between MBIA Corp. and
The Chase Manhattan Bank, N.A, incorporated by reference to Exhibit 10.68 to the
1995 10-K.
10.68. Custody Agreement, as of March 1, 1995, between MBIA Inc. and
The Chase Manhattan Bank, N.A., incorporated by reference to Exhibit 10.69 to
the 1995 10-K.
10.69. MBIA Inc. 1996 Incentive Plan, effective as of January 1,
1996, incorporated by reference to Exhibit 10.70 to the 1995 10-K.
10.70. MBIA Inc. 1996 Directors Stock Unit Plan, effective as of
December 4, 1996.
30
<PAGE>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following Exhibits identify all existing executive compensation
plans and arrangements:
10.14. MBIA Inc. 1987 Stock Option Plan, incorporated by reference to
Exhibit 10.13 to the 1987 S-1.
10.15. MBIA Inc. Deferred Compensation and Excess Benefit Plan,
incorporated by reference to Exhibit 10.16 to the 1988 10-K, as
amended as of July 22, 1992, incorporated by reference to Exhibit
10.15 to the 1992 10-K.
10.16. MBIA Inc. Employees Pension Plan, amended and restated
effective January 1, 1987, incorporated by reference to Exhibit 10.28
of the Company's Amendment No. 1 to the 1987 S-1, as further amended
and restated as of December 12, 1991, incorporated by reference to
Exhibit 10.18 to the 1991 10-K.
10.17. MBIA Inc. Employees Profit Sharing Plan, as amended and
restated effective January 1, 1987, incorporated by reference to
Exhibit 10.29 to Amendment No. 1 to the 1987 S-1, as further amended
by Amendment dated December 8, 1988, incorporated by reference to
Exhibit 10.21 to the 1989 10-K, as further amended and restated as of
December 12, 1991, incorporated by reference to Exhibit 10.19 to the
1991 10-K, as further amended and restated as of May 7, 1992,
incorporated by reference to Exhibit 10.17 to the 1992 10-K.
10.18. MBIA Corp. Split Dollar Life Insurance Plan, dated as of
February 9, 1988, issued by Aetna Life Insurance and Annuity Company,
incorporated by reference to Exhibit 10.23 to the 1989 10-K.
10.19. Stock Option Agreement, dated as of March 27, 1987, between
the Company and David H. Elliott, incorporated by reference to Exhibit
10.32 to Amendment No. 1 to the 1987 S-1.
10.47. MBIA Inc. Employees Change of Control Benefits Plan, effective
as of January 1, 1992, incorporated by reference to Exhibit 10.65 to
the 1992 10-K.
10.69. MBIA Inc. 1996 Incentive Plan, effective as of January 1,
1996, incorporated by reference to Exhibit 10.70 to the 1995 10-K.
10.70. MBIA Inc. 1996 Directors Stock Unit Plan, effective as of
December 4, 1996.
11. Statement Re Computation of Per Share Earnings.
13. Annual Report to Shareholders of MBIA Inc. for fiscal year
ended December 31, 1995. Such report is furnished for the information
of the Commission only and, except for those portions thereof which
are expressly incorporated by reference in this Annual Report on Form
10-K, is not to be deemed filed as part of this report.
21. List of Subsidiaries
23. Consent of Coopers & Lybrand L.L.P.
24. Power of Attorney
27. Financial Data Schedule
31
<PAGE>
99. Additional Exhibits - MBIA Corp. GAAP Financial Statements
(b) Reports on Form 8-K. The Company filed a report on Form 8-K on January 24,
1996 with respect to the annual audited financials for 1995.
32
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MBIA Inc.
(Registrant)
Dated: March 28, 1997 By /s/ David H. Elliott
-------------------------------
Name: David H. Elliott
Title: Chairman
Pursuant to the requirements of Instruction D to Form 10-K under the
Securities Exchange Act of 1934, this Report has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ David H. Elliott Chairman and Director March 28, 1997
- ----------------------------------
David H. Elliott
/s/ Julliette S. Tehrani Executive Vice President, March 28, 1997
- ----------------------------------
Julliette S. Tehrani Chief Financial Officer
and Treasurer
/s/ Elizabeth B. Sullivan Vice President March 28, 1997
- ----------------------------------
Elizabeth B. Sullivan Controller
/s/ Joseph W. Brown * Director March 28, 1997
- ----------------------------------
Joseph W. Brown, Jr.
/s/ David C. Clapp * Director March 28, 1997
- ----------------------------------
David C. Clapp
/s/ Gary C. Dunton * Director March 28, 1997
- ----------------------------------
Gary C. Dunton
33
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Claire L. Gaudiani * Director March 28, 1997
- ----------------------------------
Claire L. Gaudiani
__________________________________ Director March 28, 1997
William H. Gray, III
/s/ Freda S. Johnson * Director March 28, 1997
- ----------------------------------
Freda S. Johnson
/s/ Daniel P. Kearney * Director March 28, 1997
- ----------------------------------
Daniel P. Kearney
/s/ James A. Lebenthal * Director March 28, 1997
- ----------------------------------
James A. Lebenthal
/s/ Robert B. Nicholas * Director March 28, 1997
- ----------------------------------
Robert B. Nicholas
/s/ Pierre-Henri Richard * Director March 28, 1997
- ----------------------------------
Pierre-Henri Richard
/s/ John A. Rolls * Director March 28, 1997
- ----------------------------------
John A. Rolls
/s/ Richard L. Weill Director March 28, 1997
- ----------------------------------
Richard L. Weill
* By /s/ Louis G. Lenzi
------------------------------
Louis G. Lenzi
Attorney-in-Fact
34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of MBIA Inc.:
Our report on the consolidated financial statements of MBIA Inc. and
Subsidiaries has been incorporated by reference in this Form 10-K from page 40
of the 1996 Annual Report to Shareholders of MBIA Inc. and Subsidiaries. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedules listed in the index on Page 24 of this
Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND L. L. P.
New York, New York
February 3, 1997
<PAGE>
SCHEDULE I
MBIA INC. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS, OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
AMOUNT AT WHICH
FAIR SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED-MATURITIES
Bonds:
United States Treasury
and Government
agency obligations $ 418,622 $ 431,282 $ 431,282
State and municipal
obligations 2,854,871 2,987,960 2,987,960
Corporate and other
obligations 2,302,824 2,320,559 2,320,559
Mortgage-backed 1,244,714 1,259,455 1,259,455
-------------- -------------- --------------
Total fixed-maturities 6,821,031 6,999,256 6,999,256
SHORT-TERM INVESTMENTS 619,830 619,830 619,830
OTHER INVESTMENTS 28,045 29,101 29,101
-------------- -------------- --------------
Total investments $7,468,906 $7,648,187 $7,648,187
============== ============== ==============
</TABLE>
<PAGE>
SCHEDULE II
MBIA INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------- -------------------
<S> <C> <C>
ASSETS
Investments:
Municipal investment agreement portfolio
held as available-for-sale at fair value
(amortized cost $1,564,499 and $837,791) $1,567,048 $ 851,328
Short-term investments, at amortized cost
(which approximates fair value) 6,198 ---
------------------ ---------------------
Total investments 1,573,246 851,328
Cash and cash equivalents 413 14,106
Securities borrowed or purchased under
agreements to resell 196,400 ---
Investment in and amounts due from
wholly-owned subsidiaries 2,938,875 2,670,383
Accrued investment income 17,150 8,379
Other assets 3,996 4,001
------------------ --------------------
Total assets $4,730,080 $3,548,197
================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Municipal investment agreements $1,405,170 $ 892,326
Municipal repurchase agreements 212,271 ---
Long-term debt 374,010 373,900
Short-term debt 29,100 18,000
Securities loaned or sold under
agreements to repurchase 196,400 ---
Deferred income taxes 842 4,688
Payable for investments purchased 3,218 ---
Dividends payable 16,453 14,492
Other liabilities 12,919 10,525
------------------ --------------------
Total liabilities 2,250,383 1,313,931
------------------ --------------------
Shareholders' Equity:
Preferred stock, par value $1 per
share; authorized shares - 10,000,000;
issued and outstanding shares - none --- ---
Common stock, par value $1 per share;
authorized shares - 200,000,000;
issued shares - 43,294,243 and 42,077,387 43,294 42,077
Additional paid-in capital 803,078 725,153
Retained earnings 1,518,994 1,261,051
Cumulative translation adjustment (1,042) 2,849
Unrealized appreciation of investments,
net of deferred income tax provision
of $62,706 and $112,252 116,424 207,648
Unearned compensation - restricted stock (1,051) (426)
Treasury stock, at cost; 73,676 shares in 1995 --- (4,086)
------------------ --------------------
Total shareholders' equity 2,479,697 2,234,266
------------------ --------------------
Total liabilities and shareholders' equity $4,730,080 $3,548,197
================== ====================
</TABLE>
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.
<PAGE>
SCHEDULE II
MBIA INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Net investment income $ 283 $ 646 $ 786
Net realized gains --- 3,535 ---
Investment management
services income 2,806 2,929 ---
Investment management
services realized losses (2,549) (5,735) ---
Other income --- --- 1,801
--------------- --------------- ---------------
Total revenues 540 1,375 2,587
--------------- --------------- ---------------
Expenses:
Interest expense 32,705 27,786 27,036
Operating expenses 2,384 2,749 2,202
--------------- --------------- ---------------
Total expenses 35,089 30,535 29,238
--------------- --------------- ---------------
Loss before income taxes
and equity in earnings of
subsidiaries (34,549) (29,160) (26,651)
Benefit for income taxes (10,911) (9,604) (9,240)
--------------- --------------- ---------------
Loss before equity in earnings
of subsidiaries (23,638) (19,556) (17,411)
Equity in earnings of subsidiaries 345,801 290,975 277,620
--------------- --------------- ---------------
Net income $322,163 $271,419 $260,209
=============== =============== ===============
</TABLE>
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.
<PAGE>
SCHEDULE II
MBIA INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------------
1996 1995 1994
----------------- ---------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 322,163 $ 271,419 $ 260,209
Adjustments to reconcile net income
to net cash provided by
operating activities:
Equity in undistributed
earnings of subsidiaries (316,801) (208,075) (239,620)
Net realized losses on
sales of investments 2,549 2,200 ---
Benefit for deferred income taxes --- (50) (28)
Other, net 2,742 (2,556) 18,088
----------------- ---------------- --------------
Total adjustments to net income (311,510) (208,481) (221,560)
----------------- ---------------- --------------
Net cash provided by
operating activities 10,653 62,938 38,649
----------------- ---------------- --------------
Cash flows from investing activities:
Purchase of fixed-maturity
securities --- (252,125) ---
Sale of fixed-maturity securities --- 246,171 42,728
Purchase of short-term investments (6,198) --- ---
Sale of other investments --- 6,552 ---
Purchases for municipal investment
agreement portfolio, net of payable
for investments purchased (1,192,350) (940,871) ---
Sales from municipal investment
agreement portfolio, net of receivable
for investments sold 464,593 106,678 ---
Contributions to subsidiaries (17,954) (52,800) (23,010)
Advances (to) from subsidiaries, net (21,709) (89,550) 3,017
----------------- ---------------- --------------
Net cash (used) provided by
investing activities (773,618) (975,945) 22,735
----------------- ---------------- --------------
Cash flows from financing activities:
Net proceeds from issuance of
common stock 55,233 --- ---
Net proceeds from issuance
of long-term debt --- 74,344 ---
Net proceeds from issuance of
short-term debt 11,100 --- ---
Dividends paid (60,501) (53,179) (45,513)
Purchase of treasury stock --- --- (14,411)
Proceeds from issuance of municipal
investment and repurchase agreements 1,504,140 1,182,298 ---
Payments for drawdowns of
municipal investment agreements (786,938) (297,679) ---
Exercise of stock options 26,238 16,338 1,986
----------------- ---------------- --------------
Net cash provided (used) by
financing activities 749,272 922,122 (57,938)
----------------- ---------------- --------------
Net (decrease) increase in cash and
cash equivalents (13,693) 9,115 3,446
Cash and cash equivalents
beginning of year 14,106 4,991 1,545
----------------- ---------------- --------------
Cash and cash equivalents
end of year $ 413 $ 14,106 $ 4,991
================= ================ ==============
Supplemental cash flow disclosures:
Income taxes paid $ 305 $ 443 $ 251
Interest paid:
Long-term debt 31,722 26,575 26,575
Short-term debt 1,309 1,228 56
</TABLE>
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.
<PAGE>
SCHEDULE II
MBIA INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. CONDENSED FINANCIAL STATEMENTS
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the Company's
consolidated financial statements and the notes thereto.
2. SIGNIFICANT ACCOUNTING POLICIES
The Parent company carries its investments in subsidiaries under the equity
method.
3. DIVIDENDS FROM SUBSIDIARY
Cash dividends paid to MBIA Inc. from the Company's consolidated
subsidiary, MBIA Corp., were $29,000,000, $82,900,000 and $38,000,000 in
1996, 1995 and 1994, respectively.
4. OBLIGATIONS UNDER MUNICIPAL INVESTMENT AND REPURCHASE AGREEMENTS
The municipal investment and repurchase agreement business, as described in
footnotes 2 and 10 to the consolidated financial statements of MBIA Inc.
and Subsidiaries (which are incorporated by reference in the 10-K), is
conducted by both the Registrant and its wholly owned subsidiary, MBIA
Investment Management Corp.
<PAGE>
SCHEDULE IV
MBIA INC. AND SUBSIDIARIES
REINSURANCE
for the Years Ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
PERCENTAGE
INSURANCE GROSS CEDED TO OTHER ASSUMED FROM OF AMOUNT
PREMIUMS WRITTEN AMOUNT VALUE OTHER COMPANIES NET AMOUNT ASSUMED TO NET
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 $434,014 $54,852 $26,661 $405,823 6.6%
---- -------- ------- ------- -------- ----
1995 $336,768 $45,050 $11,719 $303,437 3.9%
---- -------- ------- ------- -------- ----
1994 $354,534 $49,281 $ 6,302 $311,555 2.0%
---- -------- ------- ------- -------- ----
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________________________________
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NO. 1-9583
________________________________________________________________________________
MBIA INC.
<PAGE>
EXHIBIT INDEX
10.43. Revolving Credit Agreement, dated as of February 15, 1991,
between the Company and Credit Suisse, New York Branch, incorporated by
reference to Exhibit 10.76 to the 1991 10-K, as amended by the First Amendment
to Revolving Credit Agreement, dated as of September 30, 1992, incorporated by
reference to Exhibit 10.61 to the 1992 10-K, as further amended by the Second
Amendment to Revolving Credit Agreement, dated as of September 30, 1994,
incorporated by reference to Exhibit 10.48 to the 1994 10-K, as further amended
by the Third Amendment to Revolving Credit Agreement, dated as of May 23, 1996.
10.46. Trust Agreement dated as of December 31, 1991, between MBIA
Corp. and Fidelity Management Trust Company, incorporated by reference to
Exhibit 10.64 to the 1992 10-K, as amended by the Amendment to Trust Agreement,
dated as of April 1, 1993, incorporated by reference to Exhibit 10.64 to the
1993 10-K, as amended by First Amendment to Trust Agreement, dated as of January
21, 1992, as further amended by Second Amendment to Trust Agreement, dated as of
March 5, 1992, as further amended by Third Agreement to Trust Agreement, dated
as of April 1, 1993, as further amended by the Forth Amendment to Trust
Agreement, dated as of July 1, 1995, incorporated by reference to Exhibit 10.47
to the 1995 10-K, as amended by Fifth Amendment to Trust Agreement, dated as of
November 1, 1995, as further amended by Sixth Amendment to Trust Agreement,
dated as of January 1, 1996.
10.57. First Restated Credit Agreement, dated as of October 1,
1993, among MBIA Corp., Credit Suisse, New York Branch, Caisse Des Depots Et
Consignations, Deutsche Bank AG, Bayerische Landesbank Girozentrale and
Landesbank Hessen-Thuringen Girozentrale, as amended by an Assignment and
Assumption Agreement, dated as of December 31, 1993, among MBIA Corp., Credit
Suisse, New York Branch, as Agent and Assignor and Deutsche Bank AG, New York
Branch, as further amended by a Modification Agreement, dated as of January 1,
1994, among Deutsche Bank, AG, New York Branch, MBIA Corp. and Credit Suisse,
New York Branch, as Agent, as amended by a Joinder Agreement, dated December 31,
1993, among Credit Suisse, New York Branch, as Agent, Sudwestdeutsche Landesbank
Girozentrale and MBIA Corp., incorporated by reference to Exhibit 10.78 to the
1993 10-K, as amended by the First Amendment to First Restated Credit Agreement,
dated as of September 23, 1994, incorporated by reference to Exhibit 10.63 to
the 1994 10-K, as further amended by the Second Amendment to the First Restated
Credit Agreement, dated as of January 1, 1996, and as further amended by the
Third Amendment to the First Restated Credit Agreement, dated as of October 1,
1996.
10.70. MBIA Inc. 1996 Directors Stock Unit Plan, effective as of
December 4, 1996.
11. Statement Re Computation of Per Share Earnings.
13. Annual Report to Shareholders of MBIA Inc. for fiscal year ended
December 31, 1996. Such report is furnished for the information of the
Commission only and, except for those portions thereof which are expressly
incorporated by reference in this Annual Report on Form 10-K, is not to be
deemed filed as part of this report.
21. List of Subsidiaries
23. Consent of Coopers & Lybrand L.L.P.
24. Power of Attorney
27. Financial Data Schedule
99. Additional Exhibits - MBIA Corp. GAAP Financial Statements
<PAGE>
EXHIBIT 10.43
THIRD AMENDMENT
to
REVOLVING CREDIT AGREEMENT
among
MBIA INC.,
THE LENDERS SIGNATORY HERETO,
and
CREDIT SUISSE,
New York Branch,
as Agent
Dated as of May 23, 1996
<PAGE>
THIRD AMENDMENT TO
REVOLVING CREDIT AGREEMENT
THIS AMENDMENT, dated as of May 23, 1996, between MBIA INC., a
Connecticut corporation ("MBIA"), CREDIT SUISSE, a banking corporation organized
under the laws of Switzerland, acting through its New York Branch ("Credit
Suisse"), and GREENWICH FUNDING CORPORATION, a Delaware corporation ( "GFC"),
as Lenders, and Credit Suisse, as Agent for the Lenders (in such capacity, the
"Agent");
WHEREAS, MBIA and Credit Suisse are parties to the Revolving Credit
Agreement, dated as of February 15, 1991, as amended by the First Amendment
thereto dated as of September 20, 1992 and the Second Amendment thereto dated as
of September 30, 1994 (as so amended, the "Credit Agreement");
----------------
WHEREAS, MBIA and Credit Suisse have agreed to certain modifications
to the Credit Agreement; MBIA has requested that GFC join, and GFC has agreed to
join, the Credit Agreement as a Lender of Term Loans thereunder, and Credit
Suisse and GFC, in their capacities as Lenders, desire that Credit Suisse act,
and Credit Suisse has agreed to act, as Agent for the Lenders under the Credit
Agreement; and
WHEREAS, the parties accordingly desire, upon the terms and subject to
the conditions hereinafter set forth, to further amend the Credit Agreement in
certain respects;
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE I
MODIFICATIONS TO CREDIT AGREEMENT
---------------------------------
SECTION 1.1. Defined Terms.
- ----------- -------------
(a) Except as otherwise specified herein, terms used in this
Amendment and defined in Exhibit A of the Credit Agreement, as modified by this
Amendment, shall have the meanings provided in such Exhibit A, as so modified.
(b) The preamble to the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
THIS AGREEMENT, originally dated as of February 15, 1991, among MBIA
INC., a Connecticut corporation
<PAGE>
("IMBIA"), GREENWICH FUNDING CORPORATION, a Delaware corporation ("GFC"), CREDIT
SUISSE, New York Branch ("Credit Suisse"), and each other financial institution
from time to time parties hereto as Lenders (GFC, Credit Suisse and each such
other institution, collectively, the "Lenders"), and CREDIT SUISSE, New York
Branch, as Agent for the Lenders (in such capacity, the "Agent");
SECTION 1.2. Amendments Relating to Revolving Credit and Term Loans.
----------- ------------------------------------------------------
Article 2 of the Credit Agreement is hereby amended and restated to read in its
entirety as follows:
ARTICLE 2
LOANS
-----
Section 2.1. Available Commitment: GFC Option.
- ----------- --------------------------------
(a) MBIA may from time to time prior to the Expiration Date request
that each Lender make Loans to MBIA hereunder, upon the terms and conditions set
forth in this Agreement.
(b) In the event that MBIA HAS REQUESTED THAT a Revolving Loan be
made under this Agreement prior to the Expiration Date in an amount not
exceeding the aggregate Available Commitment of the Lenders at the time of such
Revolving Loan, each Lender (other than GFC) severally and not jointly agrees,
upon the terms and subject to the conditions of this Agreement, to lend to MBIA
its pro rata share of such Revolving Loan or, if less, an amount equal to the
Available Commitment of such Lender at such time.
(c) In the event that MBIA HAS REQUESTED THAT a Term Loan be made
under this Agreement as a GFC Funding Rate Loan prior to the Expiration Date in
an amount not exceeding the aggregate Available Commitment of the LENDERS AT THE
TIME of such Term Loan, GFC may, at its option by notice to the Agent on or
prior to the date on which such Term Loan is to be made hereunder, lend to MBIA
all or any portion of such Term Loan upon the terms and conditions set forth in
this Agreement. In the event that on the date on which such Term Loan is to be
made hereunder, GFC has not made the entire Term Loan, each other Lender agrees,
severally and not jointly, upon the terms and subject to the conditions of this
Agreement, to lend to MBIA on such date its pro rata share of such Term Loan or
of the remaining portion thereof, as the case may be, or, if less, an amount
equal to the Available Commitment of such Lender at such time.
-2-
<PAGE>
(d) In the event that MBIA has requested that a Term Loan be made
under this Agreement as A QUOTED RATE LOAN, a Federal Funds Rate Loan or a Base
Rate Loan prior to the Expiration Date in an amount not exceeding the aggregate
Available Commitment of the Lenders at the time of such Term Loan, each
Lender (other than GFC) agrees, severally and not jointly, upon the terms and
subject to the conditions of this Agreement, to lend to MBIA on such date its
pro rata share of such Term Loan or, if less, an amount equal to the Available
Commitment of such Lender at such time.
(e) For purposes of this Section 2.1, the pro rata share of each
Lender (other than GFC) of a Loan or portion thereof shall equal its Commitment
as a percentage of the aggregate Commitments of all Lenders other than GFC.
Section 2.2. Manner of Borrowing and Disbursement.
- ----------- ------------------------------------
(a) Not later than 11:00 a.m., New York City time, on the day on
which a Federal Funds Rate Loan or Base Rate Loan is to be made hereunder, not
later than 10:00 a.m., New York City time, on the date on which a GFC Funding
Rate Loan is to be made hereunder, and not later than three (3) Business Days
prior to the date on which a Quoted Rate Loan is to be made hereunder, MBIA
shall give the Agent a notice (which notice shall be irrevocable) specifying (i)
the date on which such Loan is to be made, which shall be a Business Day, (ii)
the amount of the proposed borrowing, (iii) the purpose of the proposed
borrowing, (iv) whether such Loan is to be made as a Term Loan or a Revolving
Loan and, if such Loan is a Term Loan, the Designated Maturity Date thereof, (v)
whether such Loan is to be made as a Base Rate Loan, a Federal Funds Rate Loan
or a Quoted Rate Loan or, in the case of a Term Loan, a GFC Funding Rate Loan,
and (vi) if such Loan is to be a Quoted RATE LOAN, THE INTEREST PERIOD WITH
RESPECT THERETO, WHICH notice shall be substantially in the form of, and contain
the certificates contained in, Exhibit B hereto.
(b) Each Loan shall be in the amount of at least $10,000 and, in the
case of GFC Funding Rate Loans, shall be in integral multiples of $100,000;
provided that no Lender shall be required to make its share of a Loan hereunder
- --------
if the amount of such Loan would exceed the aggregate Available Commitments of
the Lenders on the date of such Loan or if, after giving effect to such Loan,
the aggregate outstanding principal amount of Loans owed to all Lenders would be
less than $1,000,000; and provided further, that the parties acknowledge that
-------- -------
MBIA shall not request a GFC Funding Rate Loan unless, after giving effect to
such Loan, the aggregate
-3-
<PAGE>
OUTSTANDING PRINCIPAL amount of all GFC Funding Rate Loans would be less than
$1,000,000.
(c) Upon receipt of each notice described in paragraph (a), the Agent
shall promptly (and not later than thirty (30) minutes after the notice of
borrowing from MBIA is received by the Agent in the event that the borrowing is
to be made on the same day as such notice) notify each Lender of the contents
thereof, and of the amount of such Lender's share of such Loan hereunder or, in
the case of a TERM LOAN WHICH IS requested to be made as a GFC Funding Rate
Loan, the maximum amount of such Lender's share thereof in the event that GFC
does not elect to lend any portion of such Term Loan. Upon receipt by the Agent
GFC's election to make or not to make a Term Loan pursuant to SECTION 2.1(C),
THE AGENT SHALL GIVE prompt notice of such election to each Lender and to MBIA.
In the case of a Revolving Loan or of a Term Loan (or portion thereof) which GFC
has not elected or is not entitled to elect to make, each Lender shall, not
later than 1:00 p.m. (New York City time) on the date specified in such notice,
make available to the Agent at the Agent's Office, for such account as the Agent
shall designate, the amount of its share of such Revolving Loan or such Term
Loan (or portion thereof) in immediately available funds. In the event that GFC
has elected to make a Term Loan or a portion thereof but has failed to make the
amount of such Term Loan or of such portion available to the Agent as provided
above in this Section prior to 1:00 p.m. (New York City time) on the date on
which such Term Loan is to be made, the Agent shall, not later than 1:30 p.m.
(New York City time) on SUCH DATE, NOTIFY EACH OTHER Lender of such failure, and
each other Lender shall, not later than 3:00 p.m. (New York City time) on such
date make available to the Agent at the Agent's Office, for such account as the
Agent shall designate, the amount of its share of such Term Loan of such portion
thereof in immediately available funds.
(d) On the date specified in THE NOTICE DESCRIBED in paragraph (a)
above, the Agent shall, subject to the satisfaction of the conditions set forth
in Article 4, disburse the amounts made available to the Agent by the Lenders in
like funds by transferring such amount to an account of MBIA maintained at the
Agent or by wire transfer to an account in New York City pursuant to MBIA's
instructions.
Section 2.3. Notes
- ----------- -----
(a) Each Lender's share of Revolving Loans shall be evidenced by, and
be repayable with interest in accordance with the terms of, a single Revolving
Loan Note payable to the
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<PAGE>
order of such Lender, substantially in the form of Exhibit C-1 to this
Agreement. Each Revolving Loan Note shall be dated the Effective Date (or such
later date on which such Note is issued) and shall be duly executed and
delivered by MBIA. Each portion of a Term Loan made by a Lender shall be
evidenced by, and be repayable with interest in accordance with the terms of, a
Term Loan Note payable to the order of such Lender, substantially in the form of
Exhibit C-2 to this Agreement. Each Term Loan Note shall be dated the date of
the related Term Loan and shall be duly executed and delivered by MBIA.
(b) Each LENDER IS IRREVOCABLY AUTHORIZED from time to time to record
the date and amount of each Loan, whether such Loan is a Base Rate Loan, a
Federal Funds Rate Loan, a Quoted Rate Loan or a GFC Funding Rate Loan and each
payment and prepayment with respect to each Loan on the grid attached to the
related Note or on a continuation thereof which may be attached thereto by such
Lender and made a part thereof, and any such notation shall, absent manifest
error, constitute crime facie evidence of the accuracy of the information so
----- -----
recorded; provided, that the failure to make any such notation shall not affect
--------
the validity of MBIA's obligations hereunder or under such Note.
Section 2.4. Interest Rates and Payment Dates.
- ----------- --------------------------------
(a) Each Loan or portion thereof owed to any Lender other than GFC
hereunder shall be a Base Rate Loan, a Federal Funds Rate Loan or a Quoted Rate
Loan, as designated by MBIA pursuant to Section 2.2(a), 2.4(h) or 2.4(i);
provided that no more than five (5) Quoted Rate Loans may be outstanding at
- --------
any one time. Any Term Loan (or portion thereof) shall be a GFC Funding Rate
Loan for each day during which such Term Loan (or such portion) is owed to GFC.
(b) MBIA agrees to pay interest in respect of the unpaid principal
amount of each Base Rate Loan for each day from and including the day such Base
Rate Loan was made to but excluding the day the principal on such Base Rate Loan
is due (whether at maturity, by acceleration or otherwise) or, if earlier, the
date on which such Loan ceases to be a Base Rate Loan, at a rate per annum equal
to the Base Rate Margin plus the Base Rate, which interest rate shall change as
and when the Base Rat e shall change. Such interest shall be payable on each
successive Payment Date commencing with the first such date after the making of
such Base Rate Loan and when the principal amount of such Base Rate Loan is due
(whether at maturity, by acceleration or otherwise) or such Loan ceases to be a
Base Rate Loan.
-5-
<PAGE>
(c) MBIA agrees to pay interest in respect of the unpaid principal
amount of each Quoted Rate Loan for each day from and including the day such
Quoted Rate Loan was made to but excluding the day the principal on such Quoted
Rate Loan is due (whether at maturity, by acceleration or otherwise), at a rate
per annum equal for each Interest Period applicable thereto to the Quoted Rate
Margin plus the applicable Quoted Rate for such Interest Period. Such interest
shall be payable on the last day of each Interest Period and when the principal
amount of such Quoted Rate Loan is due (whether at maturity, by acceleration or
otherwise) or such Loan ceases to be a Quoted Rate Loan.
(d) MBIA agrees to pay interest in respect of the unpaid principal
amount of each Federal Funds Rate Loan for each day from and including the day
such Federal Funds Rate Loan was made to but excluding the day the principal on
such Federal Funds Rate Loan is due (whether at maturity, by acceleration or
otherwise) or, if earlier, the date on which such Loan ceases to be a Federal
Funds Rate Loan, at a rate PER ANNUM equal to the Federal Funds Margin plus the
Federal Funds Rate, which interest rate shall change as and when the Federal
Funds Rate s hall change. Such interest shall be payable on each successive
Payment Date commencing with the first such date after the making of such
Federal Funds Rate Loan and when the principal amount of such Federal Funds Rate
Loan is due (whether at maturity, by acceleration or otherwise) or such Loan
ceases to be a Federal Funds Rate Loan.
(e) MBIA agrees to pay interest in respect of the unpaid principal
amount of each GFC Funding Rate Loan for each day from and including the day
such GFC Funding Rate Loan was made to but excluding the day the principal on
such GFC Funding Rate Loan is due (whether at maturity, by acceleration or
otherwise) or, if earlier, the date on which such Loan ceases to be a GFC
Funding Rate Loan, AT A RATE PER ANNUM equal to the GFC Funding Rate Margin plus
the GFC Funding Rate, which interest rate shall change as and when the GFC
Funding Rate shall change. Such interest shall be payable on each successive
Payment Date commencing with the first such date after the making of such GFC
Funding Rate Loan and when the principal amount of such GFC Funding Loan is due
(whether at maturity, by acceleration or otherwise) or such Loan ceases to be a
GFC Funding Rate Loan.
(f) Any overdue principal of any Loan and, to the extent permitted by
law, overdue interest thereon shall bear interest (after as well as before
judgment), payable on demand, for each day from and including the date payment
-6-
<PAGE>
thereof was due to but excluding the date of actual payment, at a rate per annum
equal to (i) in the case of Quoted Rate Loans, until the end of the then current
Interest Period, the sum of 2% plus the interest rate otherwise applicable to
such Loan, (ii) in the case of Federal Funds Rate Loans and GFC Funding Rate
Loans, the sum of 2% plus the interest rate otherwise applicable to such Loan
and (iii) otherwise, the sum of 2% plus the Base Rate Margin plus the Base Rate
from time TO TIME IN EFFECT, WHICH INTEREST RATE SHALL change as and when the
Base Rate shall change.
(g) The Agent shall DETERMINE EACH INTEREST RATE applicable to the
Loans hereunder. The Agent shall give prompt notice to MBIA and each Lender by
telex or cable of each rate of interest so determined, and its determination
thereof shall be conclusive, absent manifest error.
(h) Subject to the provisions of this Section 2.4(h) and Section 2.5,
MBIA shall have the option (i) to convert all or any part of its outstanding
Base Rate Loans to Federal Funds Rate Loans or Quoted Rate Loans at any time,
(ii) TO CONVERT ALL OR any part OF ITS OUTSTANDING Federal Funds Rate Loans to
Base Rate Loans or Quoted Rate Loans at any time, (iii) to convert all or any
part of its outstanding Quoted Rate Loans to Federal Funds Rate Loans or Base
Rate Loans upon the expiration of the Interest Period applicable to such Quoted
Rate Loans, or (iv) to continue all or any part of any Quoted Rate Loans as a
Quoted Rate Loan upon the expiration of the Interest Period applicable thereto
with either the same or a different Interest Period; provided that, in the case
--------
of clause (iv) above or of any conversion of a Loan into a Quoted Rate Loan,
there does not exist a Default or an Event of Default at such time. Any part of
a Loan converted to or continued as a Quoted Rate Loan pursuant to this Section
2.4(h) shall be in an amount equal to at least $10,000. If MBIA elects to
convert a Federal Funds Rate Loan or a Base Rate Loan into a Quoted Rate Loan or
a Quoted Rate Loan into a Federal Funds Rate Loan or a Base Rate Loan, or to
continue a Quoted Rate Loan but change the Interest Period with respect thereto
pursuant to this Section 2.4(h), it shall give the Agent at least three (3)
Business Days' prior written notice of such conversion or change. Such notice
shall, in the case of a conversion into or continuation of a Quoted Rate Loan,
specify the Interest Period applicable to such Loan. In the absence of such
notice, MBIA shall be deemed to have elected at the end of each Interest Period
for a Quoted Rate Loan to continue (subject to Section 2.5) such Quoted Rate
Loan as a Quoted Rate Loan having the same Interest Period.
-7-
<PAGE>
(i) On the date a Term Loan (or portion thereof) ceases to be a GFC
Funding Rate Loan, such Term Loan (or such portion) shall automatically convert
into a Federal Funds Rate Loan on such date, unless MBIA shall have given the
Agent written notice (i) of its election to convert such Loan into a Quoted
Rate Loan at least three (3) Business Days' prior to such date or (ii) of its
election to convert such Loan into a Base Rate Loan not later than 11:00 a.m.,
New York City time, on the date on such conversion. Any such notice with respect
to a Quoted Rate Loan shall specify the initial Interest Period applicable to
such Quoted Rate Loan.
SECTION 2.5. SUSPENSION OF CERTAIN RATES of borrowing
----------- ----------------------------------------
(a) If
(i) ON ANY DATE on which a Quoted Rate would otherwise be set, the Agent shall
have in good faith determined (which determination shall be conclusive)
that adequate and reasonable means do not exist for ascertaining such
Quoted Rate, or
(ii) at any time the Agent shall have determined in good faith (which
determination shall be conclusive) that the maintenance or funding of the
Loans bearing interest at the Quoted Rate has been made impracticable or
unlawful by (A) THE OCCURRENCE of a contingency which materially and
adversely affects the interbank eurodollar market, or (B) compliance by
Lenders (other than GFC) in good faith with any applicable law or
governmental RULE, REGULATION, GUIDELINE OR ORDER OR ANY interpretation
thereof and including the ENACTMENT OF ANY NEW law or governmental rule,
regulation, guideline or order;
then, and in either such event, the Agent shall on such date give notice (by
- ----
telephone confirmed in writing) to MBIA and each Lender of such determination,
which determination shall commence a Suspension Period. In the event that the
Agent shall later determine in good faith (which determination shall be
conclusive) that the circumstances giving rise to a Suspension Period no longer
exist, it shall give MBIA and each Lender notice (by telephone confirmed in
writing) on the day such determination is made, which date shall end such
Suspension Period.
-8-
<PAGE>
(b) Upon the commencement and during the continuation of any
Suspension Period, all Loans which would otherwise be made or continued as
Quoted Rate Loans shall be made or continued instead as Federal Funds Rate Loans
or Base Rate Loans, as MBIA may have elected by notice received by the Agent
prior to 11:00 a.m., New York City time, on the date on which such Loan is to be
made or, in the absence of such notice from MBIA, as Federal Funds Rate Loans.
(c) If the Agent notifies MBIA of a determination under subsection
(a)(ii) of this Section 2.5, MBIA shall, on the date specified in such notice,
either (x) prepay all Quoted Rate Loans in accordance with Section 2.7 hereof or
(y) elect by notice received by the Agent (which shall promptly furnish copy
thereof to the affected Lender) prior to such date to convert such Loans into
Federal Funds Rate Loans or Base Rate Loans. Absent notice from MBIA of its
choice of (x) or (y), all Quoted Rate Loans shall automatically be converted
into Federal Funds Rate Loans upon such specified date.
Section 2.6. Repavment of Loans.
- ----------- ------------------
(a) All Revolving Loans shall mature and the aggregate unpaid
principal amount thereof shall be due and payable on the Expiration Date.
(b) Each Term Loan shall mature and the unpaid principal amount
thereof shall be due and payable on the Designated Maturity Date of such Term
Loan.
Section 2.7. Prepayments.
- ----------- -----------
(a) MBIA shall have the right at any time, and from time to time, upon
notice to the Agent to prepay Loans, in whole or in part. Any such notice shall
be given no later than 10:00 a.m., New York City time, on the date of prepayment
in the case of a prepayment of Federal Funds Rate Loans or Base Rate Loans,
not later than 5:00 p.m., New York City time, on the Business Day preceding the
date of prepayment in the case of a prepayment of GFC Funding Rate Loans, and no
later than three (3) Business Days prior a prepayment of Quoted Rate Loans. Any
such notice shall specify (i) the amount of the Loans to be prepaid, (ii)
whether such prepayment is to be applied to Revolving Loans or Term Loans, or
both, (iii) whether such prepayment is to be applied to Federal Funds Rate
Loans, Base Rate Loans, Quoted Rate Loans or GFC Funding Rate Loans, or any one
or more of the foregoing, (iv) if applicable, what portion of the prepayment is
to be applied
-9-
<PAGE>
to each Loan, (v) if applicable, which Quoted Rate Loans and which Term Loans
are to be prepaid, and (vi) the date of prepayment (which shall be a Business
Day). In the absence of such direction from MBIA, partial principal prepayments
of Loans shall be applied (1) first to Base Rate Loans which are Revolving
Loans, (2) then to Federal Funds Rate Loans which are Revolving Loans, (3) then
to then to other Revolving Loans in chronological order of the expiration of the
current Interest Periods for such Loans, (4) then to Base Rate Loans which are
term loans in chronological order of maturity, (5) then to Federal Funds Rate
Loans which ARE TERM LOANS in chronological order or maturity, (6) then to Term
Loans which ARE QUOTED RATE LOANS IN CHRONOLOGICAL ORDER OF the expiration of
the current Interest Periods for such Loans, and (7) then to Term Loans which
are GFC Funding Rate Loans
(b) Amounts to be prepaid pursuant to this Section 2.7 shall
irrevocably be due and payable on the date specified in the applicable notice of
prepayment. Interest on the amounts prepaid, accrued to the prepayment date,
shall be paid on such date and, in the case of (i) a Quoted Rate Loan, if the
date of prepayment is other than the expiration date of the Interest Period for
such Loan,or (ii) a GFC Funding Rate Loan, if the date of prepayment is other
than the maturity date of such Loan, such prepayment shall be accompained by the
payment required by Section 3.4.
(c) Each prepayment of Loans other than GFC Funding Rate Loans shall
be in an amount of at least $10,000, and no partial prepayment of Loans shall be
permitted if, after giving effect thereto, the aggregate outstanding principal
balance of all Loans would be less than $1,000,000. Each prepayment of GFC
Funding Rate Loans SHALL BE IN AN INTEGRAL multiple of $100,000, and no partial
prepayment of GFC Funding Rate Loans shall be permitted if, after giving effect
thereto, the aggregate outstanding principal balance of the GFC Funding Rate
Loans would be less than $1,000,000.
(d) Amounts prepaid or repaid in respect of Loans may be borrowed and
reborrowed from time to time prior to the Expiration Date subject to the terms
and conditions of this Agreement.
Section 2.8. Pro Rata Payments. Unless otherwise expressly provided
----------- -----------------
herein, each payment and prepayment of Revolving Loans shall be made to the
Lenders pro rata on the basis of the respective unpaid principal amounts of
Revolving Loans owed to the Lenders immediately prior to such payment or
prepayment, and each payment and prepayment of a Term Loan shall be made to the
Lenders to which repayment of such Term
-10-
<PAGE>
Commitments by giving the Agent at least three (3) Business Days notice thereof.
Any such reduction shall be in an integral multiple of $100,000 and a reduction
not CONSTITUTING A TERMINATION SHALL not be PERMITTED IF, AFTER giving effect
thereto, the aggregate Commitments would be less than $1,000,000. Any notice of
reduction or termination pursuant to this Section 3.2(a) shall be irrevocable.
Any such reduction shall be applied to the Commitment of each Lender (other than
GFC) pro rata based upon its respective Commitment as in effect immediately
prior to SUCH REDUCTION, and any such termination shall terminate the
Commitments of all Lenders.
(b) The Commitments of the Lenders hereunder shall automatically be
reduced to zero, and the obligations of the Lenders to make additional Loans
shall automatically terminate, on the Expiration Date.
(b) Clause (iv) of Section 3.4 of the Credit Agreement is hereby
amended to add the following at the end thereof:
or any PREPAYMENT OR PAYMENT OF ANY GFC FUNDING RATE LOAN (including without
limitation pursuant to Section 2.7) on a date which is not the Designated
Maturity Date of such Loan.
(c) The provisions of Section 3.5(d) of the Loan Agreement shall be
inapplicable to GFC, insofar as such provisions may require GFC to make monetary
payments to MBIA, but shall apply to any of GFC's Participants in accordance
with its terms. If (i) MBIA would be required to make an additional payment (the
"Subject Payment") to GFC pursuant to Section 3.5(b) of the Loan Agreement, and
(ii) except for the operation of this Section 1.3(c), MBIA
-11-
<PAGE>
would have been entitled to receive a return of or reimbursement for all or a
portion of such payment under Section 3.5(d) of the Loan Agreement, then MBIA
shall not be required to make the Subject Payment (or such portion thereof) to
GFC, unless GFC agrees with MBIA to make any payments under Section 3.5(d) of
the Loan Agreement relating to the Subject Payment (or such portion thereof) or
has made provisions reasonably satisfactory to MBIA for the making of any such
related payments.
(d) Section 4.2 is hereby amended to add the following clause (i)
following clause (h) THEREOF:
(i) In the case of a Term Loan, each Lender making such Term Loan
shall have a received a Term Loan Note in respect thereof payable to such Lender
in the amount of its share of such Term Loan and stating the Designated Maturity
Date of such Term Loan. Any Lender may waive the condition of prior delivery of
a Term Loan Note in respect of its share of a Term Loan (and shall be deemed to
have done so in the event it makes its pro rata share of such Term Loan prior to
such delivery); provided that in the event of any such waiver, MBIA agrees to
--------
deliver to such Lender a Term Loan Note as provided in this clause (i) and
Section 2.3(a) not later than five (5) Business Days after the date of such Term
Loan; and Provided further that the failure of MBIA to deliver a Term Loan Note
----------------
to a Lender shall not affect the validity of any of MBIA's obligations
hereunder, including without limitation its obligation to repay such Term Loan
together with interest thereon as provided herein.
(e) Section 9.9 of the Credit Agreement is hereby amended to add the
following at the end thereof:
Notwithstanding the foregoing, GFC or any other Lender shall have the right to
assign, sell or otherwise transfer in whole or in part its rights and/or
OBLIGATIONS UNDER THIS AGREEMENT, the Loan Documents and any Loan or any portion
thereof to Credit Suisse or to any other Person consented to in writing by MBIA,
in which case such assignee shall have the full rights and obligations of a
"Lender", and the assignor shall be relieved and released of its obligations,
under this Agreement, the Loan Documents and the Loans to the extent of such
assignment. Any such assignee which prior to such assignment was not a Lender
shall promptly deliver to MBIA the forms and documents applicable to it
contemplated by Section 3.5(c) and shall, by its acceptance of such assignment,
be bound by the provisions set forth in the second sentence of Section 3.5(d).
-12-
<PAGE>
For purposes of the Credit Agreement, a "Participant" (as otherwise defined in
Section 9.9 of the Credit Agreement) shall also include any bank, insurance
company or other financial institution providing liquidity, credit enhancement
or back-up acquisition support or facilities to GFC in respect of any GFC
Funding Rate Loans, and the rights of a Participant under the Credit Agreement
shall apply to any such institution in respect of commitments and obligations
to, and its funding of advances to, GFC in respect of GFC Funding Rate Loans.
SECTION 1.4. Amendments Relating TO LENDERS AND AGENT.
- -----------
(a) Article 9 of the Credit Agreement is hereby amended by adding the
following two new Sections thereto following Section 9.13 hereof:
Section 9.14. Nonpetition Agreement. Notwithstanding any prior
------------ ---------------------
termination of this Agreement, MBIA hereby agrees that it shall not institute
against, or join any other person in instituting against, GFC any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceeding under any federal or state bankruptcy or similar law, for one year
and a day after the latest maturing commercial paper note, medium term note or
other debt security issued by GFC is paid. This Section 9.14 shall survive the
termination of this Agreement.
Section 9.15. Agent. (a) Each Lender hereby irrevocably appoints and
------------ -----
authorizes the Agent to act as its agent hereunder with such powers as are
specifically delegated to the Agent by the terms of this Agreement, TOGETHER
WITH SUCH other powers as are reasonably incidental thereto. The Agent (which
term as used in this Section and in Section 9.15(d) and the first sentence of
Section 9.15(e) shall include reference to its affiliates and its own and its
affiliates' officers, directors, employees and agents: (i) shall have no duties
or responsibilities except those expressly set forth in this Agreement, and
shall not by reason of this Agreement be a trustee for any Lender; (ii) shall
not be responsible to any Lender for any recitals, statements, representations
or warranties contained in this Agreement, or in any certificate or other
document referred to or provided for in, or received by any of them under, this
Agreement or any Note or other Loan Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other document referred to or provided for herein or therein or for any
failure by the Company to perform any of its obligations hereunder or
thereunder; (iii) shall not be required to initiate or conduct any litigation or
collection proceedings
-13-
<PAGE>
hereunder or under any Note; and (iv) shall not be responsible for any action
taken or omitted to be taken by it hereunder or under any other document or
instrument referred to or provided for herein or therein or in connection
herewith or therewith, except for its own gross negligence or willful
misconduct. The Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or attorneys-
infact selected by it in good faith.
(b) The Agent shall be entitled to rely upon any certification, notice
or other communication (including any thereof by telephone, telecopy, telex,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel, independent accountants and other experts
selected by the Agent. As to any other matters not expressly provided for by
this Agreement, the Agent shall in all cases be fully protected in acting, or
in refraining from acting, hereunder or under any Note in accordance with
instructions of the Majority Lenders, and such instructions of the Majority
Lenders and any action taken or failure to act pursuant thereto shall be binding
on each Lender.
(c) The Agent, if it is a Lender hereunder, shall have the same rights
and powers hereunder as any other Lender and may exercise the same as though it
were not acting as the Agent, and in such event the term "Lender" or "Majority
Lenders" shall, unless the context otherwise indicates, include the Agent in
its individual capacity.
(d) Each Lender (other than GFC) agrees to indemnify the Agent (to the
extent not reimbursed under Section 9.1, but without limiting the obligations of
MBIA under said Section 9.1) for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement, any Note or any other documents contemplated by or referred to
herein or therein or the transactions contemplated hereby (excluding normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or of any such
other documents, Provided that no Lender shall be liable for any of the
--------
foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified. Each Lender's proportionate share of
any obligations under this Section
-14-
<PAGE>
9.15(d) shall equal such Lender's Commitment as a percentage of the Commitments
of all Lenders (other than GFC) or, if no Lender has a Commitment, the aggregate
outstanding principal amount of Loans owed to such Lender as a percentage of the
aggregate outstanding principal amount of Loans owed to all Lenders other than
GFC. This Section 9.15(d) shall survive the termination of this Agreement.
(e) Each Lender agrees that it has, independently and without reliance
on the Agent or any other Lender, and based on such documents and information as
it has deemed appropriate, made its own credit analysis of and the decision to
enter into this Agreement or acquire its share of the Loans and that it will,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under this Agreement or its Notes. The Agent shall not be required to keep
itself informed as to the performance or observance by MBIA of this Agreement or
any Note or OTHER LOAN DOCUMENTS.
(f) Except for actions expressly required of the Agent hereunder, the
Agent shall in all cases be fully justified in failing or refusing to act
hereunder or under any Note unless it shall receive further assurances to its
satisfaction from each Lender (other than GFC) of its indemnification
obligations under Section 9.15(d) against any and all liability and expense
which may be incurred by it by reason of taking or continuing TO TAKE ANY SUCH
ACTION.
(g) The Agent may resign as Agent upon 10 days' notice to each Lender
and MBIA with such resignation becoming effective upon a successor agent
succeeding to the rights, powers and duties of the Agent pursuant to this
Section 9.15(g). If the Agent shall RESIGN AS AGENT UNDER THIS Agreement, then
the Majority Lenders shall appoint a successor agent, subject to consent by
MBIA, which consent shall not be unreasonably withheld. The successor agent
shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall mean such successor agent effective upon its appointment, and the
former Agent's rights, powers and duties as Agent shall be terminated, without
any other or further act or deed on the part of such former Agent or any of the
parties to this Agreement. After any rettiring Agent's resignation as Agent, the
provisions of this Section shall inure to its benefit as to any actions TAKEN OR
OMITTED TO BE TAKEN BY IT WHILE IT WAS AGENT UNDER THIS AGREEMENT.
-15-
<PAGE>
(b) In addition to the modifications contained in provisions of the
Credit Agreement referred to above in this Amendment, references in the Credit
Agreement to the "Bank" are hereby amended to constitute references to each of
the Lenders, except as follows:
(i) For purposes notices to be provided by MBIA to the "Bank"
(including without limitation notices of borrowing), such references shall mean
the Agent;
(ii) For purposes of Section 3.1, such references shall mean each
Lender other than GFC;
(iii) For purposes of Section 7.2(a), such references shall mean the
Agent acting at the direction of the Majority Lenders;
(iv) The Agent, in its capacity as such, shall be entitled to the
benefits of Section 9.1 of the Credit Agreement.
(v) For purposes of any consents or waiver which under the Agreement
may be given by the "Bank", including without limitation Section 9.13, such
references shall mean the "Majority Lenders" (which may act through the Agent);
Provided that any consent or waiver which (A) affects the amount of the
- --------
Commitment of any Lender, (B) alters the amount or the timing of any payment
hereunder or under any Note, the provisions of Section 3.4 or the requirement
pursuant to Section 2.8 of the pro rata application of all amounts received by
the Agent in respect of the Loans, (C) permits any subordination of the
principal of or interest on any Loan, (D) alters the amount of any fee to be
paid to any Lender, or (E) changes the percentage of the Lenders required to
constitute the Majority Lenders or otherwise modifies voting rights of Lenders,
each shall required the prior written consent of each adversely affected Lender;
provided further that any consent or waiver -which enlarges the obligations of
- -------- -------
GFC hereunder shall require the prior written consent of GFC; and provided
--------
further that any consent or waiver which alters the rights or obligations of the
- -------
Agent shall, in addition, require the prior written consent of the Agent.
(c) For purposes of Section 9.8 of the Credit Agreement, the initial
address of the Agent shall be 12 East 49th Street, New York, New York 10017,
Attention: Public Finance Department, Telecopier No. 212-238-5358, and the
initial respective addresses of the Lenders shall be as set forth on the
signature pages to this Amendment.
-16-
<PAGE>
SECTION 1.5. Amendments to Definitions.
- ----------- -------------------------
(a) The definition of "Available Commitment" contained in Exhibit A to the
Credit Agreement is hereby amended and restated to read in its entirety as
follows:
"Available Commitment" shall mean, as of any day with respect to a Lender
--------------------
other than GFC, such Lender's Commitment, minus the sum of (a) the outstanding
principal amount of Loans owed to such Lender on such day, plus (a) a share of
the outstanding principal amount of Loans owned to GFC on such day times a
fraction, the numerator of which equals the Commitment of such Lender and the
denominator of which equals the aggregate Commitments of all Lenders (other than
GFC).
(b) The definition of "Business Day" contained in Exhibit A of the Credit
Agreement is hereby amended and restated to read in its entirety as follows:
"Business Day" shall mean any day excluding (i) Saturday and Sunday and
------------
(ii) any day on which banks in New York City are authorized by law or other
governmental action to close. In the case of matters relating to the making,
conversion, continuation, payment or prepayment of Quoted Rate Loans or the
determination of the Quoted Rate, a "Business Day" shall be such a day which is
------------
also a day for trading by and between banks in U.S. Dollar deposits in the
London interbank eurodollar market.
(c) The definition of "Commitment" contained in Exhibit A of the Credit
Agreement is hereby amended and restated to read in its entirety as follows:
"Commitment" shall mean, with respect to any Lender, the amount set forth
----------
opposite its name on the signature pages to this Agreement or any amendment,
joinder or related agreement by which such Lender became a party hereto or by
which such Lender modified its Commitment hereunder, as such amount may be
reduced from time to time pursuant to Section 3.2 or Section 7.2.
(d) Clause (d) of the definition of "Interest Period" contained in Exhibit
A of the Credit Agreement is hereby amended and restated to read in its entirety
as follows:
(d) no Interest Period in respect of a Revolving Loan shall extend beyond the
Expiration Date in effect on the first day of such Interest Period, and no
Interest Period in respect of
<PAGE>
a Term Loan shall extend beyond the Designated Maturity Date for such Term Loan.
(e) The definition of "Note" contained in Exhibit A of the Credit
Agreement is hereby amended and restated to read in its entirety as follows:
"Note" shall mean each Term Note and each Revolving Loan Note and, unless.
the context otherwise requires, shall mean all Term Notes and all Revolving Loan
Notes collectively.
(f) The following additional definitions and crossreferences are
hereby added to Exhibit A of the Credit Agreement in their respective
appropriate alphabetical order:
"Agent" - Preamble.
-----
"CP Disruption Event" means, at any time for any reason whatsoever, GFC
-------------------
shall be unable to raise, or shall be precluded or prohibited from raising funds
through the issuance of commercial paper notes in the commercial paper market of
the United States including, without limitation (i) by virtue of insufficient
availability under any liquidity or credit support agreement entered into by GFC
with respect to the GFC Funding Rate Loans or (ii) the downgrading of one or
more institutions providing commitments to GFC under such support agreements.
"Credit Suisse" - Preamble.
-------------
"Designated Maturity Date" shall mean, with respect to a Term Loan, the
------------------------
earlier to occur of (a) the date designated by MBIA as the maturity date of such
Term Loan in its related notice of borrowing delivered pursuant to Section
2.2(a), which shall not be fewer than thirty (30) days after the date on which
such Term Loan is to be made hereunder unless each affected Lender otherwise
consents in writing, or (b) the fifth anniversary of the date on which such Term
Loan is made.
"GFC" - Preamble.
---
"GFC Funding Rate" shall mean, for any day, the sum of (i) the weighted
----------------
average of the per annum rates (or, if such rates are expressed as discount
rates, the weighted average of the per annum rates resulting from converting
such discount rates to an interest bearing equivalent) of GFC's commercial
paper notes allocated by GFC to the funding or maintenance of the GFC Funding
Rate Loans on such day plus
(ii) 0.05% in respect of dealer fees; Provided that if a
--------
-18-
<PAGE>
Disruption Event shall have occurred and be continuing, the GFC Funding Rate for
a GFC Funding Rate Loan SHALL EQUAL A QUOTED Rate for overnight periods (as
determined by the Agent) from the date of the occurrence of such event to but
excluding the next Payment Date and thereafter a Quoted Rate for a one month
period (as determined by the Agent) for each period commencing on a Payment Date
to but excluding the next following Payment Date (or, if earlier, the Designated
MATURITY DATE OF such GFC Funding Rate Loan).
"GFC FUNDING RATE LOAN" shall mean a Loan or a portion thereof, the
---------------------
interest on which computed at the rate SPECIFIED in Section 2.4(e).
"GFC Funding Rate Margin" shall mean two-tenths of one percent (.20%) plus
-----------------------
the Applicable Margin.
"Lenders" - Preamble.
-------
"Majority Lenders" shall mean Lenders holding, in the aggregate, Available
----------------
Commitments and unpaid principal amounts of Loans representing more than 50% of
the aggregate of the Available Commitments of all Lenders and the aggregate
unpaid principal amounts of all Loans.
"Revolving Loan" shall mean a Loan designated by MBIA as a Revolving Loan
--------------
in its related notice of borrowing delivered pursuant to Section 2.2(a).
"Revolving Loan Note" shall mean each promissory note of MBIA issued to a
-------------------
Lender pursuant to Section 2.3 evidencing the Revolving Loans and any other note
issued by MBIA and accepted by a Lender or a transferee in exchange,
substitution or replacement therefor, as each may be amended from time to time.
"Term Loan" shall mean a Loan designated by MBIA as a Term Loan in its
---------
related notice of borrowing delivered pursuant to Section 2.2(a).
"Term Note" shall mean each promissory note of MBIA issued to a Lender
--------
pursuant to Section 2.3 evidencing the Term Loans and any other note issued by
MBIA and accepted by a Lender or a transferee in exchange, substitution or
replacement therefor, as each may be amended from time to time.
SECTION 1.6. Amendments to Exhibits. Exhibits B and C of the Credit
----------- ----------------------
Agreement are hereby amended and restated as set forth as Exhibits B. C-1 and C-
2, respectively, to this Amendment.
-19-
<PAGE>
ARTICLE II
REPRESENTATIONS AND
WARRANTIES
In order to induce the Agent and the Lenders to enter into this Amendment
and to induce the Lenders to make Loans under the Credit Agreement as amended
hereby, MBIA makes the following representations and warranties to the Agent and
the Lenders, which shall survive the execution and delivery of this Amendment
and the making of any Loans:
SECTION 2.1. Due Authorization, Etc. The execution, delivery and
----------- ----------------------
performance by MBIA of this Amendment and the Loan Documents as amended
hereby are within its corporate powers, have been duly authorized by all
necessary corporate action and do not and will not (i) violate any provision of
any law, rule, regulation (including, without limitation, the Investment Company
Act of 1940, as amended, or Regulations G. T. U or X of the Board of Governors
of the Federal Reserve System), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to MBIA or of
the corporate charter or by-laws of MBIA, (ii) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which MBIA is a party or by which it or
its properties may be bound or affected, or (iii) result in, or require, the
creation or imposition of any Lien upon or with respect to any of the properties
now owned or hereafter acquired by MBIA, other than, in the case of clauses (ii)
and (iii), breaches, defaults or Liens which could not materially and adversely
affect the business, assets, operations or financial condition of MBIA and its
subsidiaries considered as a whole or of the New York Insurance Subsidiary or
the ability of MBIA to perform its obligations under any Loan Document.
SECTION 2.2. Approvals. No consent, approval or other action by, or any
----------- ---------
notice to or filing with any court or administrative or governmental body is or
will be necessary for the valid execution, delivery or performance by MBIA of
this Amendment or the Loan Documents as amended thereby.
SECTION 2.3. Enforceability. This Amendment and each Loan Document as
----------- --------------
amended hereby, constitutes a legal, valid and binding obligation of MBIA,
enforceable against MBIA in accordance with their respective terms, except as
such enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
the availability of equitable remedies, whether such matter is heard in a court
of law or a court of equity.
-20-
<PAGE>
SECTION 2.4. Financial STATEMENTS, ETC. (A) MBIA HAS heretofore furnished
----------- -------------------------
to the Agent (i) its audited consolidated and unaudited consolidating balance
sheets of at December 31, 1995, the related audited consolidated statements of
income, changes in stockholders' equity and financial position or cash flows,
as the case may be, and unaudited consolidating statements of income for the
year ended December 31, 1995, and (ii) its unaudited consolidated and
consolidating balance sheets as of March 31, 1996, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
three months ended March 31, 1996. Such financial statements were prepared in
accordance with generally accepted accounting principles consistently applied
and present fairly the consolidated financial position and consolidated results
of operations and cash flows of MBIA and its subsidiaries at the dates and for
the periods indicated therein. There has been no material adverse change in the
consolidated financial position or consolidated results of operations or cash
flows of MBIA and its subsidiaries taken as a whole or of the New York Insurance
Subsidiary since March 31, 1996.
(b) MBIA has heretofore furnished to the Agent the annual statements and
financial statements of the New York Insurance Subsidiary as filed with the New
York Department of Insurance for the year ended December 31, 1995 and the
quarterly statements and financial statements of the New York Insurance
Subsidiary as filed with such Department for the period ended March 31, 1996.
Such annual and quarterly statements and financial statements were prepared in
accordance with the statutory accounting principles set forth in the New York
Insurance Law, all of the assets described therein were the absolute property
of the New York Insurance Subsidiary at the dates set forth therein, free and
clear of any liens or claims thereon, except as therein stated, and each such
annual statement is a full and true statement of all the assets and liabilities
and of the condition and affairs of the New York Insurance Subsidiary as of such
dates and of its income and deductions therefrom for the year or quarter ended
on such dates.
(c) MBIA has heretofore furnished to the Agent a copy of its annual report
on Form 10-K for the fiscal year ended December 31, 1995 as filed with the
Securities and Exchange Commission and its quarterly report on Form 10-Q of for
the quarter ended March 31, 1996 as filed with the Securities and Exchange
Commission. Such annual and quarterly reports were prepared in accordance with
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
SECTION 2.5. Confirmation of Representations and Warranties. MBIA hereby
----------- ----------------------------------------------
confirms that its representations and
-21-
<PAGE>
warranties set forth in the Credit Agreement (including without limitation those
set forth in Article 5 of the Credit Agreement) are true and correct as of the
date hereof, and represents and warrants that no Default or Event of Default has
occurred and is continuing.
SECTION 2.6. Disclosure. There is no fact known to MBIA which materially
----------- ----------
adversely affects the business, assets, operations or financial condition of
MBIA or the ability of MBIA to perform its obligations under any this Amendment
or any Loan Document as amended hereby which has not been set forth in this
Amendment, in the financial STATEMENTS or reports required to be delivered
pursuant to SECTION 2.4 HEREOF.
ARTICLE III
MISCELLANEOUS
-------------
SECTION 3.1. Credit Agreement. Except as expressly modified as contemplated
----------- ----------------
hereby, the Credit Agreement and the other Loan Documents are hereby confirmed
to be in full force and effect in accordance with their respective terms.
SECTION 3.2. Effectiveness. This Amendment shall be effective when executed
----------- -------------
and delivered by MBIA, GFC, Credit Suisse and the Agent.
SECTION 3.3. Survival. All covenants, agreements, representations and
----------- --------
warranties made herein or in any Loan Document or in any certificate, document
or instrument delivered pursuant hereto or thereto shall survive the effective
date hereof, the making of any Loan and the occurrence of the Expiration Date
and shall continue in full force and effect so long as principal of or on any
Loan or Note remains outstanding or unpaid, any other amount payable by MBIA
under the Credit Agreement as amended hereby, any Note or any other Loan
Document remains unpaid or any other obligation of MBIA to perform any other act
hereunder or under the Credit Agreement as amended hereby, any Note or any other
Loan Document remains unsatisfied or the Lenders have any obligation to make a
Loan or any other advance of moneys to MBIA under the Credit Agreement as
amended hereby.
SECTION 3.4. Severability. Any provision of this Amendment which is
----------- ------------
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or nonauthorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
-22-
<PAGE>
SECTION 3.5. Successors and Assigns. This Amendment is a continuing
----------- ----------------------
obligation and binds, and the benefits hereof shall inure to, the parties hereto
and their respective successors and assigns; provided that MBIA may not transfer
or assign any or all of its rights or obligations hereunder except as permitted
by Section 9.9 of the Credit Agreement.
SECTION 3.6. Amendments. No provision of this Amendment shall be waived,
----------- ----------
amended or supplemented except as provided in Section 9.13 of the Credit
Agreement.
SECTION 3.7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
----------- -------------
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
SECTION 3.8. Headings. Section headings in this Amendment are included
----------- --------
herein for convenience or reference only and shall not constitute a part of this
Amendment for any other purpose.
SECTION 3.9. Counterparts. This Amendment may be executed in several
----------- ------------
counterparts, each of which shall be regarded as the original and all of which
shall constitute one and the same Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers "hereunto duly
authorized as of the date first above written.
MBIA, INC.
By - - .1 - -
NAME: CHRISTOPHER W. TILLEY
TITLE:SENIOR VICE PRESIDENT AND
TREASURER
<PAGE>
CREDIT SUISSE, NEW YORK BRANCH, as Agent
By
Name: Title:
By Name: Title:
Commitment: $50,000,000 CREDIT SUISSE, NEW YORK
BRANCH
Address: 12 East 49th Street
New York, NY 10017
Attn: Public Finance By
Department Name:
Telecopy: 212-238-5358 Title:
By
Name: Title:
Address: c/o Credit Suisse, GREENWICH FUNDING
CORPORATION
New York Branch
12 East 49th Street By: Credit Suisse, New York
New York, NY 10017 Branch, as its Attorney
Attn: Asset Finance in-Fact
Department
Telecopy: 212-238-5332
By
Name:
Title:
By
Name:
Title:
- -24
<PAGE>
EXHIBIT B TO REVOLVING CREDIT AGREEMENT
FORM OF NOTICE OF
-----------------
BORROWING
---------
[date]
CREDIT SUISSE New York Branch as Agent 100 Wall Street New York, New York 10005
Attention: Public Finance Department
Re: Borrowing under Revolving Credit Agreement, dated as of February 15, 1991,
between MBIA Inc., Credit Suisse, New York Branch, as Agent, and the
-----------------
Lenders party thereto
---------------------
Dear Sirs:
MBIA Inc., a Connecticut corporation ("MBIA"), hereby requests that [a
Loan/Loans] be made to MBIA by the Bank under the Revolving Credit Agreement
referred to above (as amended, the "Revolving Credit Agreement") as follows (all
----------------
capitalized terms herein having the meanings ascribed thereto in the Revolving
Credit Agreement) :
1. The aggregate amount of the Loan[s] (the "Subject Loan[s]")
requested hereby IS $ , WHICH AMOUNT DOES NOT exceed the Available Commitment.
2. The Subject Loan[s] are as follows:
(a) Amount of Revolving Loans: $
Interest Period
Amount (in
increments (applicable to
Type of Loan of $1,000,000) Quoted Rate Loans)
- ---------------
<PAGE>
(b) Amount of Term Loan: $__
Designated Maturity Date (not in
excess of five (5) years)
Interest Period
Amount (in increments (applicable to
Type of Loan of $1,000,000) QUOTED RATE LOANS)
3. The date on which the Subject Loan[s] is/are requested to be made
(the "Loan Date") is, 19_, which is a Business Day.
4. Each of the conditions set forth in the Revolving Credit
Agreement to the Lenders' obligations to make the Subject Loan[s], including
without limitation Article 4 thereof, has been satisfied.
5. The proceeds of the Subject Loan[s] will be applied as provided
in Section 6.1 of the Revolving Credit Agreement and more particularly as
follows:
6. The statements set forth above shall be true and correct on and
as of the Loan Date.
7. The Subject Loan[s] is to be disbursed to the following account:
8. The undersigned is duly authorized and empowered in the name and
on behalf of MBIA to present this Notice of Borrowing and to request and obtain
the Subject Loan[s] upon and in
B-2
<PAGE>
accordance with, and subject to, the terms and conditions set forth in the
Revolving Credit Agreement and the Loan Documents.
IN WITNESS WHEREOF, MBIA has executed and delivered this
Notice of Borrowing this _ day of , 19 _ .
MBIA INC.
By
Name:
Title:
<PAGE>
EXHIBIT C-1 TO
REVOLVING
CREDIT AGREEMENT
FORM OF REVOLVING LOAN
NOTE
MBIA INC.
US $[amount of Lender's New York, New York
Commitment] , 199_
FOR VALUE RECEIVED, the undersigned, MBIA INC., a Connecticut
corporation ("MBIA"), hereby promises to pay to the order of [name of Lender]
(the "Lender") at the office of its [address of payment office], in lawful money
of the United States of America in immediately available funds, the principal
sum of [amount of Lender's Commitment] (US $ ) or, if less, the aggregate unpaid
principal amount of the Revolving Loans (as defined in the hereinafter referred
to Revolving Credit Agreement) outstanding and payable to the Lender by MBIA
under the Revolving Credit Agreement dated as of February 15, 1991 among MBIA,
Credit Suisse, New York Branch, as Agent, and the Lenders party thereto (as
amended from time to time, the "Revolving Credit Agreement") in the amounts and
on the dates set out in the Revolving Credit Agreement. MBIA also promises to
pay interest on the unpaid principal amount of each Revolving Loan payable to
the Lender from the date on which such Revolving Loan is made until such
Revolving Loan is repaid in full at such interest rates and payable on such
dates as are determined pursuant to the Revolving Credit Agreement.
If any payment on this Revolving Loan Note shall be specified to be
made upon a day which is not a Business Day (as defined in the Revolving Credit
Agreement), it shall be made on the next succeeding Business Day (or, if
earlier, on the Expiration Date as defined in the Agreement), and such extension
of time shall in such case be included in computing interest, if any, in
connection with such payment; provided, however, that, IN THE EVENT that the
--------
day on which any such payment relating to the principal of Revolving Loans
bearing interest by reference to the Quoted Rate is due is not a Business Day
but is a day of the month after which no further Business Day occurs in such
month, then the due date thereof shall be the next preceding Business Day.
The Lender is authorized to record the date and amount of each advance
of and each payment, prepayment and conversion with respect the Revolving Loans
payable to such Lender on the grid attached hereto or on a continuation thereof
which shall be attached hereto and made a part hereof, and any such notation
shall constitute prima facie evidence of the accuracy of the information so
-----------
recorded; provided that the failure to make any such notations shall not affect
the validity of MBIA's obligations hereunder.
<PAGE>
Presentment, demand, protest and notice of dishonor are hereby waived
by the undersigned.
This Revolving Loan Note evidences Revolving Loans under, and is
entitled to the benefits and subject to the provisions of, the Revolving Credit
Agreement and the other Loan Documents (as defined therein). The Revolving
Credit Agreement, among other things, contains provisions with respect to the
acceleration of the MATURITY OF THIS Revolving Loan Note upon the happening of
certain stated events, and for mandatory and optional prepayments of the
principal of this Revolving Loan Note prior to maturity, all upon the terms and
conditions specified therein.
This Revolving Loan Note shall be construed in accordance with and
governed by the laws of the State of New York.
MBIA INC.
By
Name: Title:
<PAGE>
GRID
<TABLE>
<CAPTION>
Unpaid
Principal Principal
Amount Type of Paid or Amount of Notation
Date of Loan Loan Prepaid Note Made by
- ------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT C-2 TO
REVOLVING
CREDIT AGREEMENT
FORM OF TERM LOAN
-----------------
NOTE
----
MBIA INC.
US $[amount of Lender's New York, New York
share of Term Loan] ,199
Due [Designated Maturity Date]
FOR VALUE RECEIVED, the undersigned, MBIA INC., a Connecticut
corporation ("MBIA"), hereby promises to pay to the order of [name of Lender]
(the "Lender") AT THE OFFICE OF ITS [ADDRESS OF payment office], on [Designated
Maturity Date] IN LAWFUL MONEY of the United States of AMERICA IN IMMEDIATELY
AVAILABLE FUNDS, the principal sum of [amount of Lender's share of Term Loan]
(US $ ) or, if less, the aggregate unpaid principal balance of this Term Note.
MBIA also promises to pay interest on the unpaid principal amount of the Term
Loan evidenced hereby from THE DATE ON which such Term Loan is made until such
Term Loan is repaid in full at such interest rates and payable on such dates as
are determined pursuant to the Revolving Credit Agreement dated as of February
15, 1991 among MBIA, Credit Suisse, New York Branch, as Agent, and the Lenders
party thereto (as amended from time to time, the "Revolving Credit Agreement").
If any payment on this Term Loan Note shall be specified to be made
upon a day which is not a Business Day (as defined in the Revolving Credit
Agreement), it shall be made on the next succeeding Business Day (or, if
earlier, on the Expiration Date as defined in the Agreement), and such
extension of time SHALL IN such case be included in computing interest, if any,
IN CONNECTION with such payment; provided, however, that, in the event that the
--------
day on which any such payment relating to the principal of Term Loans bearing
interest by reference to the Quoted Rate is due is not a Business Day but is a
day of the month after which no further Business Day occurs in such month, then
the due date thereof shall be the next preceding Business Day.
The Lender is authorized to record the date and amount of each advance
of and each payment, prepayment and conversion with respect the Term Loans
payable to such Lender on the grid attached hereto or on a continuation thereof
which shall be attached hereto and made a part hereof, and any such notation
shall constitute prima facie evidence of the accuracy of the information so
-----------
recorded; provided that the failure to make any such notations shall not affect
the validity of MBIA's obligations hereunder .
<PAGE>
Presentment, demand, protest and notice of dishonor are hereby waived
by the undersigned.
This Term Loan Note evidences a Term Loan under, and is entitled to
the benefits and subject to the provisions of, the Revolving Credit Agreement
and the other Loan Documents (as defined therein). The Revolving Credit
Agreement, among other things, contains provisions with respect to the
acceleration of the maturity of this Term Loan Note upon the happening of
certain stated events, and for mandatory and optional prepayments of the
principal of this Term Loan Note prior to maturity, all upon the terms and
conditions specified therein.
This Term Loan Note shall be construed in accordance with and governed
by the laws of the State of New York.
MBIA INC.
By
- -
Name:
Title:
C-2-2
<PAGE>
GRID
<TABLE>
<CAPTION>
Unpaid
Principal Principal
Amount Type of Paid or Amount of Notation
Date of Loan Loan Prepaid Note Made by
- ------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EX. 10.46
FIFTH AMENDMENT TO TRUST AGREEMENT BETWEEN
FIDELITY MANAGEMENT TRUST COMPANY
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION
THIS FIFTH AMENDMENT, dated as of he first day of November, 1995, by and
between Fidelity Management Trust Company (the "Trustee") and Municipal Bond
Investors Assurance Corporation (the "Sponsor");
WITNESSETH
WHEREAS, the Trustee and the Sponsor heretofore entered veto a trust
agreement dated December 31, 1991, with regard to MBIA Inc. Employees Profit
Sharing and 401(k) Salary Deferral Plan (the "Plan"); and
WHEREAS, the Trustee and the Sponsor now desire to amend said trust
agreement as provided for in Section 13 thereof;
NOW THEREFORE, in consideration of the above premises the Trustee and the
Sponsor hereby amend the trust agreement by:
(1) Amending and restating Schedule "g" (Telephone Exchange Procedures),
in its entirety, as attached.
IN WITNESS WHEREOF, the Trustee and the Sponsor have caused this Fifth
Amendment to be exempt by their duty authorized officers effective as of the day
and year first above written..
MBIA INC. FIDELITY MANAGEMENT TRUST COMPANY
By:___________________________ By:______________________________
Date Vice President Date
<PAGE>
MANAGED INCOME PORTFOLIO
------------------------
I. EXCHANGES BETWEEN MUTUAL FUNDS AND MANAGED INCOME PORTFOLIO
-----------------------------------------------------------
Participants who wish to exchange between a mutual fund and the Managed
Income Portfolio may call on any business day. If the request is received
before 4:00 p.m. (ET), it will receive that day's trade date. Calls
received after 4:00 p.m. (EST) will be processed on a next day basis.
II. EXCHANGES FROM MANAGED INCOME PORTFOLIO INTO SPONSOR STOCK
----------------------------------------------------------
Participants who wish to exchange out of the Managed Income Portfolio into
Sponsor Stock may call between the 1st and He 13th of the month. No calls
will be accepted after 4:00 p.m. (ET) on the 13th (or previous business day
if the 13th is not a business day).
Managed Income Portfolio shares are sold on the 15th of the month (or the
previous business day if the 15th is not a business day) and the Sponsor
Stock is purchased within two (2) business days after the date on which the
Managed Income Portfolio shares are sold.
III. EXCHANGES FROM SPONSOR STOCK INTO MANAGED INCOME PORTFOLIO
----------------------------------------------------------
Participants who wish to exchange out of Sponsor Stock into the Managed
Income Portfolio may call between the 1st and the 13th of the month. No
calls will be accepted after 4:00 p.m. (ET)) on the 13th (or previous
business day if the 13th is not a business day).
The Sponsor Stock is sold on the 16th (or the next business day if the 16th
is not a business day) and the subsequent purchase into the Managed Income
Portfolio will take place three (3) business days later. This allows for
settlement of the stock trade at the custodian and the corresponding
transfer to Fidelity.
IV. EXCHANGE RESTRICTIONS
---------------------
Participants will not be permitted to make direct transfers from the
Managed Income Portfolio into a competing fund. Participants who wish to
exchange from the Managed Income Portfolio into a competing fund must first
exchange into a non-competing fund for a period of 90 days.
MBIA INC. FIDELITY MANAGEMENT TRUST COMPANY
By:___________________________ By:_______________________________
Date Vice President Date
<PAGE>
SCHEDULE "G"
TELEPHONE EXCHANGE PROCEDURES
-----------------------------
The following telephone exchange procedures are currency employed by Fidelity
Institutional Retirement Services Company (FIRSCO).
Telephone exchange hours are 8:30 a.m. (ET) to 8:00 p.m. (ET) on each business
day. A "business day" is any day on which the New York Stock Exchange is open.
FIRSCO reserves the right to change these telephone exchange guidelines at its
discretion.
MUTUAL FUNDS
------------
EXCHANGES BETWEEN MUTUAL FUNDS
------------------------------
Participants may call on any business day to exchange between the mutual
funds. If the request is received before 4:00 p.m. (ET) it will receive
that day's trade date. Calls received after 4:00 p.m. (ET) will be
processed on a next day basis.
SPONSOR STOCK
-------------
I. EXCHANGES FROM MUTUAL FUNDS INTO SPONSOR STOCK
----------------------------------------------
Sponsor Stock exchanges are processed on a monthly cycle. Participants who
wish to exchange out of a mutual fund into Sponsor Stock may call between
the 1st and the 13th of the month. No calls will be accepted after 4:00
p.m. (ET) on the 13th (or previous business day if the 13th is not a
business day).
Mutual fund shares are sold on the 15th of the month (or the previous
business day if the 15th is not a business day) and the Sponsor Stock is
purchased within two (2) business days after the date on which the mutual
fund shares are sold.
II. EXCHANGES FROM SPONSOR STOCK INTO MUTUAL FUNDS
----------------------------------------------
Participant who wish to exchange out of Sponsor Stock into mutual funds may
call between the 1st and the 13th of the month. No calls will be accepted
after 4:00 p.m. (ET) on the 13th (or previous business day if the 13th is
not a business day).
The Sponsor Stock is sold on the 16th (or the next business day if the 16th
is not a business day) find the subsequent purchase into manual funds will
take place three (3) business days later, This allows for settlement of
the stock trade at the custodian and the corresponding transfer to
Fidelity.
<PAGE>
SIXTH AMENDMENT TO TRUST AGREEMENT BETWEEN
FIDELITY MANAGEMENT TRUST COMPANY AND
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION
THIS SIXTH AMENDMENT, dated as of the first day of January, 1996, by and
between Fidelity Management Trust Company (the "Trustee") and Municipal Bond
Investors Assurance Corporation (the "Sponsor");
' WITNESSETH:
WHEREAS, the Trustee and the Sponsor heretofore entered into a Trust
Agreement dated December 31, 1991, with regard to the MBIA Inc. Employees
Pension Plan and 401(k) Salary Deferral Plan (individually and collectively, the
Plan"); and
WHEREAS, the Trustee and the Sponsor now desire to amend said trust
agreement as provided for in Section 13 thereof;
NOW THEREFORE, in consideration of the above premises the Trustee and the
Sponsor hereby amend the trust agreement by:
(1) Amending the "investment options" portion of Schedules "A" and "an by
adding the following fund:
Fidelity Value Fund
IN WITNESS WHEREOF, the Trustee and the Sponsor have caused this Sixth
Amendment to be executed by their duly authorized officers effective as of the
day and year first above written.
MBIA INC. FIDELITY MANAGEMENT TRUST COMPANY
By:___________________________ By:_______________________________
Date Vice President Date
<PAGE>
Exhibit 10.57
SECOND AMENDMENT
to
FIRST RESTATED CREDIT AGREEMENT
among
MBIA INSURANCE CORPORATION,
THE BANKS SIGNATORY HERETO,
CREDIT SUISSE
New York Branch
as Administrative Agent
and
DEUTSCHE BANK AG
New York Branch
as Documentation Agent
Dated as of January l, 1936
<PAGE>
SECOND AMENDMENT
THIS AMENDMENT, dated as of January 1, 1996, between MBIA INSURANCE
CORPORATION, a New York stock insurance corporation formerly known as Municipal
Bond Investors Assurance Corporation ("MBIA"), and CREDIT SUISSE, a banking
corporation organized under the laws of Switzerland, acting through its New
York Branch ("Credit Suisse"), as Agent for the Banks referred to herein (in
such capacity, the "Agent");
WHEREAS, MBIA, the Agent and the Banks identified therein are parties
to the First Restated Credit Agreement, dated as of October 1, 1993, as amended
by the First Amendment thereto dated as of September 23, 1994 and as
supplemented by various Assignment and Assumption Agreements and Joinder
Agreements, including the Assignment and Assumption Agreement dated as of the
date hereof between Credit Suisse and Deutsche Bank (as so amended and
supplemented, the "Credit Agreement"); and
----------------
WHEREAS, MBIA, the Agent and the Banks desire, upon the terms and
subject to the conditions hereinafter set forth, to further amend the Credit
Agreement in certain respects;
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE I
MODIFICATIONS TO CREDIT AGREEMENT
---------------------------------
Section 1.1. Defined Terms. Except as otherwise specified herein,
----------- -------------
terms used in this Amendment and defined in Exhibit A of the Credit Agreement
shall have the meanings provided in such Exhibit A.
Section 1.2. Amendments Relating to Agents.
----------- -----------------------------
(a) The preamble to the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
THIS AGREEMENT, dated as of October 1, 1993, among MBIA INSURANCE
CORPORATION, a New York stock insurance corporation formerly known as
Municipal Bond
<PAGE>
Investors Assurance Corporation ("MBIA"), the financial institutions from
time to time parties hereto as Banks (collectively, the "Banks"), CREDIT
SUISSE, New York Branch, as Administrative Agent for the Banks (in such
capacity, the "Administrative Agent "), and DEUTSCHE BANK AG, New York
Branch, (in such capacity, the "Documentation Agent");
(b) Each reference in the Credit Agreement to the "Agent" is hereby
amended to be a reference to the "Administrative Agent", except as such term
appears in Article 8 or as otherwise provided in this Amendment.
(c) Each reference in Article 8 of the Credit Agreement, other than
in the first sentence of Section 8.1 thereof or in Section 8.3(e) or Section 8.7
thereof, to the "Agent" is hereby amended to be a reference to each of the
"Administrative Agent" and the "Documentation Agent", with the same effect as
though each such provision of Article 8 applied separately to each of the
Administrative Agent and the Documentation Agent.
(d) The first sentence of Section 8.1 of the Credit Agreement is
hereby amended and restated to read in its entirety as follows:
Each Bank hereby irrevocably designates and appoints (a) Credit Suisse, New
York Branch, as its agent to act as the Administrative Agent as specified
herein and in the other Loan Documents, and (b) Deutsche Bank AG, New York
Branch, as its agent to act as the Documentation Agent as specified herein
and in the other Loan Documents; and each Bank hereby irrevocably
authorizes the Administrative Agent or the Documentation Agent, as the case
may be, to take such action on behalf of such Bank under the provisions of
this Agreement and the other Loan Documents and to give such consents,
approvals or directions and to exercise such other powers and perform such
duties as are expressly delegated to the Administrative Agent or the
Documentation Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental
thereto.
(e) The reference in Section 8.3(e) of the Credit Agreement to the
"Agent" is hereby amended to be a reference to the "Administrative Agent", and
the reference in the preamble to the Security Agreement to Credit Suisse as the
"Agent" shall be deemed to constitute a reference to Credit Suisse in its
capacity as the Administrative Agent.
-2-
<PAGE>
(f) Section 8.7 of the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
Section 8.7 Successor. The Administrative Agent and the Documentation
----------- ---------
Agent each may resign as such at any time upon at least 30 days' prior
notice to MBIA and all Banks, such resignation not to be effective until a
successor Administrative Agent or Documentation Agent, as the case may be,
is in place. If the Administrative Agent or the Documentation Agent at any
time shall resign, the Majority Banks may appoint another Bank reasonably
acceptable to MBIA as a successor Administrative Agent or the Documentation
Agent, as the case may be, which shall thereupon become the Administrative
Agent or the Documentation Agent hereunder. If no such successor shall have
been so appointed by the Majority Banks, and shall have accepted such
appointment, within 30 days after the retiring agent has given notice of
resignation, then the retiring agent may, on behalf of the Banks, appoint a
successor Administrative Agent or the Documentation Agent, as the case may
be, which shall be one of the Banks and which shall, at the time of such
appointment, have the Required Ratings. Notwithstanding the resignation of
the Administrative Agent or the Documentation Agent hereunder, the
provisions of Sections 8.2 through 8.5 shall continue to inure to the
benefit such agent in respect of any action taken or omitted to be taken by
it in its capacity as such while it was the Administrative Agent or the
Documentation Agent under this Agreement or any Loan Document.
(g) Section 10.7 of the Credit -Agreement is hereby amended and
restated to read in its entirety as follows:
Section 10.7 Notices and Addresses for Notice. All notices and
------------ --------------------------------
other communications provided for hereunder shall be in writing and, (a) if
to MBIA, mailed or delivered to it, addressed to it at 113 King Street,
Armonk, New York 10504, Attention: Julliette S. Tehrani, Senior Vice
President and Chief Financial Officer; (b) if to the Administrative Agent,
mailed or delivered to it, addressed to it at 12 East 49th Street, New
York, New York 10017, Attention: Public Finance Department; (c) if to the
Documentation Agent, mailed or delivered to it, addressed to it at 31 West
52nd Street, New York, New York 10019, Attention: Clinton M. Johnson;
and,(d) if to a Bank, mailed or delivered to it at its address as shown on
Schedule 1 hereto; or as to any party as such party may direct in a written
notice to all other parties. All
-3-
<PAGE>
such notices and other communications shall, when mailed, be effective
three days after the date of deposit in the mails, addressed as aforesaid.
In lieu of notice by mail or delivery, written notice may be given over
telecopier at the appropriate numbers set forth below, such notice over
telecopier to be effective when transmitted.
If to the Admin-
istrative Agent: Telecopier No.:
212-238-5461
If to the Documen-
tation Agent: Telecopier No.:
212-474-8013
If to MBIA: Telecopier No.:
914-765-3163
If to a Bank: To it at its telecopier
number as set forth on Schedule 1
hereto.
(h) Section 10.8(a) of the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
(a) This Agreement is a continuing obligation and binds, and the
benefits hereof shall inure to, MBIA, the Administrative Agent, the
Documentation Agent and the Banks and their respective successors and
assigns; provided that, except as specifically provided herein, MBIA may
-------------
not transfer or assign any or all of its rights or obligations hereunder
without the prior written consent of the Administrative Agent and the
Majority Banks.
(i) Clause (c) of the second sentence of Section 10.12 of the Credit
Agreement is hereby amended and restated to read in its entirety as follows:
(c) without the prior consent of the Administrative Agent, if it is
adversely affected thereby, and the Documentation Agent, if it is adversely
affected thereby, no such amendment or waiver shall alter the rights of the
Administrative Agent or the Documentation Agent under Article 8.
Section 1.3. Amendment to Section 3.1(d). Section 3.1(d) of the Credit
-----------
Agreement is hereby amended and restated to read in its entirety as follows:
(d) MBIA hereby agrees to pay to the Administrative Agent for
its own account or for the account of the Documentation Agent, as the may
be, the fees set forth in the fee letter between MBIA and the
-4-
<PAGE>
Administrative Agent which refers to this Section 3.1(d) (the"A-tent Fee
Letter").
Section 1.4. Amendments to Definitions.
-----------
(a) The definition of "Covered Portfolio" contained in Exhibit A to
the Credit Agreement is hereby amended and restated to read in its entirety as
follows:
"Covered Portfolio" shall mean and include each Insured
-----------------
Obligation outstanding on the Effective Date and each Insured Obligation
issued thereafter and prior to the date of the first Loan (or such later
date to which the Agent and the Majority Banks may consent in writing),
other than (a) Insured Obligations listed on Exhibit E hereto, (b)
additional Insured Obligations which MBIA hereafter elects in writing to
exclude from the Covered Portfolio with the prior written consent of the
Agent and the Majority Banks (which writing and consent shall be deemed to
constitute an amendment supplementing Exhibit E hereto and shall not be
unreasonably withheld); provided that no additional Insured Obligations
shall become part of the Covered Portfolio from and after the date on which
any Bank has given a notice to MBIA pursuant to Section 7.2(b) hereof as a
result of the occurrence of an Event of Default, and (c) any Insured
Obligation which any Bank or any Participant is obligated to purchase under
the terms of a line of credit, standby bond purchase agreement, letter of
credit, liquidity agreement or similar agreement or arrangement; provided
that at no time shall the Covered Portfolio contain industrial development
bonds having an aggregate Average Annual Debt Service exceeding one percent
(11) of the Average Annual Debt Service on the entire Covered Portfolio.
(b) The definition of "Insured Obligation" contained in Exhibit
A to the Credit Agreement is hereby amended and restated to read in its
entirety as follows:
"Insured Obligation" shall mean (a) municipal obligation bonds,
------------------
special revenue bonds and industrial development bonds hereof issued by the
United States of America, a state thereof or the District of Columbia, a
municipality or governmental unit or other political subdivision of the
foregoing or any public agency or instrumentality thereof, and (b) other
obligations which the Majority Banks have approved in writing, in each case to
the extent that the payment of principal thereof, together with interest
thereon, is insured, reinsured or
-5-
<PAGE>
otherwise guaranteed by MBIA under an Insurance Contract in compliance with the
applicable provisions of the New York Insurance Law.
Section 1.5. Consent of Banks. The Agent hereby confirms to MBIA that
----------- ----------------
it has received the consent of all Banks (to the extent required under the
Restated Credit Agreement) to the modifications to the Restated Credit Agreement
set forth in this Amendment.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Agent to enter into this Amendment and the
Banks to consent hereto and proceed with the transactions contemplated hereby,
MBIA makes the following representations and warranties to the Agent and the
Banks, which shall survive the execution and delivery of this Amendment and
the making of any Loans:
Section 2.1. Due Authorization, Etc. The execution, delivery and
----------- ----------------------
performance by MBIA of the this Amendment and the Loan Documents as amended
hereby are within its corporate powers, have been duly authorized by all
necessary corporate action and do not and will not (i) violate any provision
of any law, rule, regulation (including, without limitation, the New York
Insurance Law, the Investment Company Act of 1940, as amended, or Regulations G.
T. U or X of the Board of Governors of the Federal Reserve System), order,
writ, judgment, injunction, decree, determination or award presently in
effect having applicability to MBIA or of the corporate charter or by-laws of
MBIA, (ii) result in a breach of or constitute a default under any indenture or
loan or credit agreement or any other agreement, lease or instrument to which
MBIA is a party or by which it or its properties may be bound or affected, or
(iii) result in, or require, the creation or imposition of any Lien upon or with
respect to any of the properties now owned or hereafter acquired by MBIA (other
than as contemplated by the Loan Documents), other than, in the case of clauses
(ii) and (iii), breaches, defaults or Liens which could not materially and
adversely affect the business, assets, operations or financial condition of MBIA
or the ability of MBIA to perform its obligations under any Loan Document.
Section 2.2. Approvals. No consent, approval or other action by, or
----------- ---------
any notice to or filing with any court or administrative or governmental body
is or will be necessary for the valid execution, delivery or performance by
MBIA of this Amendment or the Loan Documents as amended thereby.
-6-
<PAGE>
Document as amended hereby, constitutes a legal, valid and binding obligation of
MBIA, enforceable against MBIA in Section 2.3. Enforceability. This Amendment
----------- --------------
and each Loan accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and the
availability of equitable remedies, whether such matter is heard in a court
of law or a court of equity.
Section 2.4. Financial Statements etc. (a) MBIA has heretofore
----------- ------------------------
furnished to the Agent (i) the audited consolidated and unaudited consolidating
balance sheets of MBIA Inc. and its subsidiaries at December 31, 1994, the
related audited consolidated statements of income, changes in stockholders'
equity and financial position or cash flows, as the case may be, and unaudited
consolidating statements of income for the year ended December 31, 1994, and
(ii) the unaudited consolidated and consolidating balance sheets of MBIA Inc.
and its subsidiaries as of March 31, June 30, and September 30, 1995, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the three months ended March 31, 1995, the six months ended June
30, 1995 and the nine months ended September 30, 1995. Such financial statements
were prepared in accordance with generally accepted accounting principles
consistently applied and present fairly the consolidated financial position and
consolidated results of operations and cash flows of MBIA Inc. and its
subsidiaries and the financial position and results of operations and cash
flows of MBIA at the dates and for the periods indicated therein. There has been
no material adverse change in the consolidated financial position or
consolidated results of operations or cash flows of MBIA Inc. and its
subsidiaries taken as a whole or of MBIA since September 30, 1995.
(b) MBIA has heretofore furnished to the Agent its annual statements
and its financial statements as filed with the Department for the year ended
December 31, 1994 and its quarterly statements and financial statements as filed
with the Department for the periods ended March 31, 1995, June 30, 1995 and
September 30, 1995. Such annual and quarterly statements and financial
statements were prepared in accordance with the statutory accounting principles
set forth in the New York Insurance Law, all of the assets described therein
were the absolute property of MBIA at the dates set forth therein, free and
clear of any liens or claims thereon, except as therein stated, and each such
Annual Statement is a full and true statement of all the assets and liabilities
and of the condition and affairs of MBIA as of such dates and of its income and
deductions therefrom for the year or quarter ended on such dates.
-7-
<PAGE>
(c) MBIA has heretofore furnished to the Agent a copy of the annual report on
Form 10-K of MBIA Inc. for the fiscal year ended December 31, 1994 as filed with
the Securities and Exchange Commission and the quarterly reports on Form 10-Q of
MBIA Inc. for each of the quarters ended March 31, 1995, June 30, 1995 and
September 30, 1995 as filed with the Securities and Exchange Commission. Such
annual and quarterly reports were prepared in accordance with the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
Section 2.5. Covered Portfolio. Substantially all of the Insured
----------- -----------------
Obligations in the Covered Portfolio are insured by MBIA under Insurance
Contracts in the form or forms heretofore supplied to the Agent in accordance
with MBIA's underwriting criteria as heretofore disclosed to the Agent, and in
MBIA's reasonable judgment such Insured Obligations represent an overall risk of
loss (based on all factors including without limitation investment quality and
geographical and market diversification) which is not materially greater than
the risk of loss represented by all of MBIA's Insured Obligations as of
the date hereof.
Section 2.6. Confirmation of Representations and Warranties. MBIA
----------- ----------------------------------------------
hereby confirms that its representations and warranties set forth in the
Restated Credit Agreement (including without limitation those set forth in
Article 5 of the Restated Credit Agreement) are true and correct as of the
date hereof, and represents and warrants that no Default or Event of Default has
occurred and is continuing.
Section 2.7. Disclosure. There is no fact known to MBIA which
----------- ----------
materially adversely affects the business, assets, operations or financial
condition of MBIA or the ability of MBIA to perform its obligations under any
this Amendment or any Loan Document as amended hereby which has not been set
forth in this Amendment, in the financial statements or reports required to be
delivered pursuant to Section 2.4 hereof.
ARTICLE III
MISCELLANEOUS
-------------
Section 3.1. Restated-Credit Agreement. Except as expressly modified
----------- -------------------------
as contemplated hereby, the Restated Credit Agreement and the other Loan
Documents are hereby confirmed to be in full force and effect in accordance with
their respective terms.
Section 3.2. Effectiveness. This Amendment shall be effective when
----------- -------------
executed and delivered by MBIA and the Agent.
-8-
<PAGE>
Section 3.3. Survival. All covenants, agreements, representations and
- ----------- --------
warranties made herein or in any Loan Document or in any certificate, document
or instrument delivered pursuant hereto or thereto shall survive the effective
date hereof, the making of any Loan and the occurrence of the Expiration Date
and shall continue in full force and effect so long as principal of or interest
on any Loan or Note remains outstanding or unpaid, any other amount payable by
MBIA under the Restated Credit Agreement as amended hereby, any Note or any
other Loan Document remains unpaid or any other obligation of MBIA to perform
any other act hereunder or under the Restated Credit Agreement as amended
hereby, any Note or any other Loan Document remains unsatisfied or the Banks
have any obligation to make a Loan or any other advance of moneys to MBIA under
the Restated Credit Agreement as amended hereby.
Section 3.4. Severability. Any provision of this Amendment which is
----------- ------------
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or nonauthorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 3.5. Successors and Assigns. This Amendment is a continuing
----------- ----------------------
obligation and binds, and the benefits hereof shall inure to, the parties hereto
and their respective successors and assigns; provided that MBIA may not transfer
or assign any or all of its rights or obligations hereunder except as permitted
by Section 10.8 of the Restated Credit Agreement.
Section 3.6. Amendments. No provision of this Amendment shall be
----------- ----------
waived, amended or supplemented except as provided in Section 10.12 of the
Restated Credit Agreement.
Section 3.7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
----------- -------------
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
Section 3.8. Headings. Section headings in this Amendment are
----------- --------
included herein for convenience or reference only and shall not constitute a
part of this Amendment for any other purpose.
Section 3.9. Counterparts. This Amendment may be executed in several
----------- ------------
counterparts, each of which shall be regarded as the original and all of which
shall constitute one and the same Amendment.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be
duly executed and delivered by their respective officers "hereunto duly
authorized as of the date first above written.
MBIA INSURANCE CORPORATION
By
Name: Christopher W. Tilley
Title: Senior Vice President and Treasurer
CREDIT SUISSE, New York Branch,
as Agent and as a Bank
By
Name:
Title:
Name:
Title:
-10-
<PAGE>
PROMISSORY NOTE
---------------
US$237, 500, 000 New York, New York as of January 1, 1996
FOR VALUE RECEIVED, the undersigned, MBIA INSURANCE CORPORATION, a New
York stock insurance corporation formerly known as Municipal Bond Investors
Assurance Corporation ("MBIA"), hereby promises to pay to the order of CREDIT
SUISSE (the "Bank"), New York Branch, at its offices at 12 East 49th Street, New
York, New York, 10017, in lawful money of the United States of America in
immediately available funds, the principal sum of Two Hundred Thirty Seven
Million Five Hundred Thousand Dollars (US$237,500, 000) or, if less, the
aggregate unpaid PRINCIPAL AMOUNT of the Loans (as defined in the hereinafter
referred to Credit Agreement) outstanding and payable to the Bank by MBIA under
the First Restated Credit Agreement, dated as of October 1, 1993, as heretofore
amended and as further amended from time to time (the "Credit Agreement") in the
amounts and on the dates set out in the Credit Agreement. MBIA also promises to
pay interest on the unpaid principal amount of such Loans from the date on which
such Loans are made until the Loans are repaid in full at such interest rates
and payable on such dates as are determined pursuant to the Credit Agreement.
If any payment on this Note shall be specified to be made upon a day
which is not a Business Day (as defined in the Credit Agreement), it shall be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in computing interest, if any, in connection with such
payment.
The Bank is authorized to record the date and amount of each Loan and
each payment, prepayment and conversion with respect thereto on the grid
attached hereto or on a continuation thereof which shall be attached hereto and
made a part hereof, and any such notation shall constitute prima facie
-----------
evidence of the accuracy of the information so recorded; Provided that the
-------------
failure to make any such notations shall not affect the validity of MBIA's
obligations hereunder.
Presentment, demand, protest and notice of dishonor are hereby waived
by the undersigned.
This Note evidences the Bank's Loans under, and is entitled to the
benefits and subject to the provisions of, and is
<PAGE>
-2-
secured by, the Credit Agreement and the other Loan Documents (as defined
therein). The Credit Agreement, among other things, contains provisions with
respect to the acceleration of the maturity of this Note upon the happening of
certain stated events, and for mandatory and optional prepayments of the
principal of this Note prior to maturity, all upon the terms and conditions
specified therein.
This Note represents a replacement for MBIA's notes, dated December
31, 1993 and September 23, 1994, heretofore issued to the Bank.
The payment obligations of MBIA under this Note are limited as
provided in Section 2.7 of the Credit Agreement.
This Note shall be construed in accordance with and governed by the
laws of the State of New York.
MBIA INSURANCE CORPORATION
By:
Name: Christopher W. Tilley
Title: Senior Vice President and
Treasurer
<PAGE>
GRID
Unpaid
Principal Principal
Amount of Paid or Amount of Notation
Date Loan Prepaid Note Made by
- ---- ---- ------- ---- -------
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
dated as of January 1, 1996
Reference is made to the Credit Agreement described in Item 1 of Annex
I annexed hereto (as such agreement may hereafter be amended, modified or
supplemented from time to time, the "Credit Agreement"). Unless defined in Annex
----------------
I attached hereto, terms defined in or defined for purposes of the Credit
Agreement are used herein as so defined. Credit Suisse, New York Branch, as
Agent under the Credit Agreement (in such capacity, the "Agent"), and as a Bank
(in such capacity, the "Assignor") and Deutsche Bank AG, New York Branch (the
"Assignee"), hereby agree as follows:
(a) The Assignor hereby sells and assigns to the Assignee without
recourse and without representation or warranty (other than as expressly
provided herein), and the Assignee hereby purchases and assumes from the
Assignor, that interest in and to that portion of the Assignor's Commitment and
other rights, duties and obligations under the Credit Agreement, in and to that
portion of the Assignor's Loans (if any) as of the date hereof which represents
the percentage interest specified in Item 2 of Annex I hereto (the "Assigned
Share").
(b) Following the execution of this Agreement by the Agent, the
Assignor and the Assignee, the consent hereto by MBIA and payment by the
Assignee to the Assignor of the purchase price for the Assigned Share as agreed
upon by the Assignor and the Assignee, this Agreement shall become effective as
of the Settlement Date specified in Item 3 of Annex I hereto (the "Settlement
Date"). As of the Settlement Date, (i) the Assignee's Commitment set forth on
Schedule I to the Credit Agreement shall be increased by the amount set forth in
Item 2(d) of Annex I hereto and (ii) the Assignor 's Commitment set forth on
said Schedule shall be decreased by the same amount.
(c) The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties and representations made in or in connection with the Credit
Agreement or any of the Loan Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement or any
of the Loan Documents or any other instrument or document furnished pursuant
thereto; (iii) makes no representation or warranty and assumes no responsibility
with respect to the
<PAGE>
-2-
financial condition of or the performance or observance by MBIA of any of its
obligations under the Credit Agreement, any of the Loan Documents or any other
instrument or document furnished pursuant thereto; and (iv) requests that the
Agent request that MBIA exchange the Note held by the Assignor evidencing any
Loans made by the Assignor under the Credit Agreement for a new Note payable to
the Assignor (if the Assignor has retained any interest in the Commitment as of
the Settlement Date and a new Note payable to the Assignee in the full amount of
its increased Commitment as of the Settlement Date.
(d) The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements and SEC
Reports referred to therein, and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Agreement; (ii) agrees that it will, independently and without reliance
upon the Assignor or the Agent and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement; (iii) confirms its
agreement with the provisions of Article 9 of the Credit Agreement and appoints
and authorizes the Agent on its behalf to exercise such powers under the Credit
Agreement and the other Loan Documents, as are delegated to the Agent by the
terms thereof and hereof, together with such powers as are reasonably incidental
thereto; and (iv) agrees that it will be bound by all of the terms and
conditions of the Credit Agreement and the other Loan Documents and will perform
in accordance with their terms all of the obligations which by the terms of the
Credit Agreement and the other Loan Documents are required to be performed by it
as a Bank.
(e) Notwithstanding any provision to the contrary contained in the
Credit Agreement, (i) the Assignee's pro rata share of commitment fees, interest
payments and other periodic payments will be appropriately adjusted to reflect
the period of time during which this Agreement has been in effect, and (ii) to
the extent that the Assignee receives any such interest or other amount pursuant
to the Credit Agreement in respect of any period of time during which this
Agreement was not in effect, or that the Assignor receives any such interest or
other amount pursuant to the Credit Agreement in respect of any period of time
prior to the time during which this Agreement was in effect, the Assignor or the
Assignee, as the case may be, will forthwith pay to the other its pro rata share
thereof, appropriately adjusted as provided in clause (iii) above.
(f) Any amendment to, waiver of any provision of or consent pursuant
to this Agreement, shall be effective with and only upon the prior concurrence
of the Agent, MBIA, the Assignor
<PAGE>
and the Assignee, unless otherwise provided in the Credit Agreement.
(g) The address of Assignor and Assignee for purposes of all notices
or other communications hereunder or under the Credit Agreement are as set forth
on Schedule I to the Credit Agreement, or to such other address as shall be
designated by such party pursuant to Section 10.7 of the Credit Agreement.
(h) All payments to be made to the Assignor or the Assignee hereunder
or under the Credit Agreement shall be made by federal wire in accordance with
the Credit Agreement, or as otherwise directed by the Assignor or the Assignee,
as the case may be, by notice to the other and to the Agent and as may be
acceptable to the Agent.
(i) This Agreement shall be binding upon, and inure to the benefit of
the parties hereto-and their respective successors and assigns; provided that
--------
the Assignee may not assign any of its rights or obligations hereunder except as
permitted by Section 10.8 (b) or 10.8(c) of the Credit Agreement.
(j) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Assumption Agreement to be executed by their respective officers "hereunto duly
authorized, as of the date first above written, such execution also being made
on Annex I hereto.
CREDIT SUISSE, NEW YORK BRANCH, as Agent
By:
Name:
Title:
By:
Name:
Title:
<PAGE>
-4-
CREDIT SUISSE, NEW YORK BRANCH, as Assignor
By:
Name:
Title:
By:
Name:
Title:
DEUTSCHE BANK AG, NEW YORK BRANCH as Assignee
By:
Name:
Title:
By:
Name:
Title:
ACCEPTED AND AGREED TO:
MBIA INSURANCE CORPORATION
By /s/Christopher W. Tilley
Name: Christopher W. Tilley
Title: Senior Vice President and Treasurer
<PAGE>
ANNEX FOR ASSIGNMENT AND ASSUMPTION AGREEMENT
ANNEX I
1. Name and Date of Credit Agreement:
First Restated Credit Agreement, dated as of October l, 1993, as amended through
the First Amendment thereto, dated as of September 23, 1994, among MBIA
Insurance Corporation, a New York stock insurance corporation formerly known as
Municipal Bond Investors Assurance Corporation, Credit Suisse, a banking
corporation organized under the laws of Switzerland, acting through its New York
Branch, as Agent, and the Banks signatory thereto. The parties acknowledge that,
immediately after giving effect to this Assignment Assumption Agreement, said
First Restated Credit Agreement will be further amended by the Second Amendment
thereto, dated as of the date hereof.
2. Amounts (as of date of Assignment and Assumption Agreement):
(a) Aggregate Amount of Assignor's
Commitment $375,000,000
(b) Aggregate Amount of Assignor's
Loans Currently Outstanding) $ 0
(c) Percentage of Assignor's
Commitment and Loans Assigned 36.6666667%
(d) Assigned Amount of Commitment $137,500,000
(e) Amount of Assigned Share of Loans
Currently Outstanding N/A
3. Settlement Date: January 2, 1996, effective January 1, 1996
<PAGE>
-2-
ACCEPTED AND AGREED:
CREDIT SUISSE, DEUTSCHE BANK AG
New York Branch, as Assignor New York Branch, as
Assignee
By: By:
Name: Name:
Title: Title:
By: By:
Name: Name:
Title: Title:
CREDIT SUISSE,
New York Branch, as Agent
By:
Name:
Title:
By:
Name:
Title:
Annex I for Assignment and Assumption Agreement
<PAGE>
THIRD AMENDMENT
to
FIRST RESTATED CREDIT AGREEMENT
among
MBIA INSURANCE CORPORATION,
THE BANKS SIGNATORY HERETO,
CREDIT SUISSE
New York Branch
as Administrative Agent
and
DEUTSCHE BANK AG
New York Branch
as Documentation Agent
Dated as of October 1, 1996
<PAGE>
THIRD AMENDMENT
THIS AMENDMENT, dated as of October 1, 1996, among MBIA INSURANCE CORPORATION, a
New York stock insurance corporation (MBIA"), the financial institutions from
time to time parties hereto as Banks (collectively, the "Banks"), CREDIT SUISSE,
New York Branch, as Administrative Agent for the Banks (in such capacity, the
"Administrative Agent"), and DEUTSCHE BANK AG, New York Branch, (in such
capacity, collectively with the Administrative Agent, the "Agents");
WHEREAS, MBIA, the Agents and the Banks identified therein are parties to the
First Restated Credit Agreement, dated as of October 1, 1993, as amended by the
First Amendment thereto dated as of September 23, 1994 and the Second Amendment
thereto dated as of January 1, 1996 and as supplemented by various Assignment
and-Assumption Agreements and Joinder Agreements (as so amended and
supplemented, the "Credit Agreement");
WHEREAS, Sudwestdeutsche Landesbank, one of the Banks, desires to terminate its
Commitment (as defined in the Credit Agreement) and MBIA, the Agents and certain
other Banks have agreed to modifications of
WHEREAS, MBIA, the Agent and the Banks have agreed pursuant to Section 3.3 of
the Credit Agreement to an extension of the Expiration Date (as defined therein)
from September 30, 2002 to September 30, 2003;
NOW, THEREFORE, in consideration of the mutual promises contained herein and
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE 1
MODIFICATIONS TO CREDIT AGREEMENT
---------------------------------
Section 1.1. Defined Terms. Except as otherwise specified herein, terms used in
this Amendment and defined in Exhibit A of the Credit Agreement shall have the
meanings provided,in such Exhibit A.
<PAGE>
Section 1.2. Changes of Commitments. (a) As of October 1, 1996, the
Commitment of Sudwestdeutsche Landesbank is hereby terminated, and such Bank
shall cease to be a party to the Credit Agreement; provided that (i) such Bank
shall remain entitled to the benefits of provisions of the Credit Agreement
which by the terms thereof survive the termination of the Credit Agreement as to
a Bank and the repayment of all Loans made by such Bank and (ii) such Bank shall
remain obligated for its pro rata share (determined in accordance with the
Credit Agreement) of amounts payable by Banks pursuant to Section 8.4 of the
Credit Agreement (titled "Indemnity") to the extent such amounts relate to or
arise out of any period prior to October 1, 1996.
(b) As of October 1, 1996, the respective Commitments of the
remaining Banks shall be as follows:
<TABLE>
<CAPTION>
Bank Commitment
- ---- ----------
<S> <C>
Credit Suisse, New York $235,000,000
Branch
Deutsche Bank AG, New York $235,000,000
Branch
Cooperatieve Centrale $125,000,000
Raiffeisen-Boerenleenbank
B.A. (Rabobank Nederland)
Caisse des Depots et $ 50,000,000
Consignations
Landesbank Hessen- $ 50,000,000
Thoringen Girozentrale
Bayerische Landesbank $ 30,000,000
Girozentrale, New York
Branch
</TABLE>
The parties acknowledge that, giving effect to such changes, the Maximum
Commitment shall be $725,000,000.
Section 1.3. Expiration Date. The parties hereby agree that the
----------- ---------------
Expiration Date, as heretofore extended, is hereby further extended to September
30, 2003 pursuant to the provisions of Section 3.3 of the Credit Agreement.
ARTICLE 2
CONDITIONS PRECEDENT
Section 2.1. Conditions Precedent to Third Amendment Effective Date.
------------ --------------
The provisions of Article 1 of this Agreement
-2-
<PAGE>
shall become effective as of October 1, 1996 when each of the following
conditions has been fulfilled to the reasonable satisfaction of the Agents. If
such conditions have not been satisfied on or prior to October 1, 1996, then at
the written election of the Agents delivered to MBIA, this Third Amendment shall
terminate and be of no further force or effect.
(i) There shall exist no Default or Event of Default, and all representations
and warranties made by MBIA herein or in any of the Loan Documents shall be
true and correct with the same effect as though such representations and
warranties had been made at and as of such time.
(ii) The following Banks shall have received replacement or additional Notes
meeting the requirements of Section 2.3 of the Credit Agreement in the
respective principal amounts set forth below (the "Additional Notes"):
<TABLE>
<CAPTION>
Bank Principal Type of
- ------------------------------------------------------
Amount Note
- -------------------------------------------------
<S> <C> <C>
Credit Suisse, New $235,000,000 Replacement
York Branch
Deutsche Bank AG, New $235,000,000 Replacement
York Branch
Cooperatieve Centrale $ 75,000,000 Additional
Raiffeisen
Boerenleenbank B.A.
Rabobank Nederland)
Landesbank Hessen- $ 25,000,000 Additional
Thoringen
Girozentrale
</TABLE>
(iii) The Agent shall have received each of the following, in form and substance
satisfactory to the Agent:
(A) a certificate of any two of the President, any Vice President or the
Treasurer of MBIA to the effect that the conditions set forth in Section
2.1(a) hereof have been satisfied and that no governmental filings,
consents and approvals are necessary to be secured by MBIA in order to
permit the borrowing under the Credit Agreement, as modified hereby, the
grant of the Lien under the Security Agreement
<PAGE>
and the execution, delivery and performance in accordance with their respective
terms of this Amendment and the other Loan Documents and the consummation of the
transactions contemplated hereby and thereby, each of which shall be in full
force and effect;
(B) copies of the duly adopted resolutions of the Board of Directors of MBIA, or
an authorized committee thereof, authorizing the execution, delivery and
performance in accordance with their respective terms of this Amendment and the
Additional Notes (collectively, the "Third Amendment Documents"), accompanied by
-------------------------
a certificate of the Secretary or an Assistant Secretary of MBIA stating as to
(A) the effect that such resolutions are in full force and effect, (B) the
incumbency and signatures of the officers Signing the Third Amendment Documents
on behalf of MBIA, and (C) the effect that, from and after January 1, 1996,
there has been no amendment, modification or revocation of the articles of
incorporation or by-laws of MBIA;
(C) opinions of the General Counsel of MBIA and Kutak Rock, MBIA's counsel, each
dated as of October 1, 1996, which are substantially to the effect set forth in
the forms attached hereto as, respectively, Exhibits A and B; and (D) such other
documents, instruments, approvals (and, if reasonably requested by the Agents or
The Majority Banks, duplicates or executed copies thereof certified by an
appropriate governmental official or an authorized officer of MBIA) or opinions
as the Agents or the Majority Banks may reasonably request.
(iv) The Agents shall have received reasonably satisfactory evidence that long-
term obligations insured by MBIA are publicly assigned a rating of Aaa by
Moody's and AAA by S&P by reason of such insurance.
(v) Effective as of October 1, 1996, the Bank Fee Letter shall have been
modified in a manner satisfactory to MBIA and the Agents and consented to by all
of the Banks.
<PAGE>
(vi) Effective as of October 1, 1996, the Agent Fee Letter shall have been
modified in a manner satisfactory to MBIA and the Administrative Agent.
(vii) All corporate and legal proceedings and all instruments in connection
with the transactions contemplated by this Amendment and the Loan Documents
shall be satisfactory in form and substance to the Agents.
A certificate of the Agents delivered to MBIA stating that this Amendment has
become effective shall be conclusive evidence thereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Agents and the Banks to enter into this Amendment, MBIA
makes the following representations and warranties to the Agent and the Banks,
which shall survive the execution and delivery of this Amendment and the making
of any Loans:
Section 3.1. Due Authorization, Etc. The execution, delivery and
----------- ----------------------
performance by MBIA of the Third Amendment Documents and the Loan Documents as
amended thereby are within its corporate powers, have been duly authorized by-
all necessary corporate action and do not and will not (i) violate any provision
of any law, rule, regulation (including, without limitation, the New York
Insurance Law, the Investment Company Act of 1940, as amended, or Regulations
G. T. U or X of the Board of Governors of the Federal Reserve System), order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to MBIA or of the corporate charter or by-laws of MBIA,
(ii) result in a breach of or constitute a default under any indenture or loan
or credit agree-
<PAGE>
ment or any other agreement, lease or instrument to which MBIA is a party or by
which it or its properties may be bound or affected, or (iii) result in, or
require, the creation or imposition of any Lien upon or with respect to any of
the properties now owned or hereafter acquired by MBIA (other than as
contemplated by the Loan Documents), other than, in the case of clauses (ii) and
(iii), breaches, defaults or Liens which could not materially and adversely
affect the business, assets, operations or financial condition of MBIA or the
ability of MBIA to perform its obligations under any Loan Document.
Section 3.2. Approvals. No consent, approval or other action by, or
----------- ---------
any notice to or filing with any court or adminis-
<PAGE>
trative or governmental body is or will be necessary for the valid execution,
delivery or performance by MBIA of the Third Amendment Documents or the Loan
Documents as amended thereby.
Section 3.3. Enforceability. Each Third Amendment Document and each
----------- --------------
Loan Document as amended thereby, constitutes a legal, valid and binding
obligation of MBIA, enforceable against MBIA in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and the availability of equitable remedies, whether such matter is
heard in a court Of law or a court of equity.
Section 3.4. Financial Statements, etc. (a) MBIA has heretofore
----------- -------------------------
furnished to the Agents (i) the audited consolidated and unaudited consolidating
balance sheets of MBIA Inc. and its subsidiaries at December 31, 1995, the
related audited consolidated statements of income, changes in stockholders'
equity and financial position or cash flows, as the case may be, and unaudited
consolidating statements of income for the year ended December 31, 1995, and
(ii) the unaudited consolidated and consolidating balance sheets of MBIA Inc.
and its subsidiaries as of March 31 and June 30, 1996, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the three months ended March 31, 1996 and the six months ended June
30, 1996. Such financial statements were prepared in accordance with generally
accepted accounting principles consistently applied and present fairly the
consolidated financial position and consolidated results of operations and cash
flows of MBIA Inc. and its subsidiaries and the financial position and results
of operations and cash flows of MBIA at the dates and for the periods indicated
therein. There has been no material adverse change in the consolidated financial
position or consolidated results of operations or cash flows of MBIA Inc. and
its subsidiaries taken as a whole or of MBIA since June 30, 1996.
(b) MBIA has heretofore furnished to the Agents its annual statements
and its financial statements as filed with the Department for the year ended
December 31, 1995 and its quarterly statements and financial statements as filed
with the Department for the periods ended March 31, 1996 and June 30, 1996.
Such annual and quarterly statements and financial statements were prepared in
accordance with the statutory accounting principles set forth in the New York
Insurance Law, all of the assets described therein were the absolute property of
MBIA at the dates set forth therein, free and clear of any liens or claims
thereon, except as therein stated, and each such Annual Statement is a full and
true statement of all the assets and liabilities and of the condition
<PAGE>
and affairs of MBIA as of such dates and of its income and deductions therefrom
for the year or quarter ended on such dates.
(c) MBIA has heretofore furnished to the Agents a copy of the annual
report on Form 10-K of MBIA Inc. for the fiscal year ended December 31, 1995 as
filed with the Securities and Exchange Commission and the quarterly reports on
Form 10-Q of MBIA Inc. for each of the quarters ended March 31, 1996 and June
30, 1996 as filed with the Securities and Exchange Commission. Such annual and
quarterly reports were prepared in accordance with the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
Section 3.5. Covered Portfolio. Substantially all of the Insured
----------- -----------------
Obligations in the Covered Portfolio are insured by MBIA under Insurance
Contracts in the form or forms heretofore supplied to the Administrative Agent
in accordance with MBIA's underwriting criteria as heretofore disclosed to the
Agents, and in MBIA's reasonable judgment such Insured Obligations represent an
overall risk of loss (based on all factors including without limitation
investment quality and geographical and- market diversification) which is not
materially greater than the risk of loss represented by all of MBIA's Insured
Obligations as of the date hereof.
Section 3.6. Confirmation of Representations and Warranties. MBIA
----------- ----------------------------------------------
hereby confirms that its representations and warranties set forth in the Credit
Agreement (including without limitation those set forth in Article 5 of the
Credit Agreement) are true and correct as of the date hereof, and represents and
warrants that no Default or Event of Default has occurred and is continuing.
<PAGE>
Section 3.7. Disclosure. There is no fact known to MBIA which
----------- ----------
materially adversely affects the business, assets, operations or financial
condition of MBIA or the ability of MBIA to perform its obligations under any
the Third Amendment Documents or any Loan Document as amended thereby which has
not been set forth in this Amendment or in the financial statements or reports
required to be delivered pursuant to Section 3.4 hereof.
ARTICLE 4
MISCELLANEOUS
-------------
Section 4.1. Credit Agreement. Except as expressly modified as
----------- ----------------
contemplated hereby, the Credit Agreement and the other Loan Documents are
hereby confirmed to be in full force and effect in accordance with their
respective terms.
<PAGE>
Section 4.2. Effectiveness. This Amendment shall be effective as
------------ --------------
provided in and subject to Article 2 above when executed and delivered by MBIA,
each Agent and each Bank.
Section 4.3. Survival. All covenants, agreements, representations and
------------ ---------
warranties made herein or in any Loan Document or in any certificate, document
or instrument delivered pursuant hereto or thereto shall survive the effective
date hereof, the making of any Loan and the occurrence of the Expiration Date
and shall continue in full force and effect so long as principal of or interest
on any Loan or Note remains outstanding or unpaid, any other amount payable by
MBIA under the Credit Agreement as amended hereby, any Note or any other Loan
Document remains unpaid or any other obligation of MBIA to perform any other act
hereunder or under the Credit Agreement as amended hereby, any Note or any other
Loan Document remains unsatisfied or the Banks have any obligation to make a
Loan or any other advance of moneys to MBIA under the Credit Agreement as
amended hereby.
Section 4.4. Severability. Any provision of this Amendment which is
----------- -------------
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or nonauthorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 4.5. Successors and Assigns. This Amendment is a continuing
----------- -----------------------
obligation and binds, and the benefits hereof shall inure to, the parties hereto
and their respective successors and assigns; provided that MBIA may not transfer
or assign any or all of its rights or obligations hereunder except as permitted
by Section 10.8 of the Credit Agreement.
Section 4.6. Amendments. No provision of this Amendment shall be
----------- -----------
waived, amended or supplemented except as provided in Section 10.12 of the
Credit Agreement.
Section 4.7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
----------- ---------------
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
Section 4.8. Headings. Section headings in this Amendment are included
----------- ----------
herein for convenience or reference only and shall not constitute a part of this
Amendment for any other purpose.
Section 4.9. Counterparts. This Amendment may be executed in several
----------- ------------
counterparts, each of which shall be regarded
<PAGE>
as the original and all of which shall constitute one and the same Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective officers "hereunto duly
authorized as of the date first above written.
MBIA INSURANCE CORPORATION
By/s/ Julliette Tehrani
Name:
Title:
CREDIT SUISSE, New York Branch,
as Administrative Agent and as
a Bank
By
Name:
Title:
By
Name:
Title:
<PAGE>
DEUTSCHE BANK AG, New York
Branch, as Documentation Agent
and as a Bank
By
Name:
Title:
By
Name:
Title:
COOPERATIVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.
(RABOBANK NEDERLAND)
NEW YORK BRANCH
By
Name:
Title:
By
Name:
Title:
CAISSE DES DEPOTS
ET CONSIGNATIONS
By
Name:
Title:
By
Name:
Title:
<PAGE>
BAYERISCHE LANDESBANK GIROZENTRALE
By
Name:
Title:
By
Name:
Title:
LANDESBANK HESSEN-THORINGEN GIROZENTRALE
By
Name:
Title:
By
Name:
Title:
[Terminating Bank]
SUDWESTDEUTSCHE LANDESBANK
By
Name:
Title:
By
Name:
Title:
<PAGE>
EXHIBIT A
TO THIRD AMENDMENT
Form of Opinion of General Counsel of MBIA,
October 1, 1996
The Parties Listed on
Schedule I hereto
Re: Third Amendment to First Restated Credit Agreement Dated as of October 1,
1993, among MBIA Insurance Corporation, Credit Suisse, New York Branch, as
Administrative Agent and as a Bank, Deutsche Bank AG, as Documentation
Agent and as a Bank, and the other Banks signatory thereto
Ladies and Gentlemen:
I am General Counsel of MBIA Insurance Corporation, a New York stock insurance
corporation ("MBIA"). This opinion is being given in connection with the Third
Amendment, dated as of October 1, 1996 (the "Third Amendment"), to the First
Restated Credit Agreement dated as of October 1, 1993 (the "First Restated
Credit Agreement") among MBIA, Credit Suisse, New York Branch, as Administrative
Agent and as a Bank, Deutsche Bank AG, as Documentation Agent and as a Bank, and
the other Banks signatory thereto. The First Restated Credit Agreement, as
amended by the Third Amendment, is referred to herein as the "Credit Agreement."
All capitalized terms used herein and not otherwise defined shall have the
respective meanings assigned thereto in the Credit Agreement.
As General Counsel to MBIA, I am familiar with its Restated Charter and its By-
Laws, as amended to date, and I have responsibility for supervision of MBIA's
insurance regulatory compliance. I have examined such certificates of public
officials, such certificates of officers of MBIA and copies certified to my
satisfaction of such corporate documents and records of MBIA and of such other
papers as I have deemed relevant and necessary for the opinions set forth below.
In all such examinations, I have assumed the genuineness of all signatures,
the authority to sign and the authenticity of all documents submitted to me as
originals. I have also assumed the conformity with the originals of all
documents submitted to me as copies. I have relied upon certificates of public
officials and of officers of MBIA with respect to the accuracy of factual
matters contained therein which were not independently established.
<PAGE>
Based upon the foregoing, it is my opinion that:
(a) MBIA is a stock insurance corporation duly incorporated and validly
existing in good standing under the laws of the State of New York and has the
corporate power and all requisite licenses and franchises required to carry on
its insurance and other business, as now being conducted in the State of New
York and in each other jurisdiction where the nature of the business transacted
by it makes such qualification necessary, except any jurisdiction other than the
State of New York where failure to so qualify would not have a material adverse-
effect on the business, assets, operations or financial condition of MBIA or the
ability of MBIA to perform its obligations under the Third Amendment, the Credit
Agreement, and the Additional Notes (as defined in the Third Amendment) (the
"Transaction Documents").
(b) The execution, delivery and performance of the Transaction Documents are
within the corporate powers of MBIA, have been duly authorized by all necessary
corporate action and do not (i) violate any provision of the Restated Charter of
By-Laws of MBIA, (ii) violate any provision of law, rule, regulation (including
without limitation, the New York Insurance Law, the Investment Company Act of
1940, as amended, or Regulations G. T. U or X of the Board of Governors of the
Federal Reserve System), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to MBIA the
violation of which would affect the validity or enforceability of any of the
Transaction Documents or the ability of MBIA to perform its obligations under
the Transaction Documents, (iii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which MBIA is a party or by which it or its properties may be
bound or affected or (iv) result in, or require, the creation or imposition of
any Lien upon or with respect to any of the properties now owned or hereafter
acquired by MBIA (other than as contemplated by the Loan Documents), other than,
in the case of clauses (iii) and (iv), breaches, defaults, the Permitted Liens
or Liens which could not materially and adversely affect the business, assets,
operations or financial condition of MBIA or the ability of MBIA to perform its
obligations under the Transaction Documents.
(c) To the best of my knowledge, no consent, approval or other action by, or
any notice to or filing with, any court or administrative or governmental body
is required in connection with the execution, delivery or performance by MBIA of
the Transaction Documents.
(d) To the best of my knowledge, there is no action, suit, proceeding or
investigation before or by any court, arbitrator or administrative or
governmental body pending or threatened against MBIA, wherein an adverse
decision, ruling or finding would materially and adversely affect (i) the
business, assets, operations or financial condition of MBIA, (ii) the
A-2
<PAGE>
transactions contemplated by the Credit Agreement or (iii) the validity or
enforceability of the Transaction Documents.
(e) To the best of my knowledge, MBIA is not in violation of any provision of
any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to MBIA or of
the Restated Charter or By-Laws of MBIA, or in default under any material
indenture, agreement, lease or instrument to which it is a party or by which it
or any of its properties may be subject or bound, where such violation or
default may result in a material adverse effect on the business, assets,
operations or financial condition of MBIA or on its ability to perform its
obligations under the Transaction Documents.
(f) To the best of my knowledge, MBIA is in compliance with the New York
Insurance Law and the regulations of the Department thereunder and with all
other applicable federal state and other laws, rules and regulations relating to
its insurance and other business, except with respect to failures, if any, to
comply which singly or in the aggregate do not have a material adverse effect on
the business, assets, operations or financial condition of MBIA or the ability
of MBIA to perform its obligations under any of the Transaction Documents.
(g) All of the issued and Outstanding capital stock of MBIA is owned
beneficially and of record by MBIA Inc., subject to no Liens. There are no
options or similar rights of any Person to acquire any such capital stock or any
other capital stock of MBIA.
This opinion is being furnished to you and your participants in connection with
the execution of the Third Amendment, and it is not to be used, circulated,
quoted or otherwise referred to for any purpose without my express written
consent.
Very truly yours,
General Counsel
A-3
<PAGE>
SCHEDULE I
Credit Suisse, New York Branch
as a Bank and as Administrative Agent
12 East- 49 Street
New York, NY 10017
Deutsche Bank AG, New York Branch
as a Bank and as Documentation Agent
31 West 52nd Street
New York, NY 10019
Cooperative Centrale Raiffeisen
Boerenleenbank B.A. (Rabobank Nederland)
245 Park Avenue
New York, New York 10167
Caisse des Depots and Consignations
c/o CDC Capital, Inc.
9 West 57 Street -- 36th Floor
New York, NY 10019
Bayerische Landesbank Girozentrale,
New York Branch
560 Lexington Avenue
New York, NY 10022
Landesbank Hessen-Thuringen Girozentrale
420 Fifth Avenue
New York, NY 10022
A-4
<PAGE>
EXHIBIT B
TO THIRD AMENDMENT
Form of Opinion of Kutak. Rock
- ------------------------------
October 1, 1996
To the Parties Listed on Schedule I hereto
Re: Third Amendment to First Restated Credit Agreement Dated as of October 1,
1993 among MBIA Insurance Corporation, Credit Suisse, New York Branch, as
Administrative Agent and as a Bank, Deutsche Bank AG, New York Branch, as
Documentation Agent and as a Bank, and the Other Banks Signatory Thereto
Ladies and Gentlemen:
This opinion is furnished to you in connection with the Third Amendment,
dated as of October 1, 1996 (the "Third Amendment") to the First Restated Credit
Agreement dated as of October 1, 1993 (the "First Restated Credit Agreement"),
among MBIA Insurance Corporation ("MBIA"), Credit Suisse, acting through its New
York Branch, as a Bank and as Administrative Agent, Deutsche Bank AG, New York
Branch, as a Bank and as Documentation Agent, and the other Banks signatory
thereto. The First Restated Credit Agreement, as amended by the Third Amendment,
is referred to herein as the "Credit Agreement." All capitalized terms used
herein and not otherwise defined have the meanings assigned thereto in the
Credit Agreement. As used herein, "Transaction Documents" means the Third
Amendment, the Credit Agreement and the Additional Note (as defined in the
Third Amendment).
We have acted as special counsel to MBIA in connection with the execution
and delivery of the Transaction Documents. In this connection, we have examined
the Transaction Documents and such certificates of public officials, such
certificates of officers of MBIA, and copies certified to our satisfaction of
such corporate documents and records of MBIA, and such other documents as we
have deemed necessary or appropriate for the opinions set forth below. We have
relied upon such certificates of public officials and of officers of MBIA with
respect to the accuracy of factual matters contained therein which were not
independently established.
We have also assumed (i) the due execution and delivery, pursuant to due
authorization, of (A) each document referred to in the immediately preceding
paragraph by all parties other than MBIA to such document, and (B) the consent
to the Third Amendment of each Bank, (ii) the authenticity of all such documents
submitted to us as originals, (iii) the genuineness of all signatures and (iv)
<PAGE>
the conformity to the originals of all such documents submitted to us as copies.
Based upon the foregoing and upon such investigation as we have deemed
necessary, we are of the opinion that:
(a) MBIA is a stock insurance corporation, duly incorporated and
validly existing under the laws of the State of New York, and is licensed and
authorized to carry on its business under the laws of the State of New York.
(b) Each Transaction Document has been - duly executed and is a valid
and binding obligation of MBIA enforceable in accordance with its terms, except
that such enforceability maybe limited by laws relating to bankruptcy,
insolvency, reorganization, moratorium, receivership and other similar laws
affecting creditors' rights generally and by general principles of equity and
the enforceability as to rights to indemnity thereunder as may be subject to
limitations of public policy.
(c) The execution, delivery and performance of the Transaction
Documents do not (a) violate any provision of the Restated Charter or Bylaws of
MBIA or (b) violate any provision of law (including without limitation the New
York Insurance Law or the Investment Company Act of 1940, as amended) or, to
the best of our knowledge, any rule or regulation (including without limitation
Regulation G. T. U or X of the Board of Governors of the Federal Reserve System)
presently in effect having applicability to MBIA the violation of which would
(i) affect the validity or enforceability of any Transaction Document or the
ability of MBIA to perform its obligations thereunder, (ii) adversely affect the
Banks or their rights under any Transaction Document or (iii) materially
adversely affect the business, assets, operations or financial condition of
MBIA.
(d) To the best of our knowledge, no consent, approval or other
action by or any notice to or filing with any court or administrative or
governmental body is required in connection with the execution, delivery or
performance by MBIA of the Transaction Documents. No consent, approval or other
action by or any notice to or filing with the Department is required in
connection with the execution, delivery or performance by MBIA of the
Transaction Documents.
(e) Except with respect to MBIA's obligations to pay the Principal of
and interest on the Loans, the obligations of MBIA under the Transaction
Documents will rank, under the New York Insurance Law, at least pari passu in
priority of payment with all other unsecured obligations of MBIA, including
without limitation MBIA's obligation to pay claims under Insurance Contracts
under the New York Insurance Law, subject, however, to statutory priorities
granted to certain claims under Sections 7426 and 7435 of the New York Insurance
Law.
B-2
<PAGE>
In rendering the opinions expressed herein, we express no opinion as to the laws
of any jurisdiction other than the State of New York and the federal laws of the
United States of America.
This opinion is being furnished to you and your participants solely in
connection with the execution of the Third Amendment, and it is not to be used,
circulated, quoted or otherwise referred to for any purpose without our express
written consent.
Very truly yours,
B-3
<PAGE>
SCHEDULE I
Credit Suisse, New York Branch as a Bank
as Administrative Agent
12 East 49 Street
New York, NY 10017
Deutsche Bank AG, New York Branch
as a Bank and as Documentation Agent
31 West 52nd Street
New York, NY 10019
Cooperative Centrale Raiffeisen
Boerenleenbank B.A. (Rabobank Nederland)
245 Park Avenue
New York, New York 10167
Caisse des Depots and Consignations
c/o CDC Capital, Inc.
9 West 57 Street -- 36th Floor
New York, NY 10019
Bayerische Landesbank Girozentrale,
New York Branch
560 Lexington Avenue
New York, NY 10022
Lande.sbank Hessen-Thuringen Girozentrale
420 Fifth Avenue
New York, NY 10022
B-4
<PAGE>
Exhibit 10.70
-------------
1996 Directors Stock Unit Plan
- ------------------------------
Section 1. Purpose
- ------------------
The Plan is intended to attract, retain and motivate the best qualified
directors for the benefit of the Corporation and its shareholders and to provide
such directors an economic interest in the Corporation's Common Shares (the
"Common Shares") thereby enhancing a long-term mutuality of interest between
such directors and the shareholders.
Section 2. Definitions
- ----------------------
When used in this Plan, the following terms shall have the definitions set
forth in this Section:
"Board" shall mean the Board of Directors of the Corporation.
-----
"Change in Control" shall mean (i) the occurrence of any merger,
-----------------
consolidation, sale of assets, liquidation or reorganization (other than a
merger, consolidation or combination in which the Corporation is the continuing
corporation and which does not result in its outstanding stock being converted
into or exchanged for different securities, cash or other property or any
combination thereof which has been approved by the Corporation's stockholders
holding at least 50% of the voting stock, or (ii) the first purchase of Common
Shares pursuant to a tender or exchange offer (other than an offer by the
corporation, any of its subsidiaries, or any employee benefit plan maintained by
the Corporation or any of its subsidiaries.
"Committee" shall mean the Compensation and Organization Committee of the Board.
---------
<PAGE>
"Common Shares" shall mean shares of the common stock of the Corporation.
-------------
"Corporation" shall mean MBIA Inc.
-----------
"Director" shall mean any member of the Board regardless of whether an
--------
Eligible Director.
"Elialble Director" shall mean a Director who is not an employee of the
-----------------
Corporation or any Subsidiary.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
------------
"Fair Market Value" shall mean the closing price of a Common Share on the
-----------------
New York Stock Exchange on the date of determination or, if no sale of Common
Shares is recorded on such date, then on the next preceding day on which there
was such a sale.
Grant" shall mean a grant of Units under Section 3.
- -----
"Subsidiary" shall mean any entity of which the Corporation possesses
----------
directly or indirectly fifty percent (50%) or more of the total combined voting
power of all classes of stock of such entity.
"Termination" shall mean any termination (whether voluntary or involuntary)
-----------
of an Eligible Director's service as a Director.
"Unit" shall mean a contractual obligation of the Corporation to deliver a
Common Share or pay cash based on the Fair Market Value of a Common Share to an
Eligible Director or the beneficiary or estate of such Eligible Director as
provided herein.
-2-
<PAGE>
Section 3. Units
- ----------------
(a) Unit Awards. In each December during the term of the Plan, any Eligible
----------
Director serving as a Director on such date who has been a Director continuously
since the prior October 31 shall be awarded $10,000.000 in Units (the amount of
Units to be based on the Fair Market Value of a Common Share on the same
determination date as used by the Corporation's Stock Option Grant program).
(b) Delivery of Common Shares. Subject to the satisfaction of the vesting
-------------------------
requirements set forth in Section 4 and except as provided in (c) and (d) below,
all Common Shares that are subject to Units credited to an Eligible Director
shall be delivered to such Eligible Director and transferred on the books on the
Company as of the effective date of such Director Termination.
(c) Payment Upon Death. In the event of the death of an Eligible Director,
------------------
the Corporation shall pay to the beneficiary designated by the Eligible Director
on a form provided by the Corporation, or, in the absence of such designation,
to the Eligible Director's estate, cash in an aggregate amount equal to the
product of (i) the number of Units credited to such Eligible Director at the
time of Termination multiplied by (ii) the Fair Market Value on the date of
Termination.
(d) Change in Control. Notwithstanding the foregoing, upon the occurrence
-----------------
of a Change in Control, the Corporation shall pay an Eligible Director (or, in
the event of the death of an Eligible Director following a Change in Control,
the beneficiary or estate determined pursuant to (c) above), not later than 30
days after the Change in Control occurs, cash in an aggregate amount equal to
the product of (i) the number of Units credited to such Eligible Director at the
time of the Change in Control multiplied by (ii) the Fair Market Value on the
date of the Change in Control.
(e) Satisfaction of the Corporation's Obligations. Upon the delivery of a
---------------------------------------------
Common Share (or the payment of cash with respect to a whole or fractional
Common
-3-
<PAGE>
Share) pursuant to the Plan the corresponding Unit (or fraction thereof ) shall
be canceled and be of no further force or effect.
(f) Dividend Equivalents. Whenever a dividend other than a dividend payable
--------------------
in the form of the Corporation's Common Shares is declared with respect to the
Corporation's Common Shares, the number of Units credited to an Eligible
Director shall be increased by the number of Units determined by dividing (i)
the product of (A) the number of Units credited to such Eligible Director on the
related dividend record date and (B) the amount of any cash dividend declared by
the Corporation on a Common share (or, in the case of any dividend
distributable in property other than Common Shares, the per share value of such
dividend, as determined by the Corporation for purposes of income tax reporting)
by (ii) the Fair Market Value on the related dividend payor, in the case of any
dividend distributable in property other than Common Shares, the per share value
of such dividend, as determined by the Corporation for purposes of income tax
reporting) by (ii) the Fair Market Value on the related dividend payment date.
In the case of any dividend declared on the Corporation's Common Shares which is
payable in Common Shares, each Eligible Director shall be credited with an
additional number of Units equal to the product of (i) the number of Units
credited to such Eligible Director on the related dividend record date and (ii)
the number of Common Shares (including any fraction thereof) distributable as a
dividend on a Common Share.
Section 4. Vesting
- ------------------
Vesting Schedule. All Units awarded each year pursuant to Section 3 will be
----------------
vested as of the date of the Grant.
Section 5. Adjustment for Corporate Transactions
- ------------------------------------------------
In the event that any capitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Shares at a price substantially below fair
market value, or other similar event affects the Common Shares such that an
adjustment is required to
<PAGE>
preserve, or to prevent enlargement of, the benefits or potential benefits made
available under the Plan, then the Board shall adjust the number and kind or
shares which thereafter may be awarded under the plan and the number of Units to
be granted annually to each Eligible Director under the Plan.
Section 6. Administration
- -------------------------
The Plan shall be administered by the Committee. Subject to the provisions
of the Plan, the Committee shall have plenary authority to interpret the Plan,
to prescribe, amend and rescind rules and regulations relating to it, and to
determine the terms and provisions of the awards made pursuant to the Plan and
to make all other determinations necessary or advisable for the administration
of the Plan provided, however, that the Plan shall be administered such that the
transactions contemplated hereunder will continue to qualify for the exemptive
relief available under Rule 16b-3 of the Exchange Act.
Section 7. Amendment and Termination
- ------------------------------------
The Board may suspend, revise, amend or discontinue the Plan at any time;
provided that, no such action may materially and adversely affect any rights of
an Eligible Director under any Grant made pursuant to the Plan without such
Director's consent. Unless the Board otherwise specifies at the time of such
termination, a termination of the Plan will not result in a distribution with
respect to the Units then credited to an Eligible Director under the Plan.
Section 8. Effective Date of the Plan
- -------------------------------------
The Plan shall be effective as of December 4,1996 and shall terminate as of
December 31, 2006 unless extended by the Board or terminated at an earlier date
pursuant to section 7 above.
<PAGE>
SECTION 9. GOVERNING LAW
- ------------------------
The Plan shall be construed in all respects under the laws of the State of New
York.
SECTION 10. GENERAL PROVISIONS
- ------------------------------
(a) Nontransferable Grants. Grants made under the Plan may not be assigned
----------------------
or transferred, in whole or in part, either directly or by operation of law
(except, in the event of an Eligible Director's death, by will or applicable
laws of descent and distribution), including, but not by way of limitation, by
execution, levy, garnishment, attachment, pledge, bankruptcy or in any other
manner, and no such right or interest of any Eligible Director in the Plan shall
be subject to any obligation or liability of such Eligible Director.
(b) No Right to Serve as A Director. The Plan shall not impose any
-------------------------------
obligations on the Corporation to retain any Eligible Director as a Director nor
shall it impose any obligation on the part of any Eligible Director to remain as
a Director of the Corporation.
(c) No Right to Particular Assets. Nothing contained in the Plan and no
-----------------------------
action taken pursuant to the Plan shall create or be construed to create a trust
of any kind or any fiduciary relationship between the Corporation and any
Eligible Director, the executor, administrator or other personal representative
or designated beneficiary of such Eligible Director, or any other persons. Any
reserves that may be established by the Corporation in connection with Units
granted under the Plan shall continue to be treated as the assets of the
Corporation for Federal income tax purposes and remain subject to the claims of
the Corporation's creditors. To the extent that any Eligible Director or the
executor, administrator, or other personal representative of such Eligible
Director, acquires a right to receive any payment from the Corporation pursuant
to the Plan, such right shall be no greater than the right of an unsecured
general creditor of the Corporation.
<PAGE>
(d) No Rights as Shareholder. An Eligible Director shall have no rights as a
------------------------
shareholder of the Corporation with respect to any Units granted pursuant to the
Plan unless and until Common Shares are delivered pursuant to Section 3 above.
(e) Limitations on Liability. Neither the establishment of the Plan nor any
------------------------
modifications thereof nor the creation of any account under the Plan nor the
payment of any benefits shall be construed as giving to any participant or other
person any legal or equitable right against the Corporation (or any person
connected therewith) except as provided by law or any Plan provision. In no
event shall the Corporation or any person connected therewith be liable to any
person for the failure of any participant or other person to be entitled to any
particular tax consequences with respect to the Plan or any contribution thereto
or any distributions therefrom.
(f) Non-Exclusivity. The adoption of the Plan by the Board shall not be
---------------
construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable.
(g) No Limit on Corporate Action. The existence of the Plan and the Units
-----------------------------
granted hereunder shall not affect in any way the right or power of the Board or
the shareholders of the Corporation to make or authorize any adjustment,
recapitalization, reorganization or other change in the Corporation's capital
structure or its business, any merger or consolidation of the Corporation, any
issue of bonds, debentures, preferred or prior preference stocks ahead of or
affecting Common Stock, the dissolution or liquidation of the Corporation or
any sale or transfer of all or part of its assets or business, or any other
corporate act or proceeding.
(h) Listing of Common Shares and Related Matters. If at any time the Board
--------------------------------------------
shall determine in its discretion that the listing, registration or
qualification of the Common Shares covered by the Plan upon any national
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the delivery of
-7-
<PAGE>
Common Shares under the Plan, no Common Shares will be delivered unless and
until such listing, registration, qualification, consent or approval shall have
been effected or obtained, or otherwise provided for, free of any conditions not
acceptable to the Board.
(i) Severability of Provisions. If any provision of the Plan shall be held
--------------------------
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provisions hereof, and the Plan shall be construed and enforced as if
such provision had not been included.
0) Incapacity. Any benefit payable to or for the benefit of a minor, an
----------
incompetent person or other person incapable of receipting therefor shall be
deemed paid when paid to such person' s guardian or to the party providing or
reasonably appearing to provide for the care of such person, and such payment
shall fully discharge any liability or obligation of the Board, the Corporation
and all other parties with respect thereto.
(k) Headings and Captions. The headings and captions herein are provided
---------------------
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.
-8-
<PAGE>
EXHIBIT 11
MBIA INC. AND SUBSIDIARIES
for the Years Ended December 31, 1996, 1995 and 1994
Computation of Earnings Per Share Assuming Full Dilution
(In thousands except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net Income $322,163 $271,419 $260,209
============= ============= =============
Fully diluted shares:
Average number of common
shares outstanding 42,928 41,763 41,686
Assumed exercise of
dilutive stock options 523 559 402
------------- ------------- -------------
43,451 42,322 42,088
============= ============= =============
Earnings per share assuming
full dilution $ 7.41 $ 6.41 $ 6.18
============= ============= =============
</TABLE>
<PAGE>
EXHIBIT 13
ANNUAL REPORT
1996
MBIA Inc.
113 King Street
Armonk
New York 10504
<PAGE>
FINANCIAL REVIEW
TABLE OF CONTENTS
Selected Financial and Statistical Data 32
Management's Discussion and Analysis
of Financial Condition
and Results of Operations 34
Report on Management's Responsibility 40
Report of Independent Accountants 40
Consolidated Statements of Income 41
Consolidated Balance Sheets 42
Consolidated Statements of Changes
in Shareholders' Equity 43
Consolidated Statements of Cash Flows 44
Notes to Consolidated
Financial Statements 45
31
<PAGE>
SELECTED FINANCIAL AND STATISTICAL DATA
MBIA Inc. and Subsidiaries(1)
<TABLE>
<CAPTION>
Dollars in millions
except per share amounts 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP SUMMARY
INCOME STATEMENT DATA:
Insurance:
Gross premiums written $ 461 $ 348 $ 361 $ 479 $ 369 $ 269 $ 211 $ 159 $ 156 $ 171
Premiums earned 252 215 218 231 163 132 107 91 82 81
Net investment income 248 220 194 179 150 132 115 80 67 54
Net realized gains 12 11 10 10 10 3 --- --- 1 1
Insurance operating income 412 362 342 339 255 207 181 136 116 106
Investment management
operating income (loss) 12 7 6 (1) (1) (2) --- --- --- ---
Income before income taxes 408 345 329 324 244 190 165 135 118 108
NET INCOME 322 271 260 259 189 145 127 102 92 74
NET INCOME PER COMMON SHARE $ 7.43 $ 6.43 $ 6.18 $ 6.10 $ 4.62 $ 3.74 $ 3.33 $ 2.74 $ 2.45 $ 1.98
- -------------------------------------------------------------------------------------------------------------------------------
GAAP SUMMARY BALANCE
SHEET DATA:
Investments $ 7,648 $ 6,607 $ 4,867 $ 3,544 $ 2,529 $ 1,961 $ 1,724 $ 1,501 $ 1,104 $ 979
Total assets 8,562 7,267 5,456 4,106 3,049 2,438 2,159 1,904 1,309 1,176
Deferred premium revenue 1,786 1,616 1,512 1,403 1,196 1,019 902 811 520 449
Loss reserves 59 43 40 34 26 21 5 --- --- ---
Municipal investment and
repurchase agreements 3,259 2,642 1,526 493 --- --- --- --- --- ---
Long-term debt 374 374 299 299 299 199 200 195 --- ---
Shareholders' equity 2,480 2,234 1,705 1,596 1,382 1,063 932 777 705 620
Book value per share 57.28 53.19 40.96 38.18 33.00 27.58 24.35 21.08 18.80 16.54
Dividends declared
per common share 1.45 1.31 1.14 .94 .76 .62 .48 .41 .19 .12
- -------------------------------------------------------------------------------------------------------------------------------
STATUTORY DATA:
Net income $ 317 $ 278 $ 225 $ 258 $ 190 $ 149 $ 127 $ 84 $ 71 $ 42
Capital and surplus 1,467 1,274 1,110 978 896 647 579 485 376 361
Contingency reserve 893 744 621 539 404 316 261 216 154 112
- -------------------------------------------------------------------------------------------------------------------------------
Qualified statutory
capital 2,360 2,018 1,731 1,517 1,300 963 840 701 530 473
Unearned premium
reserve 1,918 1,733 1,620 1,474 1,242 1,044 926 828 591 507
Loss reserves 10 7 22 8 14 12 --- --- --- ---
- -------------------------------------------------------------------------------------------------------------------------------
Total policyholders'
reserves 4,288 3,758 3,373 2,999 2,556 2,019 1,766 1,529 1,121 980
Present value of
installment premiums 288 235 177 186 173 151 134 90 82 82
Standby line of credit 725 650 600 575 500 500 500 325 --- ---
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL CLAIMS-PAYING
RESOURCES 5,301 4,643 4,150 3,760 3,229 2,670 2,400 1,944 1,203 1,062
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS:
GAAP
Loss ratio 6.1% 4.9% 3.7% 3.4% 3.4% 13.0% 4.7% 0.0% 0.0% 0.0%
Underwriting expense ratio 28.3 29.3 28.8 27.4 32.0 30.1 33.7 38.5 39.6 35.2
Combined ratio 34.4 34.2 32.5 30.8 35.4 43.1 38.4 38.5 39.6 35.2
Statutory
Loss ratio 2.0 0.4 9.8 (3.5) 2.4 12.7 0.0 0.0 0.0 0.0
Underwriting expense ratio 17.6 20.6 22.9 17.6 18.3 20.4 23.4 31.6 32.3 25.3
Combined ratio 19.6 21.0 32.7 14.1 20.7 33.1 23.4 31.6 32.3 25.3
NET DEBT SERVICE OUTSTANDING $411,106 $344,037 $304,502 $266,784 $223,056 $184,604 $157,707 $137,221 $ 90,343 $ 72,837
NET PAR AMOUNT OUTSTANDING $233,244 $188,636 $164,318 $141,387 $112,483 $ 90,043 $ 75,979 $ 65,290 $ 42,917 $ 34,319
=============================================================================================================================
(1) Balance sheet amounts as of December 31, 1996 - 1989 and income statement
amounts for the years ended December 31, 1996 - 1990 include the accounts
of MBIA Insurance Corp. of Illinois (formerly BIG Insurance Company) (See
Note 1 to consolidated financial statements).
</TABLE>
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MBIA Inc. and Subsidiaries
INTRODUCTION
MBIA Inc. (our company or MBIA) is the world's premier financial guarantee
company and a leading provider of investment management products and services.
Through MBIA Insurance Corp. and its subsidiaries (our insurance company), we
provide financial guarantees to municipalities and other bond issuers. Our
primary business is insuring municipal bonds issued by governmental units to
finance essential public purposes. We also guarantee structured asset-backed and
mortgage-backed transactions, selected corporate bonds, including investor-owned
utility debt, and obligations of high-quality financial institutions. We provide
these products in both the new issue and secondary markets - internationally as
well as domestically.
MBIA also provides investment management products and services to the public
sector. These include cash management, municipal investment agreements,
discretionary asset management and administrative services. In addition, through
an equity investment we provide services to the municipal sector through the
purchase and sale of tax liens.
RESULTS OF OPERATIONS
- ---------------------
Summary
- -------
The following chart presents highlights of our consolidated financial results
for 1996, 1995 and 1994:
Percent Change
--------------
1996 1995
vs. vs.
1996 1995 1994 1995 1994
- ---------------------------------------------------------------------
Net income (in millions) $ 322 $ 271 $ 260 19% 4%
Per share data:
Net income $ 7.43 $ 6.43 $ 6.18 16% 4%
Operating earnings $ 7.22 $ 6.35 $ 6.01 14% 6%
Core earnings $ 6.62 $ 5.87 $ 5.26 13% 12%
Book value $57.28 $53.19 $40.96 8% 30%
Adjusted book value $82.94 $76.56 $62.35 8% 23%
We believe that core earnings, which exclude the effects of refundings and calls
of our insured issues, realized capital gains and losses, accounting changes and
other non-recurring items, provides the most indicative measure of our
underlying profit trend. Core earnings per share of $6.62 for 1996 grew by 13%
over 1995, following a 12% increase in 1995. The consistent increases in core
earnings were due primarily to growth in premiums earned and net investment
income generated by our insurance operations, as well as the increasing
contributions of operating earnings from our investment management services
businesses.
Our net income grew 19% in 1996 and 4% in 1995. In 1996, on a per share basis,
net income increased 16% due to the dilutive effect of the 1996 public offering
of additional shares of our company. The difference between the growth rate of
core earnings and net income is related to the net income effects of refunded
issues and realized capital gains and losses. Operating earnings per share,
which excludes the impact of realized capital gains and losses, increased 14% in
1996 and 6% in 1995.
33
<PAGE>
Our book value at year-end 1996 was $57.28 per share, up from $53.19 at year-end
1995 and $40.96 at year-end 1994. As with core earnings, we believe that a more
appropriate measure of a financial guarantee company's intrinsic value is its
adjusted book value. It is defined as book value plus the after-tax effects of
our net deferred premium revenue net of deferred acquisition costs plus the
present value of unrecorded future installment premiums. The following table
presents the components of our adjusted book value per share:
Percent Change
--------------
1996 1995
vs. vs.
1996 1995 1994 1995 1994
- ---------------------------------------------------------------------
Book value $57.28 $53.19 $40.96 8% 30%
After-tax value of:
Net deferred premium
revenue, net of
deferred acquisition
costs 21.34 19.73 18.63 8% 6%
Present value of future
installment premiums* 4.32 3.64 2.76 19% 32%
- ---------------------------------------------------------------------
Adjusted book value $82.94 $76.56 $62.35 8% 23%
- ---------------------------------------------------------------------
*The discount rate used to present value future installment premiums was 9% in
1996 and 1995 and 13% in 1994.
Our adjusted book value per share was $82.94 at year-end 1996, an 8% increase
from year-end 1995. The increase was due to our strong operating results,
significant growth in new business written and the 1996 offering of common
stock, offset partially by the impact of higher interest rates on the fair value
of our fixed-income investment portfolios. In 1995, our adjusted book value grew
by 23% due to strong
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
MBIA Inc. and Subsidiaries
operating results and the added benefit of an increase in the fair value of our
fixed-income portfolios resulting from a decline in interest rates at December
31, 1995 compared with December 31, 1994.
Financial Guarantee Insurance
- -----------------------------
Business was strong in 1996 with total gross premiums written (GPW) increasing
significantly to $460.7 million from $348.5 million in 1995. GPW, as reported on
our financial statements, reflects cash receipts only and does not include the
value of future premium receipts expected for installment-based insurance
policies originated in the period. To provide additional information regarding
year-to-year changes in new business premium production, we discuss our adjusted
gross premiums (AGP), which include our upfront premiums as well as the
estimated present value of current and future premiums from installment-based
insurance policies issued in the period. MBIA's premium production in terms of
GPW and AGP for the last three years is presented in the following table:
Percent Change
--------------
1996 1995
vs. vs.
In millions 1996 1995 1994 1995 1994
- ---------------------------------------------------------------------
Premiums written:
GPW $460.7 $348.5 $360.8 32% (3)%
AGP $543.8 $372.1 $362.0 46% 3 %
The higher year-to-year growth rates of AGP compared with GPW reflect the
growing proportion of installment-based policies written by MBIA. We estimate
the present value of our total future installment premium stream on outstanding
policies to be $288.0 million at year-end 1996, compared with $235.4 million at
year-end 1995 and $176.9 million at year-end 1994.
MUNICIPAL MARKET In 1996, we maintained our market leadership in the growing new
issue municipal market. In addition, through our substantial financial and
capital resources, we were able to provide insurance for several large
transactions, thereby increasing our par and premium writings. In 1995, with the
decline in the new issue municipal market, our par writings were flat. Our
premium writings decreased, however, since they are based on total debt service
written which declines with lower interest rates. Domestic new issue municipal
market information and MBIA's par and premium writings in both the new issue and
secondary domestic municipal finance markets are shown in the following table:
Percent Change
--------------
1996 1995
vs. vs.
Domestic Municipal 1996 1995 1994 1995 1994
- --------------------------------------------------------------------
Total new issue market:*
Par value (in billions) $161.9 $142.1 $154.7 14% (8)%
Insured penetration 52% 47% 40%
MBIA market share 40% 42% 40%
MBIA insured:
Par value (in billions) $ 39.2 $ 32.6 $ 32.5 20% --
Premiums (in millions)
GPW $364.1 $296.9 $324.4 23% (8)%
AGP $357.8 $291.6 $318.4 23% (8)%
- --------------------------------------------------------------------
*Market data are reported on a sale date basis while MBIA's insured data are
based on closing date information. Typically, there can be a one- to four-week
delay between the sale date and closing date of an insured issue.
<PAGE>
STRUCTURED FINANCE MARKET The par value of issues in the asset-backed securities
market (excluding private placements and mortgage-backed securities, for which
market data are unavailable) increased 40% in 1996 and 43% in 1995. In 1996 and
1995, we achieved substantial gains in both our domestic new issue and secondary
market structured finance business (includes asset-/mortgage-backed). Details
regarding the asset-backed market and MBIA's par and premium writings in both
the domestic new issue and secondary structured finance markets are shown in the
table below:
Percent Change
--------------
1996 1995
Domestic vs. vs.
Structured Finance 1996 1995 1994 1995 1994
- ---------------------------------------------------------------------
Total asset-backed market:*
Par value (in billions) $151.1 $108.0 $75.5 40% 43%
MBIA insured:
Par value (in billions) $ 20.4 $ 9.0 $ 5.7 127% 57%
Premiums (in millions)
GPW $ 52.3 $ 22.9 $15.8 128% 46%
AGP $116.0 $ 46.8 $24.3 148% 93%
- ----------------------------------------------------------------------
* Market data exclude mortgage-backed securities and private placements.
INTERNATIONAL MARKET In late 1995, we formed a joint venture with AMBAC
Indemnity Corporation (another leading Triple-A rated financial guarantee
insurer) to market financial guarantee insurance internationally. This
initiative has contributed to a substantial expansion of our international
business as evidenced by 1996 growth rates of 65%, 18% and 69% for international
par value, GPW and AGP, respectively. In 1995, international GPW increased by
10% and AGP increased by 24%, despite a decline in par value insured due to the
effect of one large transaction in 1994. Our company's municipal and structured
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
MBIA Inc. and Subsidiaries
finance international business volume in the new issue and secondary markets for
the last three years is illustrated below:
Percent Change
--------------
1996 1995
vs. vs.
International 1996 1995 1994 1995 1994
- ---------------------------------------------------------------------
Par value (in billions) $ 3.8 $ 2.3 $ 2.6 65% (11)%
Premiums: (in millions)
GPW $25.2 $21.3 $19.4 18% 10 %
AGP $40.6 $24.1 $19.3 69% 24 %
CEDED PREMIUMS Reinsurance allows an insurance company to transfer portions of
its insured business to a reinsurance company. In exchange for insuring a
portion of our risk, the reinsurance company receives a part of our premium
(ceded premium) for which we, in turn, receive a ceding commission. We use
reinsurance to increase our capacity to write new business when we are subject
to certain single risk limitations and to manage the overall risk profile of our
insurance portfolio.
Premiums ceded to reinsurers from all insurance operations were $54.9 million,
$45.1 million and $49.3 million in 1996, 1995 and 1994, respectively. Cessions
as a function of GPW declined from 14% in 1994 to 12% in 1996. Our basic
reinsurance treaty calls for a minimum cession rate of 10%. Variances above this
rate generally reflect the higher utilization of treaty or facultative
reinsurance required to comply with regulatory constraints or our own single
risk limits.
Most of our reinsurers are rated Double-A or higher by Standard & Poor's
Corporation or Single-A or higher by A. M. Best Co. Although we remain liable
for all reinsured risks, we believe that we will recover the reinsured portion
of any losses which may occur.
REVENUES Our insurance revenues are primarily comprised of premiums earned and
investment income. Premiums are recognized over the life of the bonds we insure.
The slow premium recognition coupled with compounding investment income from
investing our premiums and capital form a solid foundation for consistent
revenue growth.
PREMIUMS EARNED For approximately 80% of our insurance writings, we receive
premiums upfront and earn them pro rata over the period of risk of the bond
issue. Accordingly, the portion of net premiums earned on each policy in any
given year represents a relatively small percentage of the total net upfront
premium received. The balance represents deferred premium revenue to be earned
over the remaining life of the insured bond issue.
For 20% of our new business writings - primarily our structured finance business
- - we collect installment premiums. Installment premiums are credited to the
deferred premium revenue account when they are received, and are recognized as
revenue over each installment period - generally one year or less.
<PAGE>
When an MBIA-insured bond issue is refunded or retired early the related
deferred premium revenue is earned immediately, except for any portion which may
be applied as a credit towards insuring the refunding bond issue. The amount of
bond refundings and calls is influenced by a variety of factors such as
prevailing interest rates, the coupon rates of the bond issue, the issuer's
desire or ability to modify bond covenants and applicable regulations under the
Internal Revenue Code. The composition of MBIA's premiums earned in terms of its
scheduled and refunded components is illustrated below:
Percent Change
--------------
1996 1995
vs. vs.
In millions 1996 1995 1994 1995 1994
- ---------------------------------------------------------------------
Premiums earned:
Scheduled $207.3 $181.1 $165.3 14% 10 %
Refunded 44.4 34.0 53.0 31% (36)%
- ---------------------------------------------------------------------
Total $251.7 $215.1 $218.3 17% (1)%
The year-to-year increase in premiums earned from scheduled amortization
reflects the additive effect of new business written, including the expanding
installment premium activity from the structured finance and international
sectors.
INVESTMENT INCOME Our insurance related investment income increased to $247.6
million in 1996 and $219.9 million in 1995 from $193.9 million in 1994, growing
13% each year. These increases were primarily due to the growth of cash flow
available for investment. Our cash flows were generated from operations, the
compounding of previously earned and reinvested investment income and the
addition of funds from financing activities. Insurance related net realized
capital gains were $11.7 million in 1996, $11.3 million in 1995 and $10.3
million in 1994. These realized gains were generated as a result of ongoing
management of the investment portfolio.
LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE) We maintain a general loss reserve
based on our estimate of unidentified losses from our insured obligations. To
the extent that we identify specific insured issues as currently or likely to be
in default, the present value of our expected payments, net of expected
reinsurance and collateral recoveries, are allocated within the total loss
reserve as case-specific reserves.
We periodically evaluate our estimates for losses and LAE and any resulting
adjustments are reflected in current earnings. We believe that our reserving
methodology and the resulting reserves are adequate to cover the ultimate net
cost of claims. However, the reserves are necessarily based on estimates, and
there can be no assurance that any ultimate liability will not exceed such
estimates.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
MBIA Inc. and Subsidiaries
The following table shows the case-specific and unallocated components of our
total loss and LAE reserves at the end of the last three years as well as our
loss provision for the last three years:
Percent Change
--------------
1996 1995
vs. vs.
In millions 1996 1995 1994 1995 1994
- ---------------------------------------------------------------------
Reserves:
Case-specific $20.2 $14.5 $21.9 40% (34)%
Unallocated 39.1 28.0 18.2 39% 54 %
- ---------------------------------------------------------------------
Total $59.3 $42.5 $40.1 40% 6 %
Provision $15.3 $10.6 $ 8.1 44% 31 %
Over the three-year period from 1994 through 1996, our provision for losses and
LAE increased in tandem with new business writings in accordance with our loss
reserving methodology. The changes in the case-specific reserve had no impact on
our net income since they were offset by corresponding changes in the
unallocated portion of the total reserve. The unallocated reserve has more than
doubled since year-end 1994 from $18.2 million to $39.1 million at year-end
1996.
OPERATING EXPENSES Those expenses related to the production of our insurance
business (policy acquisition costs) are deferred and recognized over the period
in which the related premiums are earned. Our company's policy acquisition
costs, general operating expenses and total operating expenses, as well as
related expense measures, are shown below:
Percent Change
--------------
1996 1995
vs. vs.
In millions 1996 1995 1994 1995 1994
- ---------------------------------------------------------------------
Policy acquisition
costs, net $24.7 $21.3 $21.9 16% (3)%
Operating 46.6 41.8 41.0 12% 2 %
- ---------------------------------------------------------------------
Total insurance
operating expenses $71.3 $63.1 $62.9 13% ---
Expense ratio:
GAAP 28.3% 29.3% 28.8%
Statutory 17.6% 20.6% 22.9%
For 1996, policy acquisition costs net of deferrals increased 16% to $24.7
million following a 3% decrease in 1995, in tandem with our year-to-year
fluctuations in premiums earned. The ratio of policy acquisition costs net of
deferrals to earned premiums has remained constant at 10% for all three years.
In 1996, operating expenses increased 12% subsequent to a relatively small
increase in 1995, due to expanded marketing and surveillance initiatives and one
significant structured finance transaction for which a related contingent
commission was recorded as an operating expense.
Financial guarantee insurance companies also use the statutory expense ratio
(expenses before deferrals as a function of net premiums written) as a measure
of expense management. Our company's 1996 expense ratios have improved over both
1995 and 1994.
<PAGE>
Investment Management Services
- ------------------------------
Over the last six years, our investment management businesses have expanded
services to the public sector and added new revenue sources. Average assets
under management for these businesses have increased from $3.2 billion in 1994
to $6.2 billion in 1996. These assets include our municipal investment
agreements, pooled public funds and third-party accounts. With the growth in
investments under management, these businesses generated increases in operating
income in 1996 and 1995. We realized $2.6 million of net realized capital gains
in 1996 following net realized losses of $6.1 million and $0.7 million for 1995
and 1994, respectively. Pretax financial results for 1996, 1995 and 1994 are
summarized below:
Percent Change
--------------
1996 1995
vs. vs.
In millions 1996 1995 1994 1995 1994
- ---------------------------------------------------------------------
Revenues $26.7 $19.9 $16.2 34% 23 %
Expenses (14.6) (12.9) (10.6) 13% 21 %
- ---------------------------------------------------------------------
Pretax operating
income $12.1 $ 7.0 $ 5.6 72% 26 %
Net realized gains
(losses) $ 2.6 $(6.1) $(0.7) 142% (739)%
The following provides a summary of each of our primary investment management
businesses:
MBIA MUNICIPAL INVESTORS SERVICE CORPORATION (MBIA-MISC) provides cash
management services and fixed-rate investment placement services directly to
local governments and school districts. In addition, MBIA-MISC performs
investment fund administration services for clients, which provide an additional
source of revenue to our company at little added cost. In late 1996, MBIA-MISC
acquired American Money Management Associates, Inc. (AMMA), which provides
investment and treasury management consulting services for municipal and
quasi-public sector clients. Both MBIA-MISC and AMMA are Securities and Exchange
Commission (SEC)-registered investment advisers.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
MBIA Inc. and Subsidiaries
The MBIA-MISC organization has a network of investment professionals in twenty
states and the Commonwealth of Puerto Rico, providing efficient delivery of its
products and services. Since its inception in 1990, MBIA-MISC has successfully
grown this distribution network and its revenue base and has plans to expand
into additional states, as well as products and markets. At year-end 1996,
MBIA-MISC had $4.2 billion of client assets under management compared with $2.5
billion and $1.7 billion at year-end 1995 and 1994, respectively.
MBIA INVESTMENT MANAGEMENT CORP. (IMC) provides guaranteed investment agreements
for bond proceeds of states and municipalities. At year-end 1996, principal and
accrued interest outstanding on investment agreements was $3.3 billion compared
with $2.6 billion and $1.5 billion at year-end 1995 and 1994, respectively. At
amortized cost, the assets supporting IMC's investment agreement liabilities
were $3.3 billion, $2.6 billion and $1.7 billion at December 31, 1996, 1995 and
1994, respectively. These assets are comprised of high-quality securities with
an average credit quality rating of Double-A.
IMC, from time to time, uses derivative financial instruments to manage interest
rate risk. We have established policies limiting the amount, type and
concentration of such instruments. By matter of policy, derivative positions can
only be used to hedge interest rate exposures and not for speculative trading
purposes. At year-end 1996, our exposure to derivative financial instruments was
not significant.
MBIA CAPITAL MANAGEMENT CORP. (CMC) provides investment management services for
IMC's investment agreements, MBIA-MISC's municipal cash management programs and
MBIA's insurance related portfolios, as well as third-party accounts. CMC
assumed full management for MBIA's insurance related fixed-income investment
portfolio in 1996, which was previously managed externally.
Public Sector Services
- ----------------------
STRATEGIC SERVICES, INC. (SSI) was established in 1996 to provide tax
administration and related services to state and local governments. In May 1996,
SSI acquired an equity interest in Capital Asset Holdings (Capital Asset), a
purchaser and servicer of delinquent tax certificates. It also provides a series
of services to assist taxing authorities in the preparation, analysis, packaging
and completion of delinquent tax obligation sales. At year-end 1996, Capital
Asset had a tax lien portfolio of $485 million.
In January 1997, SSI acquired a 95% interest in Municipal Tax Bureau (MTB), a
provider of tax revenue compliance and collection services to public sector
entities.
Interest Expense
- ----------------
In 1996, 1995 and 1994, respectively, we incurred $33.5 million, $28.4 million
and $27.2 million of interest expense. The increase in interest expense in 1996
was due to the $75 million addition to MBIA's long-term debt in December 1995.
In 1995, the increase was a result of short-term bank borrowings under existing
lines of credit.
Taxes
- -----
Our tax policy is to optimize our after-tax income by maintaining the
appropriate mix of taxable and tax-exempt investments. Our effective tax rate
has remained unchanged at 21% over the three-year period.
<PAGE>
CAPITAL RESOURCES
We carefully manage our capital resources to optimize our cost of capital, while
maintaining appropriate claims-paying resources to sustain our Triple-A
claims-paying ratings. At year-end 1996, our total capital was $2.5 billion with
total long-term borrowings at $374 million. We use debt financing to lower our
overall cost of capital, thereby increasing our return on shareholders' equity.
We maintain debt at levels we consider to be prudent based on our cash flow and
total capital. The following table shows our long-term debt and ratios we use to
measure it:
1996 1995 1994
- ------------------------------------------------------------------
Long-term debt (in millions) $374 $374 $299
Long-term debt to total capital 13% 14% 15%
Ratio of earnings to fixed charges 13.2x 13.1x 13.1x
In addition, our insurance company has a $725 million irrevocable standby line
of credit with a group of major worldwide banks to provide funds for the payment
of claims in the event that severe losses should occur. The agreement is for a
seven-year term which expires on September 30, 2003 and, subject to approval by
the banks, may be renewed annually to extend the term to seven years beyond the
renewal date.
From time to time we access the capital markets to support the growth of our
businesses. At year-end 1995, we issued $75 million of debt securities, and in
February 1996, we completed a public offering of 3.9 million shares of common
stock, of which 770,000 shares were newly issued, for total net proceeds to MBIA
of $55 million. In October 1996, to provide us with flexibility to access the
capital markets when market and business conditions are favorable, we filed a
registration statement with the SEC to allow us to offer and sell a combination
of up to $250 million of debt securities, common stock and/or preferred stock.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
MBIA Inc. and Subsidiaries
As of year-end 1996, total claims-paying resources for our insurance company
stood at $5.3 billion, a 14% increase over 1995.
LIQUIDITY
Cash flow needs at the parent company level are primarily for dividends to our
shareholders and interest payments on our debt. These requirements have
historically been met by upstreaming dividend payments from our insurance
company which generates substantial cash flow from premium writings and
investment income. In 1996, operating cash flow from our insurance company was
$521 million, a 28% increase from $408 million in 1995.
Under New York state insurance law, without prior approval of the superintendent
of the state insurance department, financial guarantee insurance companies can
pay dividends from earned surplus subject to retaining a minimum capital
requirement. In our case, dividends in any 12-month period cannot be greater
than 10% of policyholders' surplus. In 1996 our insurance company paid dividends
of $29 million and at year-end 1996 had additional dividend capacity of $118
million without special regulatory approval.
Our company has significant liquidity supporting its businesses. At year-end
1996, cash equivalents and short-term investments totaled $183 million. Should
significant cash flow reductions occur in any of our businesses, for any
combination of reasons, we have additional alternatives for meeting ongoing cash
requirements. They include, among other things, selling or pledging our
fixed-income investments from our investment portfolio, tapping existing
liquidity facilities and new borrowings.
Our company has substantial external borrowing capacity. We maintain two
short-term bank lines totaling $300 million with a group of worldwide banks. At
year-end 1996, $29.1 million was outstanding under these facilities to fund
interim cash requirements.
Our investment portfolio provides a high degree of liquidity since it is
comprised of readily marketable high-quality fixed-income securities and
short-term investments. At year-end 1996, the fair value of our consolidated
investment portfolio increased 16% to $7.6 billion, as shown below:
Percent Change
--------------
In millions 1996 1995 1996 vs. 1995
- ------------------------------------------------------------------
Insurance operations:
Amortized cost $4,207 $3,641 16 %
Unrealized gain 148 224 (34)%
- ------------------------------------------------------------------
Fair value $4,355 $3,865 13 %
- ------------------------------------------------------------------
Municipal investment agreements:
Amortized cost $3,263 $2,646 23 %
Unrealized gain 30 96 (69)%
- ------------------------------------------------------------------
Fair value $3,293 $2,742 20 %
- ------------------------------------------------------------------
Total portfolio at fair value $7,648 $6,607 16 %
<PAGE>
The growth of our insurance related investments in 1996 was the result of
positive cash flows and proceeds from our financing activities, partially offset
by the decrease in unrealized gains caused by higher interest rates at year-end.
The fair value of investments related to our municipal investment agreement
business grew 20% to $3.3 billion from $2.7 billion at year-end 1995, primarily
as a result of the continued strong growth of this business.
Our investment portfolios are considered to be available-for-sale and the
differences between their fair value and amortized cost, net of applicable
taxes, are reflected as an adjustment to shareholders' equity. Differences
between fair value and amortized cost arise primarily as a result of changes in
interest rates occurring after a fixed-income security is purchased, although
other factors influence fair value, including credit-related actions, supply and
demand forces and other market factors. The weighted-average credit quality of
our fixed-income portfolios has been maintained at Double-A since our inception
in 1986, and since we generally intend to hold most of our investments to
maturity as part of our risk-management strategy, we expect to realize a value
substantially equal to amortized cost.
39
<PAGE>
REPORT ON MANAGEMENT'S RESPONSIBILITY
REPORT OF INDEPENDENT ACCOUNTANTS
MBIA Inc. and Subsidiaries
REPORT ON MANAGEMENT'S RESPONSIBILITY
Management is responsible for the preparation, integrity and objectivity of the
consolidated financial statements and other financial information presented in
this annual report. The accompanying consolidated financial statements were
prepared in accordance with generally accepted accounting principles, applying
certain estimates and judgments as required.
MBIA's internal controls are designed to provide reasonable assurance as to the
integrity and reliability of the financial statements and to adequately
safeguard, verify and maintain accountability of assets. Such controls are based
on established written policies and procedures and are implemented by trained,
skilled personnel with an appropriate segregation of duties. These policies and
procedures prescribe that MBIA and all its employees are to maintain the highest
ethical standards and that its business practices are to be conducted in a
manner which is above reproach.
Coopers & Lybrand L.L.P., independent accountants, is retained to audit the
Company's financial statements. Their accompanying report is based on audits
conducted in accordance with generally accepted auditing standards, which
include the consideration of the Company's internal controls to establish a
basis for reliance thereon in determining the nature, timing and extent of audit
tests to be applied.
The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of independent
non-management Board members. The Audit Committee meets periodically with the
independent accountants, both privately and with management present, to review
accounting, auditing, internal controls and financial reporting matters.
/s/ David H. Elliott
- ------------------------
David H. Elliott
Chairman and Chief Executive Officer
/s/ Julliette S. Tehrani
- ------------------------
Julliette S. Tehrani
Executive Vice President, Chief Financial Officer and Treasurer
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of MBIA Inc.:
We have audited the accompanying consolidated balance sheets of MBIA Inc. and
Subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MBIA Inc. and
Subsidiaries as of December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L. L. P.
- ------------------------------
New York, New York
February 3, 1997
40
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
MBIA Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------
Dollars in thousands except per share amounts 1996 1995 1994
========================================================================================
<S> <C> <C> <C>
REVENUES
Insurance:
Gross premiums written $460,675 $348,487 $360,836
Ceded premiums (54,852) (45,050) (49,281)
- ----------------------------------------------------------------------------------------
Net premiums written 405,823 303,437 311,555
Increase in deferred premium revenue (154,111) (88,365) (93,226)
- ----------------------------------------------------------------------------------------
Premiums earned (net of ceded premiums
of $38,893, $30,655 and $33,340) 251,712 215,072 218,329
Net investment income 247,561 219,858 193,853
Net realized gains 11,740 11,312 10,335
Investment management services:
Income 26,663 19,884 16,178
Net realized gains (losses) 2,572 (6,092) (726)
Other 5,289 2,188 1,567
- ----------------------------------------------------------------------------------------
Total revenues 545,537 462,222 439,536
- ----------------------------------------------------------------------------------------
EXPENSES
Insurance:
Losses and loss adjustment 15,334 10,639 8,093
Policy acquisition costs, net 24,660 21,283 21,845
Operating 46,654 41,805 41,026
Investment management services 14,583 12,857 10,611
Interest 33,462 28,439 27,159
Other 2,714 2,169 1,380
- ----------------------------------------------------------------------------------------
Total expenses 137,407 117,192 110,114
- ----------------------------------------------------------------------------------------
Income before income taxes 408,130 345,030 329,422
Provision for income taxes 85,967 73,611 69,213
- ----------------------------------------------------------------------------------------
NET INCOME $322,163 $271,419 $260,209
- ----------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ 7.43 $ 6.43 $ 6.18
- ----------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON STOCK EQUIVALENTS OUTSTANDING 43,348,048 42,240,011 42,085,943
========================================================================================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
41
<PAGE>
CONSOLIDATED BALANCE SHEETS
MBIA Inc. and Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands except per share amounts December 31, 1996 December 31, 1995
==============================================================================================
<S> <C> <C>
ASSETS
Investments:
Fixed-maturity securities held as
available-for-sale at fair value (amortized cost
$4,001,562 and $3,428,986) $4,149,700 $3,652,621
Short-term investments, at amortized cost
(which approximates fair value) 176,088 198,035
Other investments 29,101 14,064
- ----------------------------------------------------------------------------------------------
4,354,889 3,864,720
Municipal investment agreement portfolio
held as available-for-sale
at fair value (amortized cost
$3,263,211 and $2,645,828) 3,293,298 2,742,626
- ----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS 7,648,187 6,607,346
Cash and cash equivalents 7,356 23,258
Securities borrowed or purchased under
agreements to resell 217,000 ---
Accrued investment income 104,725 87,016
Deferred acquisition costs 147,750 140,348
Prepaid reinsurance premiums 216,846 200,887
Goodwill (less accumulated amortization
of $43,050 and $41,298) 105,138 106,569
Property and equipment, at cost
(less accumulated depreciation
of $21,642 and $17,625) 50,923 46,030
Receivable for investments sold 980 6,100
Other assets 63,110 49,896
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS $8,562,015 $7,267,450
- ----------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deferred premium revenue $1,785,875 $1,616,315
Loss and loss adjustment expense reserves 59,314 42,505
Municipal investment agreements 2,290,609 2,026,709
Municipal repurchase agreements 968,671 615,776
Long-term debt 374,010 373,900
Short-term debt 29,100 18,000
Securities loaned or sold under
agreements to repurchase 217,000 ---
Deferred income taxes 206,492 246,736
Payable for investments purchased 52,029 10,695
Other liabilities 99,218 82,548
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 6,082,318 5,033,184
- ----------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Shareholders' Equity:
Preferred stock, par value $1 per share;
authorized shares--10,000,000;
issued and outstanding--none --- ---
Common stock, par value $1 per share;
authorized shares--200,000,000;
issued shares -- 43,294,243 and 42,077,387 43,294 42,077
Additional paid-in capital 803,078 725,153
Retained earnings 1,518,994 1,261,051
Cumulative translation adjustment (1,042) 2,849
Unrealized appreciation of investments,
net of deferred income tax provision of
$62,706 and $112,252 116,424 207,648
Unearned compensation - restricted stock (1,051) (426)
Treasury stock, at cost; 73,676 shares in 1995 --- (4,086)
- ----------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,479,697 2,234,266
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,562,015 $7,267,450
==============================================================================================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
42
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
MBIA Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the years ended December 31, 1996, 1995 and 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized Unearned
Common Stock Additional Cumulative Appreciation Compensation- Treasury Stock
In thousands except --------------- Paid-in Retained Translation (Depreciation) Restricted ----------------
per share amounts Shares Amount Capital Earnings Adjustment of Investments Stock Shares Amount
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 42,074 $42,074 $719,281 $ 844,916 $(1,218) $ 7,080 --- (260) $(15,775)
- ----------------------------------------------------------------------------------------------------------------------------------
Treasury shares acquired --- --- --- --- --- --- --- (246) (14,411)
Exercise of
stock options 3 3 469 (526) --- --- --- 44 2,040
Net income --- --- --- 260,209 --- --- --- --- ---
Change in foreign
currency translation --- --- --- --- 1,721 --- --- --- ---
Change in unrealized
depreciation of
investments net of
change in deferred
income taxes of $50,105 --- --- --- --- --- (93,640) --- --- ---
Dividends (declared
per common share
$1.14, paid per
common share $1.09) --- --- --- (47,507) --- --- --- --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 42,077 42,077 719,750 1,057,092 503 (86,560) --- (462) (28,146)
- ----------------------------------------------------------------------------------------------------------------------------------
Unearned compensation -
restricted stock --- --- --- 116 --- --- (426) 6 319
Exercise of stock options --- --- 5,403 (12,806) --- --- --- 382 23,741
Net income --- --- --- 271,419 --- --- --- --- ---
Change in foreign
currency translation --- --- --- --- 2,346 --- --- --- ---
Change in unrealized
appreciation of
investments net of
change in deferred income
taxes of $(158,544) --- --- --- --- --- 294,208 --- --- ---
Dividends (declared per
common share $1.31, paid
per common share $1.275) --- --- --- (54,770) --- --- --- --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 42,077 42,077 725,153 1,261,051 2,849 207,648 (426) (74) (4,086)
- ----------------------------------------------------------------------------------------------------------------------------------
Net proceeds from issuance
of shares 770 770 54,463 --- --- --- --- --- ---
Unearned compensation -
restricted stock --- --- --- --- --- --- (625) --- ---
Exercise of stock options 447 447 23,462 (1,757) --- --- --- 74 4,086
Net income --- --- --- 322,163 --- --- --- --- ---
Change in foreign
currency translation --- --- --- --- (3,891) --- --- --- ---
Change in unrealized
appreciation of
investments net of change
in deferred income taxes
of $49,546 --- --- --- --- --- (91,224) --- --- ---
Dividends (declared per
common share $1.45, paid
per common share $1.415) --- --- --- (62,463) --- --- --- --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 43,294 $43,294 $803,078 $1,518,994 $(1,042) $116,424 $(1,051) --- ---
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
43
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
MBIA Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------------------
Dollars in thousands 1996 1995 1994
==================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 322,163 $ 271,419 $ 260,209
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase in accrued investment income (17,709) (18,530) (13,692)
Increase in deferred acquisition costs (7,402) (7,300) (12,564)
Increase in prepaid reinsurance premiums (15,959) (14,395) (15,941)
Increase in deferred premium revenue 170,070 102,760 109,167
Increase in loss and loss adjustment expense reserves 16,809 2,357 6,413
Depreciation 4,341 3,984 3,181
Amortization of goodwill 5,064 5,183 5,027
Amortization of bond discount, net (21,030) (18,468) 619
Net realized gains on sale of investments (14,312) (5,222) (9,609)
Deferred income taxes 9,308 11,349 19,067
Other, net (4,931) 17,946 24,560
- ------------------------------------------------------------------------------------------------------------------
Total adjustments to net income 124,249 79,664 116,228
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 446,412 351,083 376,437
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed-maturity securities, net
of payable for investments purchased (1,519,213) (1,149,253) (1,017,306)
Sale of fixed-maturity securities, net of
receivable for investments sold 873,823 719,523 515,548
Redemption of fixed-maturity securities, net of
receivable for investments redeemed 158,087 83,448 128,274
(Purchase) sale of short-term investments (1,523) (32,281) 3,547
Purchase of other investments (14,644) (1,065) (7,864)
Sale of other investments 862 6,926 95,320
Purchases for municipal investment agreement
portfolio, net of payable for investments purchased (1,861,126) (2,210,571) (1,627,561)
Sales from municipal investment agreement
portfolio, net of receivable for investments sold 1,264,033 1,115,239 585,648
Capital expenditures, net of disposals (9,245) (4,923) (4,075)
- ------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,108,946) (1,472,957) (1,328,469)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 55,233 --- ---
Net proceeds from issuance of long-term debt --- 74,344 ---
Net proceeds from issuance of short-term debt 11,100 --- ---
Dividends paid (60,501) (53,179) (45,513)
Purchase of treasury stock --- --- (14,411)
Proceeds from issuance of municipal investment
and repurchase agreements 2,242,872 2,351,206 1,786,574
Payments for drawdowns of municipal investment
and repurchase agreements (1,628,310) (1,251,517) (771,156)
Exercise of stock options 26,238 16,338 1,986
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 646,632 1,137,192 957,480
- ------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (15,902) 15,318 5,448
Cash and cash equivalents - beginning of year 23,258 7,940 2,492
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of year $ 7,356 $ 23,258 $ 7,940
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ 66,101 $ 52,410 $ 53,921
Interest paid:
Municipal investment and
repurchase agreements $ 113,750 $ 104,301 $ 36,169
Long-term debt 31,722 26,575 26,575
Short-term debt 1,309 1,228 56
==================================================================================================================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
1. BUSINESS AND ORGANIZATION
- -------------------------------
MBIA Inc. (the company) was incorporated in Connecticut on November 12, 1986 as
a licensed insurer and, through a series of transactions during December 1986,
became the successor to the business of the Municipal Bond Insurance Association
(the Association), a voluntary unincorporated association of insurers writing
municipal bond and note insurance as agent for the member insurance companies.
The company operates its insurance business primarily through its wholly owned
subsidiary, MBIA Insurance Corporation (MBIA Corp.).
Effective December 31, 1989, the company acquired for $288 million all of the
outstanding stock of Bond Investors Group, Inc. (BIG), the parent company of
Bond Investors Guaranty Insurance Company, which was subsequently renamed MBIA
Insurance Corp. of Illinois (MBIA Illinois). The acquisition of BIG has been
accounted for as a purchase and the price was allocated to the net assets of the
acquired company based on the fair value of such assets and liabilities at the
date of acquisition.
In 1990, the company formed MBIA Assurance S.A. (MBIA Assurance), a wholly owned
French subsidiary, to write financial guarantee insurance in the international
community. MBIA Assurance provides insurance for public infrastructure
financings, structured finance transactions and certain obligations of financial
institutions. The stock of MBIA Assurance was contributed to MBIA Corp. in 1991
and, pursuant to a reinsurance agreement with MBIA Corp., a substantial amount
of the risks insured by MBIA Assurance is reinsured by MBIA Corp.
At the end of 1990, MBIA Municipal Investors Service Corporation (MBIA-MISC) was
formed as a subsidiary of the company. MBIA-MISC operates cooperative cash
management programs for school districts and municipalities.
In 1993, the company formed a wholly owned subsidiary, MBIA Investment
Management Corp. (IMC). IMC, which commenced operations in August 1993, provides
guaranteed investment agreements to states, municipalities and municipal
authorities that are guaranteed as to principal and interest.
In 1994, the company formed a wholly owned subsidiary, MBIA Securities Corp.
which was subsequently renamed MBIA Capital Management Corp. (CMC). CMC provides
fixed-income investment management services for the company, its municipal cash
management service businesses and public pension funds.
In 1996, the company formed a wholly owned subsidiary, Strategic Services, Inc.
(SSI), which acquired an interest in Capital Asset Holdings (Capital Asset), a
limited partnership that buys, services and manages delinquent municipal tax
liens.
2. SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles (GAAP). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
accounting policies are as follows:
<PAGE>
CONSOLIDATION
The consolidated financial statements include the accounts of the company and
its wholly owned subsidiaries. All significant intercompany balances have been
eliminated. Certain amounts have been reclassified in prior years' financial
statements to conform to the current presentation.
INVESTMENTS
The company's entire investment portfolio is considered available-for-sale and
is reported in the financial statements at fair value, with unrealized gains and
losses, net of deferred taxes, reflected as a separate component of
shareholders' equity.
Bond discounts and premiums are amortized using the effective-yield method over
the remaining term of the securities. For pre-refunded bonds the remaining term
is determined based on the contractual refunding date. Short-term investments
are carried at amortized cost, which approximates fair value, and include all
fixed-maturity securities, other than those held in the municipal investment
agreement portfolio, with a remaining term to maturity of less than one year.
Investment income is recorded as earned. Realized gains or losses on the sale of
investments are determined by specific identification and are included as a
separate component of revenues.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MBIA Inc. and Subsidiaries
Investment income from the municipal investment agreement portfolio is recorded
as a component of investment management services income. Municipal investment
agreement portfolio accrued interest income, receivables for investments sold
and payables for investments purchased are included in the respective
consolidated accounts.
Other investments include the company's interest in a limited partnership and a
mutual fund which invests principally in marketable equity securities. The
company records dividends from these investments as a component of investment
income. In addition, the company records its share of the unrealized gains and
losses on these investments, net of applicable deferred income taxes, as a
separate component of shareholders' equity. At December 31, 1996, other
investments also include the company's investment in Capital Asset which is
accounted for on the equity method.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and demand deposits with banks.
SECURITIES BORROWED OR PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES
LOANED OR SOLD UNDER AGREEMENTS TO REPURCHASE
Securities borrowed or purchased under agreements to resell and securities
loaned or sold under agreements to repurchase are accounted for as
collateralized transactions and are recorded at principal or contract value. It
is the company's policy to take possession of securities borrowed or purchased
under agreements to resell.
The company minimizes the credit risk that counterparties to transactions might
be unable to fulfill their contractual obligations by monitoring customer credit
exposure and collateral value and requiring additional collateral to be
deposited with the company when deemed necessary.
POLICY ACQUISITION COSTS
Policy acquisition costs include only those expenses that relate primarily to,
and vary with, premium production. For business produced directly by MBIA Corp.,
such costs include compensation of employees involved in underwriting and policy
issuance functions, certain rating agency fees, state premium taxes and certain
other underwriting expenses, reduced by ceding commission income on premiums
ceded to reinsurers. Policy acquisition costs are deferred and amortized over
the period in which the related premiums are earned.
PREMIUM REVENUE RECOGNITION
Premiums are earned pro rata over the period of risk. Premiums are allocated to
each bond maturity based on par amount and are earned on a straight-line basis
over the term of each maturity. When an insured issue is retired early, is
called by the issuer, or is in substance paid in advance through a refunding or
defeasance accomplished by placing U.S. Government securities in escrow, the
remaining deferred premium revenue, net of the portion which is credited to a
new policy in those cases where the company insures the refunding issue, is
earned at that time, since there is no longer risk to the company. Accordingly,
deferred premium revenue represents the portion of premiums written that is
applicable to the unexpired risk of insured bonds and notes.
GOODWILL
Goodwill represents the excess of the cost of acquisitions over the tangible net
assets acquired. Goodwill attributed to the acquisition of MBIA Corp. is
amortized by the straight-line method over 25 years. Goodwill attributed to the
acquisition of MBIA Illinois is amortized according to the recognition of future
profits from its deferred premium revenue and installment premiums, except for a
minor portion attributed to state licenses, which is amortized by the
straight-line method over 25 years.
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment consist of the company's headquarters, furniture,
fixtures and equipment, which are recorded at cost and are depreciated on the
straight-line method over their estimated service lives ranging from 3 to 31
years. Maintenance and repairs are charged to expenses as incurred.
LOSSES AND LOSS ADJUSTMENT EXPENSES
Reserves for losses and loss adjustment expenses (LAE) are established in an
amount equal to the company's estimate of the identified and unidentified
losses, including costs of settlement, on the obligations it has insured.
To the extent that specific insured issues are identified as currently or likely
to be in default, the present value of expected payments, including loss and LAE
associated with these issues, net of expected recoveries, is allocated within
the total loss reserve as case-specific reserves. Management of the company
periodically evaluates its estimates for losses and LAE and any resulting
adjustments are reflected in current earnings. Management believes that the
reserves are adequate to cover the ultimate net cost of claims, but the reserves
are necessarily based on estimates, and there can be no assurance that the
ultimate liability will not exceed such estimates.
MUNICIPAL INVESTMENT AGREEMENTS AND MUNICIPAL REPURCHASE AGREEMENTS
Municipal investment agreements and municipal repurchase agreements are recorded
as liabilities on the balance sheet at the time such agreements are executed.
The liabilities for municipal investment and repurchase agreements are carried
at the face value of the agreement plus accrued interest, whereas the related
assets are recorded at fair value.
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MBIA Inc. and Subsidiaries
Investment management services income includes investment income on the assets
underlying the municipal investment agreement portfolio, net of interest expense
at rates specified in the agreements, computed daily based upon the outstanding
balances.
DERIVATIVES
The company's policies with respect to the use of derivative financial
instruments include limitations with respect to the amount, type and
concentration of such instruments. The company uses derivative financial
instruments for hedging purposes as part of its overall risk management
strategy. Gains and losses on the derivative financial instruments that qualify
as accounting hedges of existing assets and liabilities are included with the
carrying amounts and amortized over the remaining lives of the assets and
liabilities as an adjustment to interest income or expense. When a hedged asset
is sold or liability extinguished, the unamortized gain or loss on the related
hedge is recognized in income. Gains and losses on derivative financial
instruments that do not qualify as accounting hedges are recognized in current
period income.
INVESTMENT MANAGEMENT SERVICES OPERATIONS
Investment management services income is comprised of the net investment income
and operating revenues of MBIA-MISC, IMC and CMC. The operating expenses of
MBIA-MISC, IMC and CMC are reported in investment management services expenses.
INCOME TAXES
Deferred income taxes are provided with respect to the temporary differences
between the tax bases of assets and liabilities and the reported amounts in the
financial statements that will result in deductible or taxable amounts in future
years when the reported amount of the asset or liability is recovered or
settled. Such temporary differences relate principally to premium revenue
recognition, deferred acquisition costs and the contingency reserve.
The Internal Revenue Code permits companies writing financial guarantee
insurance to deduct from taxable income amounts added to the statutory
contingency reserve, subject to certain limitations. The tax benefits obtained
from such deductions must be invested in non-interest bearing U.S. Government
tax and loss bonds. The company records purchases of tax and loss bonds as
payments of federal income taxes. The amounts deducted must be restored to
taxable income when the contingency reserve is released, at which time the
company may present the tax and loss bonds for redemption to satisfy the
additional tax liability.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated at
year-end exchange rates. Operating results are translated at average rates of
exchange prevailing during the year. Unrealized gains or losses resulting from
translation are included as a separate component of shareholders' equity.
NET INCOME PER COMMON SHARE
Net income per common share is computed based on the weighted average number of
shares, including common stock equivalents, outstanding during each period.
<PAGE>
3. STATUTORY ACCOUNTING PRACTICES
- ----------------------------------
The financial statements have been prepared on the basis of GAAP, which differs
in certain respects from the statutory accounting practices prescribed or
permitted by the insurance regulatory authorities. Statutory accounting
practices differ from GAAP in the following respects:
. premiums are earned only when the related risk has expired rather than over
the period of the risk;
. acquisition costs are charged to operations as incurred rather than
deferred and amortized as the related premiums are earned;
. a contingency reserve is computed on the basis of statutory requirements,
and reserves for losses and LAE are established, at present value, for
specific insured issues that are identified as currently or likely to be in
default. Under GAAP, reserves are established based on the company's
reasonable estimate of the identified and unidentified losses and LAE on
the insured obligations it has written;
. federal income taxes are only provided on taxable income for which income
taxes are currently payable, while under GAAP, deferred income taxes are
provided with respect to temporary differences;
. fixed-maturity securities are reported at amortized cost rather than fair
value;
. tax and loss bonds purchased are reflected as admitted assets as well as
payments of income taxes; and
. certain assets designated as "non-admitted assets" are charged directly
against surplus but are reflected as assets under GAAP.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MBIA Inc. and Subsidiaries
The following is a reconciliation of consolidated shareholders' equity presented
on a GAAP basis for the company and its consolidated subsidiaries to statutory
capital and surplus for MBIA Corp. and its subsidiaries:
As of December 31
----------------------------------------
In thousands 1996 1995 1994
- ----------------------------------------------------------------------------
Company's GAAP
shareholders' equity $2,479,697 $2,234,266 $1,704,716
Contributions to MBIA Corp. 361,494 341,202 273,273
Premium revenue recognition (368,762) (328,450) (296,524)
Deferral of acquisition costs (147,750) (140,348) (133,048)
Unrealized (gains) losses (179,129) (319,900) 132,852
Contingency reserve (892,793) (743,510) (620,988)
Loss and loss adjustment
expense reserves 39,065 28,024 18,181
Deferred income taxes 206,234 239,304 69,371
Tax and loss bonds 103,008 70,771 50,471
Goodwill (100,718) (105,614) (110,543)
Other (33,324) (1,607) 22,277
- ----------------------------------------------------------------------------
Statutory capital and surplus $1,467,022 $1,274,138 $1,110,038
- ----------------------------------------------------------------------------
Consolidated net income of MBIA Corp., determined in accordance with statutory
accounting practices for the years ended December 31, 1996, 1995 and 1994 was
$316.6 million, $278.3 million and $224.9 million, respectively.
4. PREMIUMS EARNED FROM REFUNDED AND CALLED BONDS
- ----------------------------------------------------
Premiums earned include $44.4 million, $34.0 million and $53.0 million for 1996,
1995 and 1994, respectively, related to refunded and called bonds.
5. INVESTMENTS
- -----------------
The company's investment objective is to optimize long-term, after-tax returns
while emphasizing the preservation of capital through maintenance of
high-quality investments with adequate liquidity. The company's investment
policies limit the amount of credit exposure to any one issuer. The
fixed-maturity portfolio is comprised of high-quality (average rating Double-A)
taxable and tax-exempt investments of diversified maturities.
The following tables set forth the amortized cost and fair value of the
fixed-maturities and short-term investments included in the consolidated
investment portfolio of the company, as of December 31, 1996 and 1995:
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- ------------------------------------------------------------------------------
December 31, 1996
Taxable bonds
United States Treasury
and Government
Agency $ 533,666 $ 13,657 $ (997) $ 546,326
Corporate and other
obligations 2,718,585 34,559 (16,824) 2,736,320
Mortgage-backed 1,263,511 20,201 (5,460) 1,278,252
Tax-exempt bonds
State and municipal
obligations 2,925,099 137,389 (4,300) 3,058,188
- ------------------------------------------------------------------------------
Total $7,440,861 $205,806 $(27,581) $7,619,086
- ------------------------------------------------------------------------------
<PAGE>
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- ------------------------------------------------------------------------------
December 31, 1995
Taxable bonds
United States Treasury
and Government
Agency $ 334,289 $ 30,594 $ (1) $ 364,882
Corporate and other
obligations 2,029,269 74,620 (1,603) 2,102,286
Mortgage-backed 1,271,559 46,180 (1,843) 1,315,896
Tax-exempt bonds
State and municipal
obligations 2,637,732 175,081 (2,595) 2,810,218
- ------------------------------------------------------------------------------
Total $6,272,849 $326,475 $(6,042) $6,593,282
- ------------------------------------------------------------------------------
Fixed-maturity investments carried at fair value of $7.8 million and $8.2
million as of December 31, 1996 and 1995, respectively, were on deposit with
various regulatory authorities to comply with insurance laws.
A portion of the obligations under municipal investment and repurchase
agreements require the company to pledge securities as collateral. As of
December 31, 1996 and 1995, the fair value of securities pledged as collateral
with respect to these obligations approximated $1.5 billion and $1.2 billion,
respectively.
The table below sets forth the distribution by expected maturity of the
fixed-maturities and short-term investments at amortized cost and fair value at
December 31, 1996. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MBIA Inc. and Subsidiaries
In thousands Amortized Cost Fair Value
- ----------------------------------------------------------------
Maturity
Within 1 year $ 601,050 $ 601,033
Beyond 1 year but within 5 years 1,555,293 1,586,868
Beyond 5 years but within 10 years 1,458,526 1,507,290
Beyond 10 years but within 15 years 901,449 943,746
Beyond 15 years but within 20 years 1,022,485 1,051,583
Beyond 20 years 638,547 650,314
- ----------------------------------------------------------------
6,177,350 6,340,834
Mortgage-backed 1,263,511 1,278,252
- ----------------------------------------------------------------
Total fixed-maturities and
short-term investments $7,440,861 $7,619,086
- ----------------------------------------------------------------
6. INVESTMENT INCOME AND GAINS AND LOSSES
- ------------------------------------------
Investment income consists of:
Years ended December 31
--------------------------------
In thousands 1996 1995 1994
- --------------------------------------------------------------
Fixed-maturities $245,109 $216,653 $194,163
Short-term investments 5,244 5,834 2,332
Other investments 62 217 167
- --------------------------------------------------------------
Gross investment income 250,415 222,704 196,662
Investment expenses 2,854 2,846 2,809
- --------------------------------------------------------------
Net investment income 247,561 219,858 193,853
Net realized gains (losses):
Fixed-maturities
Gains 16,760 9,941 9,635
Losses (5,353) (2,537) (8,851)
- --------------------------------------------------------------
Net 11,407 7,404 784
- --------------------------------------------------------------
Other investments
Gains 333 3,917 9,551
Losses --- (9) ---
- --------------------------------------------------------------
Net 333 3,908 9,551
- --------------------------------------------------------------
Total net realized gains 11,740 11,312 10,335
- --------------------------------------------------------------
Total investment income $259,301 $231,170 $204,188
- --------------------------------------------------------------
Total investment income excludes investment income and realized gains and losses
from MBIA-MISC, IMC and CMC, which are reported in investment management
services revenues.
<PAGE>
Net unrealized gains consist of:
As of December 31
---------------------
In thousands 1996 1995
- -------------------------------------------------
Fixed-maturities:
Gains $205,806 $326,475
Losses (27,581) (6,042)
- -------------------------------------------------
Net 178,225 320,433
Other investments:
Gains 934 287
Losses (29) (820)
- -------------------------------------------------
Net 905 (533)
- -------------------------------------------------
Total 179,130 319,900
Deferred income taxes 62,706 112,252
- -------------------------------------------------
Unrealized gains, net $116,424 $207,648
- -------------------------------------------------
The deferred income taxes relate primarily to unrealized gains and losses on the
company's fixed-maturity investments, which are reflected in shareholders'
equity.
The change in net unrealized gains (losses) consists of:
Years ended December 31
--------------------------------
In thousands 1996 1995 1994
- ------------------------------------------------------------------
Fixed-maturities $(142,208) $454,805 $(351,040)
Other investments 1,438 (2,053) (9,373)
- ------------------------------------------------------------------
Total (140,770) 452,752 (360,413)
Deferred income taxes (49,546) 158,544 (50,105)
- ------------------------------------------------------------------
Unrealized gains (losses), net $ (91,224) $294,208 $(310,308)
- ------------------------------------------------------------------
7. INCOME TAXES
- ----------------
The company files a consolidated tax return that includes all of its U.S.
subsidiaries.
The provision for income taxes is composed of:
Years ended December 31
-------------------------------
In thousands 1996 1995 1994
- ------------------------------------------------------------------
Current $76,659 $62,262 $50,146
Deferred 9,308 11,349 19,067
- ------------------------------------------------------------------
Total $85,967 $73,611 $69,213
- ------------------------------------------------------------------
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MBIA Inc. and Subsidiaries
The provision for income taxes gives effect to permanent differences between
financial and taxable income. Accordingly, the company's effective income tax
rate differs from the statutory rate on ordinary income. The reasons for the
company's lower effective tax rates are as follows:
Years ended December 31
-----------------------------
1996 1995 1994
- --------------------------------------------------------------------
Income taxes computed on pre-tax
financial income at statutory rates 35.0% 35.0% 35.0%
Increase (reduction) in taxes
resulting from:
Tax-exempt interest (12.6) (13.4) (12.9)
Amortization of goodwill 0.4 0.5 0.5
Other (1.7) (0.8) (1.6)
- --------------------------------------------------------------------
Provision for income taxes 21.1% 21.3% 21.0%
- --------------------------------------------------------------------
The company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect on tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date.
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities at December 31, 1996 and 1995 are presented below:
In thousands 1996 1995
- ----------------------------------------------------------------
Deferred tax assets
Tax and loss bonds $102,222 $ 71,183
Alternative minimum tax credit
carryforward 58,067 36,871
Loss and loss adjustment expense reserves 13,673 9,808
Other 13,347 4,459
- ----------------------------------------------------------------
Total gross deferred tax assets 187,309 122,321
- ----------------------------------------------------------------
Deferred tax liabilities
Contingency reserve 180,957 127,361
Deferred premium revenue 74,082 65,155
Deferred acquisition costs 51,713 51,455
Unrealized gains 62,706 112,252
Contingent commissions 1,052 4,672
Other 23,291 8,162
- ----------------------------------------------------------------
Total gross deferred tax liabilities 393,801 369,057
- ----------------------------------------------------------------
Net deferred tax liability $206,492 $246,736
- ----------------------------------------------------------------
<PAGE>
8. DIVIDENDS AND CAPITAL REQUIREMENTS
- --------------------------------------
Under New York state insurance law, MBIA Corp. may pay a dividend only from
earned surplus subject to the maintenance of a minimum capital requirement. The
dividends in any 12-month period may not exceed the lesser of 10% of its
policyholders' surplus as shown on its last filed statutory-basis financial
statements or of adjusted net investment income, as defined, for such 12-month
period, without prior approval of the superintendent of the New York State
Insurance Department.
In accordance with such restrictions on the amount of dividends that can be paid
in any 12-month period, MBIA Corp. had $118 million available for the payment of
dividends to the company as of December 31, 1996. In 1996, 1995 and 1994, MBIA
Corp. declared and paid dividends of $29 million, $83 million and $38 million,
respectively, to the company.
The insurance departments of New York state and certain other statutory
insurance regulatory authorities and the agencies that rate the bonds insured by
MBIA Corp. and its subsidiaries have various requirements relating to the
maintenance of certain minimum ratios of statutory capital and reserves to net
insurance in force. MBIA Corp. and its subsidiaries were in compliance with
these requirements as of December 31, 1996.
9. LONG-TERM DEBT AND LINES OF CREDIT
- --------------------------------------
Long-term debt consists of:
As of December 31
---------------------
In thousands 1996 1995
- -------------------------------------------------
9.000% Notes due 2001 $100,000 $100,000
9.375% Notes due 2011 100,000 100,000
8.200% Debentures due 2022 100,000 100,000
7.000% Debentures due 2025 75,000 75,000
- -------------------------------------------------
375,000 375,000
Less unamortized discount 990 1,100
- -------------------------------------------------
Total $374,010 $373,900
- -------------------------------------------------
The company's long-term debt is subject to certain covenants, none of which
significantly restrict the company's operating activities or dividend-paying
ability.
MBIA Corp. has a standby line of credit commitment in the amount of $725 million
with a group of major banks to provide loans to MBIA Corp. if it incurs
cumulative losses (net of any recoveries) from September 30, 1996 in excess of
the greater of $500 million or 6.25% of average annual debt service. The
obligation to repay loans made under this agreement is a limited recourse
obligation payable solely from, and collateralized by, a pledge of recoveries
realized on defaulted insured obligations including certain installment premiums
and other collateral. This commitment has a seven-year term expiring on
September 30, 2003, and contains an annual renewal provision subject to approval
by the bank group.
The company and MBIA Corp. maintain bank liquidity facilities aggregating $300
million. At December 31, 1996, $29.1 million was outstanding under these
facilities.
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MBIA Inc. and Subsidiaries
The company has outstanding letters of credit for MBIA-MISC that are intended to
support the net asset value of certain investment pools managed by MBIA-MISC.
These letters can be drawn upon in the event the liquidation of such assets at
below cost is required.
10. OBLIGATIONS UNDER MUNICIPAL INVESTMENT AGREEMENTS AND MUNICIPAL REPURCHASE
AGREEMENTS
- ------------------------------------------------------------------------------
Obligations under municipal investment agreements and municipal repurchase
agreements are recorded as liabilities on the balance sheet based upon proceeds
received at the time such agreements are executed plus unpaid accrued interest
from that date. Upon the occurrence of certain contractually agreed upon events,
some of these funds may be withdrawn at various times prior to maturity at the
option of the investor. As of December 31, 1996, the interest rates on these
agreements ranged from 3.6% to 9.6%.
Principal payments due under these investment agreements in each of the next
five years ending December 31, and thereafter, based upon expected withdrawal
dates, were as follows:
In thousands Principal Amount
- ----------------------------------------------
Expected withdrawal date
1997 $1,218,581
1998 740,415
1999 300,745
2000 101,727
2001 14,444
Thereafter 845,210
- ----------------------------------------------
Total $3,221,122
- ----------------------------------------------
IMC also provides agreements obligating it to purchase designated securities in
a bond reserve fund at par value upon the occurrence of certain contractually
agreed upon events. The opportunities and risks in these agreements are
analogous to those of municipal investment agreements and municipal repurchase
agreements. The total par value of securities subject to these agreements was
$43 million at December 31, 1996.
11. NET INSURANCE IN FORCE
- ----------------------------
MBIA Corp. guarantees the timely payment of principal and interest on municipal,
asset-/mortgage-backed and other non-municipal securities. MBIA Corp.'s ultimate
exposure to credit loss in the event of nonperformance by the insured is
represented by the insurance in force as set forth below.
The insurance policies issued by MBIA Corp. are unconditional commitments to
guarantee timely payment on the bonds and notes to bondholders. The
creditworthiness of each insured issue is evaluated prior to the issuance of
insurance and each insured issue must comply with MBIA Corp.'s underwriting
guidelines. Further, the payments to be made by the issuer on the bonds or notes
may be backed by a pledge of revenues, reserve funds, letters of credit,
investment contracts or collateral in the form of mortgages or other assets. The
right to such money or collateral would typically become MBIA Corp.'s upon the
payment of a claim by MBIA Corp.
<PAGE>
As of December 31, 1996, insurance in force, net of cessions to reinsurers, had
a range of maturity of 1-42 years. The distribution of net insurance in force
by geographic location and type of bond, excluding $3.3 billion and $2.7 billion
relating to IMC municipal investment agreements guaranteed by MBIA Corp. in 1996
and 1995, respectively, is set forth in the following tables:
<TABLE>
<CAPTION>
As of December 31
- -----------------------------------------------------------------------------------------------------------------
$ in billions 1996 1995
- -----------------------------------------------------------------------------------------------------------------
Number % of Net Number % of Net
Net Insurance of Issues Insurance Net Insurance of Issues Insurance
Geographic Location In Force Outstanding In Force In Force Outstanding In Force
- ------------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic
California $ 60.7 3,378 14.8% $ 51.2 3,122 14.9%
New York 30.4 4,819 7.4 27.4 4,679 8.0
Florida 29.6 1,632 7.2 26.9 1,684 7.8
Texas 21.9 2,052 5.3 20.4 2,031 5.9
Pennsylvania 21.2 2,216 5.1 19.7 2,143 5.7
New Jersey 18.8 1,863 4.6 16.4 1,730 4.8
Illinois 18.5 1,145 4.5 15.0 1,090 4.4
Ohio 11.1 1,032 2.7 9.1 1,017 2.6
Massachusetts 10.9 1,100 2.6 9.3 1,070 2.7
Michigan 9.5 1,021 2.3 7.9 1,012 2.3
- ------------------------------------------------------------------- -------------------------------------------
Subtotal 232.6 20,258 56.5 203.3 19,578 59.1
Other States 170.1 11,502 41.4 135.6 11,147 39.4
- ------------------------------------------------------------------- -------------------------------------------
Total domestic 402.7 31,760 97.9 338.9 30,725 98.5
International 8.4 169 2.1 5.1 53 1.5
- ------------------------------------------------------------------- -------------------------------------------
Total $411.1 31,929 100.0% $344.0 30,778 100.0%
- ------------------------------------------------------------------- -------------------------------------------
</TABLE>
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MBIA Inc. and Subsidiaries
<TABLE>
<CAPTION>
As of December 31
- -----------------------------------------------------------------------------------------------------------------
$ in billions 1996 1995
- ------------------------------------------------------------------- -------------------------------------------
Number % of Net Number % of Net
Net Insurance of Issues Insurance Net Insurance of Issues Insurance
Type of Bond In Force Outstanding In Force In Force Outstanding In Force
- ------------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic
Municipal:
General obligation $110.5 11,763 26.9% $ 91.6 11,445 26.6%
Utilities 67.9 4,799 16.5 60.3 4,931 17.5
Health care 54.0 2,386 13.1 51.9 2,458 15.1
Transportation 30.3 1,520 7.4 25.5 1,562 7.4
Special revenue 28.9 1,543 7.0 24.4 1,445 7.1
Industrial development
and pollution
control revenue 18.1 931 4.4 17.2 924 5.0
Higher education 17.8 1,309 4.3 15.2 2,671 4.4
Housing 17.7 2,455 4.3 15.8 1,261 4.6
Other 3.8 169 0.9 7.3 134 2.1
- ------------------------------------------------------------------- -------------------------------------------
Total municipal 349.0 26,875 84.8 309.2 26,831 89.8
Structured finance* 38.6 349 9.4 20.2 256 5.9
Other 15.1 4,536 3.7 9.5 3,638 2.8
- ------------------------------------------------------------------- -------------------------------------------
Total domestic 402.7 31,760 97.9 338.9 30,725 98.5
- ------------------------------------------------------------------- -------------------------------------------
International
Infrastructure 3.6 121 0.9 1.6 34 0.5
Structured finance* 2.1 22 0.5 1.6 8 0.5
Other 2.7 26 0.7 1.9 11 0.5
- ------------------------------------------------------------------- -------------------------------------------
Total international 8.4 169 2.1 5.1 53 1.5
- ------------------------------------------------------------------- -------------------------------------------
Total $411.1 31,929 100.0% $344.0 30,778 100.0%
- ------------------------------------------------------------------- -------------------------------------------
</TABLE>
* Asset-/mortage-backed
<PAGE>
12. REINSURANCE
- ----------------
MBIA Corp. reinsures portions of its risks with other insurance companies
through various quota and surplus share reinsurance treaties and facultative
agreements. In the event that any or all of the reinsurers were unable to meet
their obligations, MBIA Corp. would be liable for such defaulted amounts.
Amounts deducted from gross insurance in force for reinsurance ceded by MBIA
Corp. and its subsidiaries were $57.6 billion and $50.1 billion, at December 31,
1996 and 1995, respectively. The distribution of ceded insurance in force by
geographic location and type of bond is set forth in the following tables:
As of December 31
- --------------------------------------------------------------------
In billions 1996 1995
- ------------------------------------------- ----------------------
% of % of
Ceded Ceded Ceded Ceded
Geographic Insurance Insurance Insurance Insurance
Location In Force In Force In Force In Force
- ------------------------------------------- ----------------------
Domestic
California $ 9.4 16.2% $ 8.8 17.5%
New York 6.2 10.7 5.7 11.4
New Jersey 3.3 5.7 3.1 6.1
Texas 2.9 5.1 2.8 5.6
Pennsylvania 2.9 5.1 2.7 5.4
Illinois 2.6 4.5 2.2 4.5
Florida 2.4 4.1 2.3 4.6
Washington 1.9 3.2 1.4 2.7
District of Columbia 1.5 2.7 1.5 3.0
Massachusetts 1.4 2.5 1.1 2.1
Ohio 1.3 2.3 1.0 2.0
Puerto Rico 1.2 2.1 1.3 2.6
- ------------------------------------------- ----------------------
Subtotal 37.0 64.2 33.9 67.5
Other states 16.9 29.4 14.4 28.8
- ------------------------------------------- ----------------------
Total domestic 53.9 93.6 48.3 96.3
International 3.7 6.4 1.8 3.7
- ------------------------------------------- ----------------------
Total $57.6 100.0% $50.1 100.0%
- ------------------------------------------- ----------------------
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MBIA Inc. and Subsidiaries
As of December 31
- ---------------------------------------------------------------------------
In billions 1996 1995
- ------------------------------------------------- -----------------------
% of % of
Ceded Ceded Ceded Ceded
Insurance Insurance Insurance Insurance
Type of Bond In Force In Force In Force In Force
- ------------------------------------------------- -----------------------
Domestic
Municipal:
General obligation $14.4 24.9% $11.7 23.3%
Utilities 10.2 17.7 9.0 18.0
Transportation 6.4 11.1 5.5 11.0
Health care 6.3 11.0 6.6 13.1
Special revenue 3.4 5.9 3.2 6.4
Industrial development
and pollution control
revenue 3.2 5.6 3.0 6.0
Housing 1.6 2.7 1.4 2.8
Higher education 1.5 2.6 1.2 2.4
Other 1.0 1.7 2.4 4.8
- ------------------------------------------------- -----------------------
Total municipal 48.0 83.2 44.0 87.8
Structured finance* 4.5 7.9 3.6 7.2
Other 1.4 2.5 0.7 1.3
- ------------------------------------------------- -----------------------
Total domestic 53.9 93.6 48.3 96.3
- ------------------------------------------------- -----------------------
International
Infrastructure 1.6 2.7 0.7 1.4
Structured finance* 1.1 1.9 0.2 0.5
Other 1.0 1.8 0.9 1.8
- ------------------------------------------------- -----------------------
Total international 3.7 6.4 1.8 3.7
- ------------------------------------------------- -----------------------
Total $57.6 100.0% $50.1 100.0%
- ------------------------------------------------- -----------------------
* Asset-/mortgage-backed
13. PENSION AND PROFIT SHARING PLANS
- -------------------------------------
The company has a pension plan covering substantially all employees. The pension
plan is a defined contribution plan and the company contributes 10% of each
eligible employee's annual total compensation. Pension expense for the years
ended December 31, 1996, 1995 and 1994 was $3.9 million, $3.6 million and $3.3
million, respectively. The company also has a profit sharing/401(k) plan that
allows eligible employees to contribute up to 10% of eligible compensation. The
company matches employee contributions up to the first 5% of total compensation.
Company contributions to the profit sharing plan aggregated $1.7 million, $1.5
million and $1.4 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The 401(k) plan company match amounts are invested in common stock
of the company. Amounts relating to the above plans that exceed limitations
established by Federal regulations are contributed to a non-qualified deferred
compensation plan. Of the above amounts for the pension and profit sharing
plans, $3.0 million, $2.7 million and $2.6 million for the years ended December
31, 1996, 1995 and 1994, respectively, are included in policy acquisition costs.
<PAGE>
14. LONG-TERM INCENTIVE PLANS
- -------------------------------
On March 2, 1987, the company adopted a plan for key employees of the company
and its subsidiaries to enable those employees to acquire shares of common stock
of the company or to benefit from appreciation in the price of the common stock
of the company. Options granted will either be Incentive Stock Options (ISOs),
where they qualify under Section 422(a) of the Internal Revenue Code, or
Non-Qualified Stock Options (NQSOs).
ISOs and NQSOs may be granted at a price not less than 100% of the fair value of
the company's common stock as determined on the date granted. Options will be
exercisable as specified at the time of grant and expire ten years from the date
of grant (or shorter if specified or following termination of employment).
The Board of Directors of the company has authorized a maximum of 4,753,011
shares of the company's common stock to be granted as options. As of December
31, 1996, 3,449,587 options had been granted net of expirations and
cancellations, leaving the total number available for future grants at
1,303,424. Options granted through 1990 are exercisable in equal annual
installments on each of the first three anniversaries of the grant at 100% of
the market price at the date of grant. The options granted from 1991 through
1994 are exercisable in five equal annual installments commencing one year after
the date of grant. On all options granted from 1991 through 1994, accelerated
vesting and exercisability of those options is possible if the company's return
on equity for the year is at least equal to the threshold return on equity
specified in the annual financial plan and if earnings per share are at least
2.5% greater than plan earnings per share.
In December 1995, the MBIA Inc. Board of Directors approved the "MBIA Long-Term
Incentive Program." The incentive program includes a stock option program and
adds a compensation component linked to the growth in adjusted book value per
share (ABV) of the company's stock. Awards under the long-term program will be
divided equally between the two components, with 50% of the award given in stock
options and 50% of the award (multiplied by a 1.5 conversion factor) to be paid
in cash or shares of company stock. Target levels for the option/incentive award
are established as a percentage of total salary and bonus, based upon the
recipient's position. The awards under the long-term program typically will be
granted from the Vice President level up to and including the Chairman and Chief
Executive Officer.
The ABV portion of the long-term incentive program may be awarded every other
year. The December 1995 award will cover growth in ABV from December 31, 1995
through December 31, 1998, with a base line growth of 12%. The amount to be
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MBIA Inc. and Subsidiaries
paid in respect of such award will be adjusted upward or downward based on the
actual ABV growth with a minimum growth of 8% necessary to receive any payment
and an 18% growth needed to receive the maximum payment of 200% of the target
levels. The amount, if any, to be paid under this portion of the program will be
paid in early 1999 in the form of cash or shares of the company's common stock.
Subsequent awards, if any, will be made every other year with concomitant
payments occurring after the three-year cycle. During 1996 and 1995, $2.9
million and $0.2 million, respectively, were recorded as a charge related to the
December 1995 ABV award. Of these amounts, $1.6 million and $0.1 million were
included in policy acquisition costs for the same respective periods.
The stock option grants, which may continue to be awarded every year, provide
the right to purchase shares of common stock at the fair value (closing price)
of the stock on the date of the grant. Each option vests over five years and has
a ten-year term. Prior option grants are not taken into account in determining
the number of options granted in any year. In December 1996, 156,370 options
were awarded.
In December 1995, the company adopted a restricted stock program whereby key
executive officers were granted restricted shares of the company's stock. Shares
are awarded in the name of the employee, who has all rights of a shareholder,
subject to certain restrictions or forfeitures. This stock award may only be
sold three years from the date of grant, at which time the award fully vests.
In 1996 and 1995, respectively, a total of 7,753 and 5,640 restricted shares of
the company's stock were granted. The fair value of the shares awarded in 1996
and 1995 determined on the grant date, was $0.8 million and $0.4 million,
respectively, and has been recorded as "Unearned compensation - restricted
stock" and is shown as a separate component of shareholders' equity. Unearned
compensation is amortized to expense over the three-year vesting period.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 123, "Accounting for Stock-Based
Compensation," effective for financial statements for fiscal years beginning
after December 15, 1995. SFAS 123 required the company to adopt, at its
election, either 1) the provisions in SFAS 123 which require the recognition of
compensation expense for employee stock-based compensation plans, or 2) the
provisions in SFAS 123 which require the pro forma disclosure of net income and
earnings per share as if the recognition provisions of SFAS 123 had been
adopted. SFAS 123 explicitly provides that employers may continue to account for
their employee stock-based compensation plans using the accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). The company adopted the disclosure requirements of SFAS 123
effective January 1, 1996 and continues to account for its employee stock-based
compensation plans under APB 25. Accordingly, the adoption of SFAS 123 had no
impact on the company's financial position or results of operations. Had
compensation cost for the company's stock option program been recognized based
on the fair value at the grant date consistent with the recognition provisions
of SFAS 123, the impact on the company's net income and earnings per share would
not have been material. However, since the options vest over five years and
additional awards could be made in future years, the effects of applying SFAS
123 in 1996 are not likely to be representative of the effects on reported net
income and earnings per share for future years.
<PAGE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively; exercise prices
$101.875 and $77.125; dividend yields of 1.492% and 1.937%; expected volatility
of .2110 and .2787; risk-free interest rates of 5.96% and 5.97%; and expected
option terms of 5.52 years for both grants.
A summary of the company's Plan as of December 31, 1996, 1995 and 1994, and
changes during the years ending on those dates is presented below:
1996
----------------------------
Weighted
Number Average
Options of Shares Price per Share
- ---------------------------------------------------------------------
Outstanding at beginning of year 1,772,480 $ 44.850
Granted 156,370 101.875
Exercised 520,532 82.205
Expired or canceled 22,560 59.210
- ---------------------------------------------------------------------
Outstanding at year-end 1,385,758 $ 55.390
- ---------------------------------------------------------------------
Exercisable at year-end 795,428 $ 43.410
- ---------------------------------------------------------------------
Weighted-average fair value per share
of options granted during the year $28.17
54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MBIA Inc. and Subsidiaries
1995
---------------------------
Weighted
Number Average
Options of Shares Price per Share
- ---------------------------------------------------------------------
Outstanding at beginning of year 2,091,087 $40.600
Granted 97,300 77.125
Exercised 382,447 68.957
Expired or canceled 33,460 58.671
- ---------------------------------------------------------------------
Outstanding at year-end 1,772,480 $44.850
- ---------------------------------------------------------------------
Exercisable at year-end 1,177,100 $37.160
- ---------------------------------------------------------------------
Weighted-average fair value per share
of options granted during the year $23.59
1994
---------------------------
Weighted
Number Average
Options of Shares Price per Share
- ---------------------------------------------------------------------
Outstanding at beginning of year 1,591,487 $35.640
Granted 552,700 54.500
Exercised 47,080 57.902
Expired or canceled 6,020 60.937
- ---------------------------------------------------------------------
Outstanding at year-end 2,091,087 $40.600
- ---------------------------------------------------------------------
Exercisable at year-end 1,376,847 $32.240
- ---------------------------------------------------------------------
Weighted-average fair value per share
of options granted during the year $16.67
<PAGE>
The following table summarizes information about the Plan's stock options at
December 31, 1996:
<TABLE>
<CAPTION>
Weighted-Average
Range of Number Outstanding Remaining Contractual Weighted-Average Number Exercisable Weighted-Average
Exercise Prices at 12/31/96 Life in Years Exercise Price at 12/31/96 Exercise Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$16.50 to $41.125 403,018 3.16 $29.680 403,018 $29.680
$50.00 to $60.125 576,250 7.15 53.530 272,650 52.470
$69.00 to $101.875 406,490 8.26 83.510 119,760 69.000
- -----------------------------------------------------------------------------------------------------------------------
Total 1,385,758 6.32 $55.390 795,428 $43.410
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
15. SHAREHOLDERS' RIGHTS PLAN
- -------------------------------
In December 1991, the Board of Directors of the company declared a dividend
distribution of one preferred share purchase right (a Right) for each
outstanding share of the company's common stock. Each Right entitles its holder
to purchase from the company one one-hundredth of a share of the company's
Junior Participating Cumulative Preferred Shares at a price of $160, subject to
certain adjustments. Initially, the Rights are attached to the common stock and
will not be transferable separately nor become exercisable until the earlier to
occur of (i) ten business days following the date of the public announcement by
the company (the Shares Acquisition Date) that a person or group of persons has
acquired or obtained the right to acquire beneficial ownership of 10% or more of
the outstanding shares of the company's common stock and (ii) ten business days
(or later as may be determined by the Board of Directors) after the announcement
or commencement of a tender offer or exchange offer which, if successful, would
result in the bidder owning 10% or more of the outstanding shares of the
company's common stock. However, no person shall be deemed to have acquired or
obtained the right to acquire the beneficial ownership of 10% or more of the
outstanding shares of the company's common stock, if the Board of Directors
determines that such acquisition is inadvertent, and such person promptly
divests itself of a sufficient number of shares to be below the 10% ownership
threshold.
If the acquiring person or group acquires beneficial ownership of 10% or more of
the company's common stock (except pursuant to a tender or exchange offer for
all outstanding common stock of the company, determined by the company's
independent directors to be at a fair price and in the best interests of the
company and its shareholders), each holder of a Right (other than the acquirer)
will be entitled to purchase, for $160, that number of shares of common stock of
the company having a fair value of $320. Similarly, if after an acquiring person
or group so acquires 10% or more of the company's common stock, the company is
acquired in a merger or other business combination and is not the surviving
entity, or its common stock is changed or exchanged in whole or in part, or 50%
or more of the company's assets, cash flow or earning power is sold, each holder
of a Right (other than the acquirer) will be entitled to purchase, for $160,
that number of shares of common stock of the acquiring company having a fair
value of $320. The Board of Directors may redeem the Rights in whole at $.01 per
Right at any time prior to ten business days following the Shares Acquisition
Date. Further, at any time after a person or group acquires 10% or more, but
less than 50%, of the company's common stock, the Board of Directors of the
company may exchange the Rights (other than those held by the acquirer) in whole
or in part, at an exchange ratio of one share of common stock per Right. The
Board of Directors may also amend the Rights at any time prior to the Shares
Acquisition Date. The Rights will expire on December 12, 2001, unless earlier
redeemed or exchanged.
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MBIA Inc. and Subsidiaries
16. RELATED PARTY TRANSACTIONS
- --------------------------------
Since 1989, MBIA Corp. has executed five surety bonds to guarantee the payment
obligations of the members of the Association, one of which is a former
principal shareholder, which had their Standard & Poor's Corporation
claims-paying rating downgraded from Triple-A on their previously issued
Association policies. In the event that they do not meet their Association
policy payment obligations, MBIA Corp. will pay the required amounts directly to
the paying agent instead of to the former Association member as was previously
required. The aggregate outstanding exposure on these surety bonds as of
December 31, 1996 is $340 million.
In 1995, the company sold 78,000 shares of Credit Local de France, a major
shareholder. Realized gains from the sale amounted to $3.5 million.
The company had investment management and advisory agreements with an affiliate
of a former principal shareholder, which provided for payment of fees on assets
under management. Total related expenses for the years ended December 31, 1995
and 1994 amounted to $2.5 million and $2.6 million, respectively. These
agreements were terminated on January 1, 1996 at which time CMC assumed full
management of MBIA Corp.'s consolidated investment portfolios.
The company has various insurance coverages provided by a former principal
shareholder, the cost of which totaled $2.1 million, $1.9 million and $1.9
million, respectively, for the years ended December 31, 1996, 1995 and 1994.
SSI provides financing to Capital Asset under various borrowing arrangements.
The net balance outstanding under these agreements at December 31, 1996 was
$15.7 million, including accrued interest and is included in other assets on the
company's consolidated balance sheet. Net interest earned under these agreements
during 1996 was $2.1 million.
17. PUBLIC OFFERINGS OF COMMON STOCK
- --------------------------------------
In February 1996, the company completed a public offering of 3,890,000 shares of
the company's common stock. Of the shares offered, 3,120,000 were sold by an
existing shareholder and 770,000 were new shares offered by the company. The
company realized $55 million in new capital from the offering.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------------
The estimated fair value amounts of financial instruments shown in the following
table have been determined by the company using available market information and
appropriate valuation methodologies. However, in certain cases considerable
judgment is necessarily required to interpret market data to develop estimates
of fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amount the company could realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.
Fixed-maturity securities
- -------------------------
The fair value of fixed-maturity securities is based upon quoted market prices,
if available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Short-term investments
- ----------------------
Short-term investments are carried at amortized cost which approximates fair
value.
Other investments
- -----------------
Other investments include the company's interest in a limited partnership and a
mutual fund that invests principally in marketable equity securities. The fair
value of these investments is based on quoted market prices. On December 31,
1996, other investments also include the company's investment in Capital Asset
that is accounted for on the equity method.
<PAGE>
Municipal investment agreement portfolio
- ----------------------------------------
The municipal investment agreement portfolio is comprised of fixed-maturity
securities and short-term investments. Its fair value equals the quoted market
prices, if available, of its fixed-maturities plus the amortized cost of its
short-term investments, which because of their short duration, is a reasonable
estimate of fair value. If a quoted market price is not available for a
fixed-maturity security, fair value is estimated using quoted market prices for
similar securities.
Cash and cash equivalents, receivable for investments sold, short-term debt,
and payable for investments purchased
- -----------------------------------------------------------------------------
The carrying amounts of these items are a reasonable estimate of their fair
value.
Securities borrowed or purchased under agreements to resell
- -----------------------------------------------------------
The fair value is estimated based upon the quoted market prices of the
transactions' underlying collateral.
Prepaid reinsurance premiums
- ----------------------------
The fair value of the company's prepaid reinsurance premiums is based on the
estimated cost of entering into an assumption of the entire portfolio with third
party reinsurers under current market conditions.
Deferred premium revenue
- ------------------------
The fair value of the company's deferred premium revenue is based on the
estimated cost of entering into a cession of the entire portfolio with third
party reinsurers under current market conditions.
Loss and loss adjustment expense reserves
- -----------------------------------------
The carrying amount is composed of the present value of the expected cash flows
for specifically identified claims combined with an estimate for unidentified
claims. Therefore, the carrying amount is a reasonable estimate of the fair
value of the reserve.
Long-term debt
- --------------
The fair value is estimated based on the quoted market prices for the same or
similar securities.
56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MBIA Inc. and Subsidiaries
Municipal investment agreements and municipal repurchase agreements
- -------------------------------------------------------------------
The fair values of municipal investment agreements and municipal repurchase
agreements are estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar agreements with maturities
consistent with those remaining for the agreements being valued.
Securities loaned or sold under agreements to repurchase
- --------------------------------------------------------
The fair value is estimated based upon the quoted market prices of the
transactions' underlying collateral.
Installment premiums
- --------------------
The fair value is derived by calculating the present value of the estimated
future cash flow stream discounted at 9%.
<TABLE>
<CAPTION>
As of December 31, 1996 As of December 31, 1995
------------------------- -------------------------
Carrying Estimated Carrying Estimated
In thousands Amount Fair Value Amount Fair Value
- -------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C>
ASSETS:
Fixed-maturity securities $4,149,700 $4,149,700 $3,652,621 $3,652,621
Short-term investments 176,088 176,088 198,035 198,035
Other investments 29,101 29,101 14,064 14,064
Municipal investment agreement portfolio 3,293,298 3,293,298 2,742,626 2,742,626
Cash and cash equivalents 7,356 7,356 23,258 23,258
Securities borrowed or purchased under agreements to resell 217,000 219,718 --- ---
Prepaid reinsurance premiums 216,846 189,631 200,887 174,444
Receivable for investments sold 980 980 6,100 6,100
LIABILITIES:
Deferred premium revenue 1,785,875 1,545,976 1,616,315 1,395,159
Loss and loss adjustment expense reserves 59,314 59,314 42,505 42,505
Municipal investment agreements 2,290,609 2,297,272 2,026,709 2,091,895
Municipal repurchase agreements 968,671 982,410 615,776 665,564
Long-term debt 374,010 402,976 373,900 427,193
Short-term debt 29,100 29,100 18,000 18,000
Securities loaned or sold under agreements to repurchase 217,000 221,575 --- ---
Payable for investments purchased 52,029 52,029 10,695 10,695
OFF-BALANCE SHEET INSTRUMENTS:
Installment premiums --- 287,969 --- 235,371
</TABLE>
<PAGE>
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- -------------------------------------------------
A summary of selected quarterly income statement information follows:
<TABLE>
<CAPTION>
In thousands except per share amounts
1996 First Second Third Fourth Year
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross premiums written $120,599 $134,001 $ 79,910 $126,165 $460,675
Net premiums written 105,884 122,087 70,874 106,978 405,823
Premiums earned 60,352 62,066 64,538 64,756 251,712
Investment income and realized gains and losses 62,758 65,334 67,636 66,145 261,873
All other revenues 7,087 7,625 7,850 9,390 31,952
Income before income taxes 98,574 100,830 105,258 103,468 408,130
Net income $ 77,625 $ 79,737 $ 83,321 $ 81,480 $322,163
- --------------------------------------------------------------------------------------------------------------
Net income per common share $ 1.81 $ 1.84 $ 1.92 $ 1.87 $ 7.43
- --------------------------------------------------------------------------------------------------------------
1995 First Second Third Fourth Year
- --------------------------------------------------------------------------------------------------------------
Gross premiums written $ 70,834 $106,343 $ 92,022 $ 79,288 $348,487
Net premiums written 63,754 94,294 78,945 66,444 303,437
Premiums earned 51,074 53,888 55,609 54,501 215,072
Investment income and realized gains and losses 54,594 55,482 57,536 57,466 225,078
All other revenues 5,112 4,563 5,585 6,812 22,072
Income before income taxes 83,522 85,766 89,008 86,734 345,030
Net income $ 66,006 $ 67,307 $ 69,834 $ 68,272 $271,419
- --------------------------------------------------------------------------------------------------------------
Net income per common share $ 1.57 $ 1.60 $ 1.65 $ 1.61 $ 6.43
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Due to the changes in the number of shares outstanding, quarterly per share
amounts may not add to the totals for the years.
57
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF MBIA INC.
NAME OF SUBSIDIARY STATE OF INCORPORATION
- ------------------ ----------------------
MBIA Insurance Corporation New York
MBIA Issuers Service Corporation New York
MBIA Municipal Investors Service Corporation Delaware
MBIA Investment Management Corp. Delaware
MBIA Capital Management Corp. Delaware
MBIA Capital Corp. Delaware
Strategic Services, Inc. Delaware
MBIA-AMBAC International Marketing Australia
Services, Pty. Limited
MBIA Assurance S.A. France
MBIA Insurance Corp. of Illinois Illinois
American Money Management Associates, Inc. Colorado
Municipal Tax Collection Bureau Pennsylvania
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the Registration Statements
of MBIA Inc. on Forms S-3 (No. 333-15003) and S-8 (Nos. 33- 22441 and 33-46062)
of:
(1) our report dated February 3, 1997, on our audits of the consolidated
financial statements of MBIA Inc. and Subsidiaries as of December 31, 1996
and 1995, and for each of the three years in the period ended December 31,
1996, which report is incorporated by reference in this 1996 Annual Report
on Form 10-K; and
(2) our report dated February 3, 1997 on our audits of the financial statement
schedules of MBIA Inc. and Subsidiaries, which report is included in this
1996 Annual Report on Form 10-K.
We also consent to the reference to our firm under the caption "Experts"
included in the Prospectuses.
/s/ COOPERS & LYBRAND L. L. P.
New York, New York
March 27, 1997
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints each of David H.
Elliott, Richard L. Weill and Louis G. Lenzi as his/her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him/her and in his/her name, place and stead, in any and all capacities, to
sign the Annual Report on Form 10-K of MBIA Inc. for the year ended December 31,
1996, and any or all amendments thereto, and to file the same, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as they might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, I have set my hand this 20th day of March, 1997.
/s/ Joseph W. Brown, Jr. /s/ Freda S. Johnson
- -------------------------------- ----------------------------
Joseph W. Brown, Jr. Freda S. Johnson
/s/ David C. Clapp /s/ Daniel P. Kearney
- -------------------------------- ----------------------------
David C. Clapp Daniel P. Kearney
/s/ Gary C. Dunton /s/ James A. Lebenthal
- -------------------------------- ----------------------------
Gary C. Dunton James A. Lebenthal
/s/ Claire L. Gaudiani /s/ Pierre-Henri Richard
- -------------------------------- ----------------------------
Claire L. Gaudiani Pierre-Henri Richard
/s/ John A. Rolls
- -------------------------------- ----------------------------
William H. Gray, III John A. Rolls
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 4,149,700
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 7,648,187
<CASH> 7,356
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 147,750
<TOTAL-ASSETS> 8,562,015
<POLICY-LOSSES> 59,314
<UNEARNED-PREMIUMS> 1,785,875
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 403,110
43,294
0
<COMMON> 0
<OTHER-SE> 2,436,403
<TOTAL-LIABILITY-AND-EQUITY> 8,562,015
251,712
<INVESTMENT-INCOME> 247,561
<INVESTMENT-GAINS> 11,740
<OTHER-INCOME> 34,524
<BENEFITS> 15,334
<UNDERWRITING-AMORTIZATION> 24,660
<UNDERWRITING-OTHER> 46,654
<INCOME-PRETAX> 408,130
<INCOME-TAX> 85,967
<INCOME-CONTINUING> 322,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 322,163
<EPS-PRIMARY> 7.43
<EPS-DILUTED> 7.41
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE>
EXHIBIT 99
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1996 and 1995
and for the years ended
December 31, 1996, 1995 and 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
MBIA INSURANCE CORPORATION:
We have audited the accompanying consolidated balance sheets of MBIA Insurance
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholder's equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MBIA Insurance
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/S/ COOPERS & LYBRAND L. L. P.
New York, New York
February 3, 1997.
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
ASSETS
<S> <C> <C>
Investments:
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $4,001,562 and $3,428,986) $4,149,700 $3,652,621
Short-term investments, at amortized cost
(which approximates fair value) 169,889 198,035
Other investments 14,851 14,064
---------- ----------
TOTAL INVESTMENTS 4,334,440 3,864,720
Cash and cash equivalents 3,288 2,135
Securities purchased under agreements to resell 108,900 ---
Accrued investment income 65,194 60,247
Deferred acquisition costs 147,750 140,348
Prepaid reinsurance premiums 216,846 200,887
Goodwill (less accumulated amortization of
$42,262 and $37,366) 100,718 105,614
Property and equipment, at cost (less accumulated
depreciation of $14,782 and $12,137) 47,176 41,169
Receivable for investments sold 975 5,729
Other assets 40,871 42,145
---------- ----------
TOTAL ASSETS $5,066,158 $4,462,994
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Deferred premium revenue $1,785,875 $1,616,315
Loss and loss adjustment expense reserves 59,314 42,505
Securities sold under agreements to repurchase 108,900 ---
Deferred income taxes 195,704 212,925
Payable for investments purchased 48,811 10,695
Other liabilities 63,683 54,682
---------- ----------
TOTAL LIABILITIES 2,262,287 1,937,122
---------- ----------
Shareholder's Equity:
Common stock, par value $150 per share; authorized,
issued and outstanding - 100,000 shares 15,000 15,000
Additional paid-in capital 1,041,876 1,021,584
Retained earnings 1,651,315 1,341,855
Cumulative translation adjustment (1,188) 2,704
Unrealized appreciation of investments,
net of deferred income tax provision
of $52,175 and $78,372 96,868 144,729
---------- ----------
TOTAL SHAREHOLDER'S EQUITY 2,803,871 2,525,872
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $5,066,158 $4,462,994
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-2-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31
----------------------------------------------------
1996 1995 1994
------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Gross premiums written $462,444 $349,812 $361,523
Ceded premiums (54,852) (45,050) (49,281)
------------- -------------- --------------
Net premiums written 407,592 304,762 312,242
Increase in deferred premium revenue (154,111) (88,365) (93,226)
------------- -------------- --------------
Premiums earned (net of ceded
premiums of $38,893,
$30,655 and $33,340) 253,481 216,397 219,016
Net investment income 247,286 219,834 193,966
Net realized gains 11,740 7,777 10,335
Other 3,163 2,168 1,539
------------- -------------- --------------
Total revenues 515,670 446,176 424,856
------------- -------------- --------------
Expenses:
Losses and loss adjustment 15,334 10,639 8,093
Policy acquisition costs, net 24,660 21,283 21,845
Operating 46,654 41,812 41,044
------------- -------------- --------------
Total expenses 86,648 73,734 70,982
------------- -------------- --------------
Income before income taxes 429,022 372,442 353,874
Provision for income taxes 90,562 81,748 77,125
------------- -------------- --------------
Net income $338,460 $290,694 $276,749
============= ============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-3-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
For the years ended December 31, 1996, 1995 and 1994
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Unrealized
Common Stock Additional Cumulative Appreciation
------------------- Paid-in Retained Translation (Depreciation)
Shares Amount Capital Earnings Adjustment of Investments
-------- ------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 100,000 $15,000 $ 943,794 $ 895,312 $(1,203) $ 4,840
Net income --- --- --- 276,749 --- ---
Change in foreign currency translation --- --- --- --- 1,630 ---
Change in unrealized depreciation
of investments net of change in
deferred income taxes of $27,940 --- --- --- --- --- (52,480)
Dividends declared (per
common share $380.00) --- --- --- (38,000) --- ---
Tax reduction related to tax sharing
agreement with MBIA Inc. --- --- 9,861 --- --- ---
------- ------- ---------- ---------- ----------- --------------
Balance, December 31, 1994 100,000 15,000 953,655 1,134,061 427 (47,640)
------- ------- ---------- ---------- ----------- --------------
Net income --- --- --- 290,694 --- ---
Change in foreign currency translation --- --- --- --- 2,277 ---
Change in unrealized appreciation
of investments net of change in
deferred income taxes of $(103,707) --- --- --- --- --- 192,369
Dividends declared (per
common share $829.00) --- --- --- (82,900) --- ---
Capital contribution from MBIA Inc. --- --- 52,800 --- --- ---
Tax reduction related to tax sharing
agreement with MBIA Inc. --- --- 15,129 --- --- ---
------- ------- ---------- ---------- ----------- --------------
Balance, December 31, 1995 100,000 15,000 1,021,584 1,341,855 2,704 144,729
------- ------- ---------- ---------- ----------- --------------
Net income --- --- --- 338,460 --- ---
Change in foreign currency translation --- --- --- --- (3,892) ---
Change in unrealized appreciation
of investments net of change in
deferred income taxes of $26,197 --- --- --- --- --- (47,861)
Dividends declared (per
common share $290.00) --- --- --- (29,000) --- ---
Tax reduction related to tax sharing
agreement with MBIA Inc. --- --- 20,292 --- --- ---
------- ------- ---------- ---------- ----------- --------------
Balance, December 31, 1996 100,000 $15,000 $1,041,876 $1,651,315 $(1,188) $96,868
======= ======= ========== ========== =========== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-4-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------
1996 1995 1994
---------- -------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 338,460 $290,694 $ 276,749
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in accrued investment income (4,947) (4,900) (3,833)
Increase in deferred acquisition costs (7,402) (7,300) (12,564)
Increase in prepaid reinsurance premiums (15,959) (14,395) (15,941)
Increase in deferred premium revenue 170,070 104,104 109,167
Increase in loss and loss adjustment
expense reserves 16,809 2,357 6,413
Depreciation 2,952 2,676 1,607
Amortization of goodwill 4,896 4,929 4,961
Amortization of bond (discount) premium, net (7,526) (2,426) 621
Net realized gains on sale of investments (11,740) (7,778) (10,335)
Deferred income taxes 8,982 11,391 19,082
Other, net 26,687 29,080 (8,469)
---------- --------- ----------
Total adjustments to net income 182,822 117,738 90,709
---------- --------- ----------
Net cash provided by operating activities 521,282 408,432 367,458
---------- --------- ----------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased (1,519,213) (897,128) (1,060,033)
Sale of fixed-maturity securities, net of
receivable for investments sold 873,823 473,352 515,548
Redemption of fixed-maturity securities,
net of receivable for investments redeemed 158,087 83,448 128,274
Sale (purchase) of short-term investments, net 4,676 (32,281) 3,547
Sale (purchase) of other investments, net 468 (692) 87,456
Capital expenditures, net of disposals (8,970) (4,228) (3,665)
---------- -------- ----------
Net cash used by investing activities (491,129) (377,529) (328,873)
---------- -------- ----------
Cash flows from financing activities:
Capital contribution from MBIA Inc. --- 52,800 ---
Dividends paid (29,000) (82,900) (38,000)
---------- -------- ----------
Net cash used by financing activities (29,000) (30,100) (38,000)
---------- -------- ----------
Net increase in cash and cash equivalents 1,153 803 585
Cash and cash equivalents - beginning of year 2,135 1,332 747
---------- -------- ----------
Cash and cash equivalents - end of year $ 3,288 $ 2,135 $ 1,332
========== ======== ==========
Supplemental cash flow disclosures:
Income taxes paid $ 63,018 $ 50,790 $ 53,569
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
- 5 -
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
MBIA Insurance Corporation (MBIA Corp.), formerly known as Municipal Bond
Investors Assurance Corporation, is a wholly owned subsidiary of MBIA Inc. MBIA
Inc. was incorporated in Connecticut on November 12, 1986 as a licensed insurer
and, through a series of transactions during December 1986, became the successor
to the business of the Municipal Bond Insurance Association (the Association), a
voluntary unincorporated association of insurers writing municipal bond and note
insurance as agent for the member insurance companies.
Effective December 31, 1989, MBIA Inc. acquired for $288 million all of the
outstanding stock of Bond Investors Group, Inc. (BIG), the parent company of
Bond Investors Guaranty Insurance Company (BIG Ins.), which was subsequently
renamed MBIA Insurance Corp. of Illinois (MBIA Illinois).
In January 1990, MBIA Illinois ceded its portfolio of net insured
obligations to MBIA Corp. in exchange for cash and investments equal to its
unearned premium reserve of $153 million. Subsequent to this cession, MBIA Inc.
contributed the common stock of BIG to MBIA Corp. resulting in additional
paid-in capital of $200 million. The insured portfolio acquired from BIG Ins.
consists of municipal obligations with risk characteristics similar to those
insured by MBIA Corp. On December 31, 1990, BIG was merged into MBIA Illinois.
Also in 1990, MBIA Inc. formed MBIA Assurance S.A. (MBIA Assurance), a
wholly owned French subsidiary, to write financial guarantee insurance in the
international community. MBIA Assurance provides insurance for public
infrastructure financings, structured finance transactions and certain
obligations of financial institutions. The stock of MBIA Assurance was
contributed to MBIA Corp. in 1991 resulting in additional paid-in capital of $6
million. Pursuant to a reinsurance agreement with MBIA Corp., a substantial
amount of the risks insured by MBIA Assurance is reinsured by MBIA Corp.
In 1993, MBIA Inc. formed a wholly owned subsidiary, MBIA Investment
Management Corp. (IMC). IMC, which commenced operations in August 1993, provides
guaranteed investment agreements to states, municipalities and municipal
authorities that are guaranteed as to principal and interest. MBIA Corp. insures
IMC's outstanding investment agreement liabilities.
-6-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In 1994, MBIA Inc. formed a wholly owned subsidiary, MBIA Securities Corp.
which was subsequently renamed MBIA Capital Management Corp. (CMC). CMC provides
fixed-income investment management services for MBIA Inc., its municipal cash
management service businesses and public pension funds. In 1995, portfolio
management for a portion of MBIA Corp.'s insurance related investment portfolio
was transferred to CMC; the management of the balance of this portfolio was
transferred in January 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles (GAAP). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
accounting policies are as follows:
CONSOLIDATION
The consolidated financial statements include the accounts of MBIA Corp. and its
wholly owned subsidiaries. All significant intercompany balances have been
eliminated. Certain amounts have been reclassified in prior years' financial
statements to conform to the current presentation.
INVESTMENTS
MBIA Corp.'s entire investment portfolio is considered available-for-sale and is
reported in the financial statements at fair value, with unrealized gains and
losses, net of deferred taxes, reflected as a separate component of
shareholder's equity.
Bond discounts and premiums are amortized using the effective-yield method
over the remaining term of the securities. For pre-refunded bonds the remaining
term is determined based on the contractual refunding date. Short-term
investments are carried at amortized cost, which approximates fair value, and
include all fixed-maturity securities with a remaining term to maturity of less
than one year. Investment income is recorded as earned. Realized gains or losses
on the sale of investments are determined by specific identification and are
included as a separate component of revenues.
-7-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other investments include MBIA Corp.'s interest in a limited partnership
and a mutual fund which invests principally in marketable equity securities.
MBIA Corp. records dividends from these investments as a component of investment
income. In addition, MBIA Corp. records its share of the unrealized gains and
losses on these investments, net of applicable deferred income taxes, as a
separate component of shareholder's equity.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and demand deposits with banks.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are accounted for as collateralized transactions and
are recorded at principal or contract value. It is MBIA Corp.'s policy to take
possession of securities purchased under agreements to resell.
MBIA Corp. minimizes the credit risk that counterparties to transactions
might be unable to fulfill their contractual obligations by monitoring customer
credit exposure and collateral value and requiring additional collateral to be
deposited with MBIA Corp. when deemed necessary.
POLICY ACQUISITION COSTS
Policy acquisition costs include only those expenses that relate primarily to,
and vary with, premium production. For business produced directly by MBIA Corp.,
such costs include compensation of employees involved in underwriting and policy
issuance functions, certain rating agency fees, state premium taxes and certain
other underwriting expenses, reduced by ceding commission income on premiums
ceded to reinsurers. Policy acquisition costs are deferred and amortized over
the period in which the related premiums are earned.
PREMIUM REVENUE RECOGNITION
Premiums are earned pro rata over the period of risk. Premiums are allocated to
each bond maturity based on par amount and are earned on a straight-line basis
over the term of each maturity. When an insured issue is retired early, is
called by the issuer, or is in substance paid in advance through a refunding or
defeasance accomplished by placing U.S. Government securities in escrow, the
-8-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
remaining deferred premium revenue, net of the portion which is credited to a
new policy in those cases where MBIA Corp. insures the refunding issue, is
earned at that time, since there is no longer risk to MBIA Corp. Accordingly,
deferred premium revenue represents the portion of premiums written that is
applicable to the unexpired risk of insured bonds and notes.
GOODWILL
Goodwill represents the excess of the cost of acquisitions over the tangible net
assets acquired. Goodwill attributed to the acquisition of MBIA Corp. is
amortized by the straight-line method over 25 years. Goodwill attributed to the
acquisition of MBIA Illinois is amortized according to the recognition of future
profits from its deferred premium revenue and installment premiums, except for a
minor portion attributed to state licenses, which is amortized by the
straight-line method over 25 years.
PROPERTY AND EQUIPMENT
Property and equipment consists of MBIA Corp.'s headquarters, furniture,
fixtures and equipment, which are recorded at cost and are depreciated on the
straight-line method over their estimated service lives ranging from 2 to 31
years. Maintenance and repairs are charged to expenses as incurred.
LOSSES AND LOSS ADJUSTMENT EXPENSES
Reserves for losses and loss adjustment expenses (LAE) are established in an
amount equal to MBIA Corp.'s estimate of the identified and unidentified losses,
including costs of settlement, on the obligations it has insured.
To the extent that specific insured issues are identified as currently or
likely to be in default, the present value of expected payments, including loss
and LAE associated with these issues, net of expected recoveries, is allocated
within the total loss reserve as case-specific reserves. Management of MBIA
Corp. periodically evaluates its estimates for losses and LAE and any resulting
adjustments are reflected in current earnings. Management believes that the
reserves are adequate to cover the ultimate net cost of claims, but the reserves
are necessarily based on estimates, and there can be no assurance that the
ultimate liability will not exceed such estimates.
INCOME TAXES
MBIA Corp. is included in the consolidated tax return of MBIA Inc. The tax
provision for MBIA Corp. for financial reporting purposes is determined on a
stand alone basis. Any benefit derived by MBIA Corp. as a result of the tax
-9-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
sharing agreement with MBIA Inc. and its subsidiaries is reflected directly in
shareholder's equity for financial reporting purposes.
Deferred income taxes are provided with respect to the temporary
differences between the tax bases of assets and liabilities and the reported
amounts in the financial statements that will result in deductible or taxable
amounts in future years when the reported amount of the asset or liability is
recovered or settled. Such temporary differences relate principally to premium
revenue recognition, deferred acquisition costs and the contingency reserve.
The Internal Revenue Code permits companies writing financial guarantee
insurance to deduct from taxable income amounts added to the statutory
contingency reserve, subject to certain limitations. The tax benefits obtained
from such deductions must be invested in non-interest bearing U.S. Government
tax and loss bonds. MBIA Corp. records purchases of tax and loss bonds as
payments of federal income taxes. The amounts deducted must be restored to
taxable income when the contingency reserve is released, at which time MBIA
Corp. may present the tax and loss bonds for redemption to satisfy the
additional tax liability.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated at
year-end exchange rates. Operating results are translated at average rates of
exchange prevailing during the year. Unrealized gains or losses resulting from
translation are included as a separate component of shareholder's equity.
3. STATUTORY ACCOUNTING PRACTICES
The financial statements have been prepared on the basis of GAAP, which differs
in certain respects from the statutory accounting practices prescribed or
permitted by the insurance regulatory authorities. Statutory accounting
practices differ from GAAP in the following respects:
o premiums are earned only when the related risk has expired rather than over
the period of the risk;
o acquisition costs are charged to operations as incurred rather than
deferred and amortized as the related premiums are earned;
-10-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
o a contingency reserve is computed on the basis of statutory requirements,
and reserves for losses and LAE are established, at present value, for
specific insured issues which are identified as currently or likely to be
in default. Under GAAP, reserves are established based on MBIA Corp.'s
reasonable estimate of the identified and unidentified losses and LAE on
the insured obligations it has written;
o federal income taxes are only provided on taxable income for which income
taxes are currently payable, while under GAAP, deferred income taxes are
provided with respect to temporary differences;
o fixed-maturity securities are reported at amortized cost rather than fair
value;
o tax and loss bonds purchased are reflected as admitted assets as well as
payments of income taxes; and
o certain assets designated as "non-admitted assets" are charged directly
against surplus but are reflected as assets under GAAP.
The following is a reconciliation of consolidated shareholder's equity
presented on a GAAP basis to statutory capital and surplus for MBIA Corp. and
its subsidiaries:
As of December 31
-----------------------------------------
In thousands 1996 1995 1994
- ---------------------------------------------------------------------------
GAAP shareholder's equity $2,803,871 $2,525,872 $2,055,503
Premium revenue recognition (368,762) (328,450) (296,524)
Deferral of acquisition costs (147,750) (140,348) (133,048)
Unrealized (gains) losses (148,138) (223,635) 71,932
Contingency reserve (892,793) (743,510) (620,988)
Loss and loss adjustment
expense reserves 39,065 28,024 18,181
Deferred income taxes 195,704 205,425 90,328
Tax and loss bonds 103,008 70,771 50,471
Goodwill (100,718) (105,614) (110,543)
Other (16,465) (14,397) (15,274)
- ---------------------------------------------------------------------------
Statutory capital and surplus $1,467,022 $1,274,138 $1,110,038
- ---------------------------------------------------------------------------
Consolidated net income of MBIA Corp. determined in accordance with
statutory accounting practices for the years ended December 31, 1996, 1995 and
1994 was $316.6 million, $278.3 million and $224.9 million, respectively.
-11-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. PREMIUMS EARNED FROM REFUNDED AND CALLED BONDS
Premiums earned include $44.4 million, $34.0 million and $53.0 million for 1996,
1995 and 1994, respectively, related to refunded and called bonds.
5. INVESTMENTS
MBIA Corp.'s investment objective is to optimize long-term, after-tax returns
while emphasizing the preservation of capital through maintenance of
high-quality investments with adequate liquidity. MBIA Corp.'s investment
policies limit the amount of credit exposure to any one issuer. The
fixed-maturity portfolio is comprised of high-quality (average rating Double-A)
taxable and tax-exempt investments of diversified maturities.
The following tables set forth the amortized cost and fair value of the
fixed-maturities and short-term investments included in the consolidated
investment portfolio of MBIA Corp. as of December 31, 1996 and 1995.
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- -----------------------------------------------------------------------------
December 31, 1996
Taxable bonds
United States
Treasury and
Government Agency $ 6,585 $ 171 $ (10) $ 6,746
Corporate and other
obligations 767,472 13,978 (7,272) 774,178
Mortgage-backed 472,295 12,185 (4,003) 480,477
Tax-exempt bonds
State and municipal
obligations 2,925,099 137,389 (4,300) 3,058,188
- -----------------------------------------------------------------------------
Total $4,171,451 $163,723 $(15,585) $4,319,589
- -----------------------------------------------------------------------------
-12-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- --------------------------------------------------------------------------
December 31, 1995
Taxable bonds
United States
Treasury and
Government Agency $ 6,742 $ 354 $ --- $ 7,096
Corporate and
other obligations 592,604 30,536 (212) 622,928
Mortgage-backed 389,943 21,403 (932) 410,414
Tax-exempt bonds
State and municipal
obligations 2,637,732 175,081 (2,595) 2,810,218
- --------------------------------------------------------------------------
Total $3,627,021 $227,374 $(3,739) $3,850,656
- --------------------------------------------------------------------------
Fixed-maturity investments carried at fair value of $7.8 million and $8.2
million as of December 31, 1996 and 1995, respectively, were on deposit with
various regulatory authorities to comply with insurance laws.
The table below sets forth the distribution by expected maturity of the
fixed-maturities and short-term investments at amortized cost and fair value at
December 31, 1996. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations.
Amortized Fair
In thousands Cost Value
- --------------------------------------------------------------------
Maturity
Within 1 year $ 158,786 $ 158,768
Beyond 1 year but within 5 years 535,176 561,478
Beyond 5 years but within 10 years 1,218,877 1,263,126
Beyond 10 years but within 15 years 828,646 867,813
Beyond 15 years but within 20 years 807,952 836,153
Beyond 20 years 149,719 151,774
- --------------------------------------------------------------------
3,699,156 3,839,112
Mortgage-backed 472,295 480,477
- --------------------------------------------------------------------
Total fixed-maturities and
short-term investments $4,171,451 $4,319,589
- --------------------------------------------------------------------
-13-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INVESTMENT INCOME AND GAINS AND LOSSES
Investment income consists of:
Years ended December 31
------------------------------------
In thousands 1996 1995 1994
- ----------------------------------------------------------------------
Fixed-maturities $245,109 $216,653 $193,729
Short-term investments 4,961 6,008 3,003
Other investments 61 17 12
- ----------------------------------------------------------------------
Gross investment income 250,131 222,678 196,744
Investment expenses 2,845 2,844 2,778
- ----------------------------------------------------------------------
Net investment income 247,286 219,834 193,966
Net realized gains (losses):
Fixed-maturities:
Gains 16,760 9,941 9,635
Losses (5,353) (2,537) (8,851)
- ----------------------------------------------------------------------
Net 11,407 7,404 784
- ----------------------------------------------------------------------
Other investments:
Gains 333 382 9,551
Losses --- (9) ---
- ----------------------------------------------------------------------
Net 333 373 9,551
- ----------------------------------------------------------------------
Total realized gains 11,740 7,777 10,335
- ----------------------------------------------------------------------
Total investment income $259,026 $227,611 $204,301
- ----------------------------------------------------------------------
Net unrealized gains consist of:
As of December 31
--------------------
In thousands 1996 1995
---------------------------------------------------
Fixed-maturities:
Gains $163,723 $227,374
Losses (15,585) (3,739)
---------------------------------------------------
Net 148,138 223,635
Other investments:
Gains 934 287
Losses (29) (821)
---------------------------------------------------
Net 905 (534)
---------------------------------------------------
Total 149,043 223,101
Deferred income taxes 52,175 78,372
---------------------------------------------------
Unrealized gains, net $ 96,868 $144,729
---------------------------------------------------
The deferred taxes relate primarily to unrealized gains and losses on MBIA
Corp.'s fixed-maturity investments, which are reflected in shareholder's equity.
-14-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The change in net unrealized gains (losses) consists of:
Years ended December 31
------------------------------------
In thousands 1996 1995 1994
- ----------------------------------------------------------------------
Fixed-maturities $(75,497) $295,567 $(289,327)
Other investments 1,439 508 (8,488)
- ----------------------------------------------------------------------
Total (74,058) 296,075 (297,815)
Deferred income taxes (26,197) 103,706 (27,940)
- ----------------------------------------------------------------------
Unrealized gains (losses), net $(47,861) $192,369 $(269,875)
- ----------------------------------------------------------------------
7. INCOME TAXES
The provision for income taxes is composed of:
Years ended December 31
--------------------------------
In thousands 1996 1995 1994
- ------------------------------------------------------------------
Current $81,580 $70,357 $58,043
Deferred 8,982 11,391 19,082
- ------------------------------------------------------------------
Total $90,562 $81,748 $77,125
- ------------------------------------------------------------------
The provision for income taxes gives effect to permanent differences
between financial and taxable income. Accordingly, MBIA Corp.'s effective income
tax rate differs from the statutory rate on ordinary income. The reasons for
MBIA Corp.'s lower effective tax rates are as follows:
Years ended December 31
----------------------------------
1996 1995 1994
- --------------------------------------------------------------------------
Income taxes computed on pre-tax
financial income at statutory rates 35.0 % 35.0 % 35.0 %
Increase (reduction) in taxes
resulting from:
Tax-exempt interest (12.0) (12.5) (12.0)
Amortization of goodwill 0.4 0.5 0.5
Other (2.3) (1.1) (1.7)
- --------------------------------------------------------------------------
Provision for income taxes 21.1 % 21.9 % 21.8 %
- --------------------------------------------------------------------------
MBIA Corp. recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
-15-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
differences are expected to reverse. The effect on tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date.
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at December 31, 1996 and 1995 are presented below:
In thousands 1996 1995
- ------------------------------------------------------------------
Deferred tax assets
Tax and loss bonds $102,222 $ 71,183
Alternative minimum tax credit carryforward 58,068 39,072
Loss and loss adjustment expense reserves 13,673 9,809
Other 3,305 954
- ------------------------------------------------------------------
Total gross deferred tax assets 177,268 121,018
- ------------------------------------------------------------------
Deferred tax liabilities
Contingency reserve 186,173 131,174
Deferred premium revenue 76,526 64,709
Deferred acquisition costs 51,713 49,122
Unrealized gains 52,175 78,372
Contingent commissions 491 7,158
Other 5,894 3,408
- ------------------------------------------------------------------
Total gross deferred tax liabilities 372,972 333,943
- ------------------------------------------------------------------
Net deferred tax liability $195,704 $212,925
- ------------------------------------------------------------------
8. DIVIDENDS AND CAPITAL REQUIREMENTS
Under New York state insurance law, MBIA Corp. may pay a dividend only from
earned surplus subject to the maintenance of a minimum capital requirement. The
dividends in any 12-month period may not exceed the lesser of 10% of its
policyholders' surplus as shown on its last filed statutory-basis financial
statements, or of adjusted net investment income, as defined, for such 12-month
period, without prior approval of the superintendent of the New York State
Insurance Department.
In accordance with such restrictions on the amount of dividends which can
be paid in any 12-month period, MBIA Corp. had $118 million available for the
payment of dividends as of December 31, 1996. In 1996, 1995 and 1994, MBIA Corp.
declared and paid dividends of $29 million, $83 million and $38 million,
respectively, to MBIA Inc.
Under Illinois Insurance Law, MBIA Illinois may pay a dividend from
unassigned surplus, and the dividends in any 12-month period may not exceed the
-16-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
greater of 10% of policyholders' surplus (total capital and surplus) at the end
of the preceding calendar year, or the net income of the preceding calendar year
without prior approval of the Illinois State Insurance Department.
In accordance with such restrictions on the amount of dividends which can
be paid in any 12-month period, MBIA Illinois had $10 million available for the
payment of dividends as of December 31, 1996.
The insurance departments of New York state and certain other statutory
insurance regulatory authorities and the agencies that rate the bonds insured by
MBIA Corp. and its subsidiaries have various requirements relating to the
maintenance of certain minimum ratios of statutory capital and reserves to net
insurance in force. MBIA Corp. and its subsidiaries were in compliance with
these requirements as of December 31, 1996.
9. LINES OF CREDIT
MBIA Corp. has a standby line of credit commitment in the amount of $725 million
with a group of major banks to provide loans to MBIA Corp. if it incurs
cumulative losses (net of any recoveries) from September 30, 1996 in excess of
the greater of $500 million or 6.25% of average annual debt service. The
obligation to repay loans made under this agreement is a limited recourse
obligation payable solely from, and collateralized by, a pledge of recoveries
realized on defaulted insured obligations including certain installment premiums
and other collateral. This commitment has a seven-year term expiring on
September 30, 2003 and contains an annual renewal provision subject to approval
by the bank group.
MBIA Corp. and MBIA Inc. maintain bank liquidity facilities aggregating
$300 million. At December 31, 1996, MBIA Inc. had $29.1 million outstanding
under these facilities.
10. NET INSURANCE IN FORCE
MBIA Corp. guarantees the timely payment of principal and interest on municipal,
asset-/mortgage-backed and other non-municipal securities. MBIA Corp.'s ultimate
exposure to credit loss in the event of nonperformance by the insured is
represented by the insurance in force as set forth below.
-17-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The insurance policies issued by MBIA Corp. are unconditional commitments
to guarantee timely payment on the bonds and notes to bondholders. The
creditworthiness of each insured issue is evaluated prior to the issuance of
insurance and each insured issue must comply with MBIA Corp.'s underwriting
guidelines. Further, the payments to be made by the issuer on the bonds or notes
may be backed by a pledge of revenues, reserve funds, letters of credit,
investment contracts or collateral in the form of mortgages or other assets. The
right to such money or collateral would typically become MBIA Corp.'s upon the
payment of a claim by MBIA Corp.
As of December 31, 1996, insurance in force, net of cessions to reinsurers,
had a range of maturity of 1-42 years. The distribution of net insurance in
force by geographic location and type of bond, including $3.3 billion and
$2.7 billion relating to IMC's municipal investment agreements guaranteed by
MBIA Corp. in 1996 and 1995, respectively, is set forth in the following tables:
As of December 31
-----------------------------------------------------------------
$ in billions 1996 1995
- --------------------------------------------- --------------------------------
Net Number % of Net Net Number % of Net
Geographic Insurance of Issues Insurance Insurance of Issues Insurance
Location In Force Outstanding In Force In Force Outstanding In Force
- --------------------------------------------- --------------------------------
Domestic
California $ 60.7 3,378 14.6% $ 51.2 3,122 14.8%
New York 33.7 5,057 8.1 30.1 4,846 8.7
Florida 29.6 1,632 7.1 26.9 1,684 7.7
Texas 21.9 2,052 5.3 20.4 2,031 5.9
Pennsylvania 21.2 2,216 5.1 19.7 2,143 5.7
New Jersey 18.8 1,863 4.6 16.4 1,730 4.7
Illinois 18.5 1,145 4.5 15.0 1,090 4.3
Ohio 11.1 1,032 2.7 9.1 1,017 2.6
Massachusetts 10.9 1,100 2.6 9.3 1,070 2.7
Michigan 9.5 1,021 2.3 7.9 1,012 2.3
- -------------------------------------------- ----------------------------
Subtotal 235.9 20,496 56.9 206.0 19,745 59.4
Other states 170.1 11,502 41.1 135.6 11,147 39.1
- -------------------------------------------- ----------------------------
Total domestic 406.0 31,998 98.0 341.6 30,892 98.5
International 8.4 169 2.0 5.1 53 1.5
- -------------------------------------------- ----------------------------
Total $414.4 32,167 100.0% $346.7 30,945 100.0%
- -------------------------------------------- ----------------------------
-18-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31
----------------------------------------------------------------
$ in billions 1996 1995
- --------------------------------------------- --------------------------------
Net Number % of Net Net Number % of Net
Insurance of Issues Insurance Insurance of Issues Insurance
Type of Bond In Force Outstanding In Force In Force Outstanding In Force
- --------------------------------------------- --------------------------------
Domestic
Municipal:
General
obligation $110.5 11,763 26.7% $ 91.6 11,445 26.4%
Utilities 67.9 4,799 16.4 60.3 4,931 17.4
Health care 54.0 2,386 13.0 51.9 2,458 15.0
Transportation 30.3 1,520 7.3 25.5 1,562 7.4
Special
revenue 28.9 1,543 7.0 24.4 1,445 7.0
Industrial
development
and
pollution
control
revenue 18.1 931 4.4 17.2 924 5.0
Higher
education 17.8 1,309 4.3 15.2 1,261 4.4
Housing 17.7 2,455 4.3 15.8 2,671 4.5
Other 3.8 169 0.9 7.3 134 2.1
- --------------------------------------------- ------------------------------
Total
municipal 349.0 26,875 84.3 309.2 26,831 89.2
- --------------------------------------------- ------------------------------
Structured
finance* 38.6 349 9.3 20.2 256 5.8
Other 18.4 4,774 4.4 12.2 3,805 3.5
- --------------------------------------------- ------------------------------
Total
domestic 406.0 31,998 98.0 341.6 30,892 98.5
- --------------------------------------------- ------------------------------
International
Infrastructure 3.6 121 0.9 1.6 34 0.5
Structured
finance* 2.1 22 0.5 1.6 8 0.5
Other 2.7 26 0.6 1.9 11 0.5
- --------------------------------------------- ------------------------------
Total
international 8.4 169 2.0 5.1 53 1.5
- --------------------------------------------- ------------------------------
Total $414.4 32,167 100.0% $346.7 30,945 100.0%
- --------------------------------------------- ------------------------------
* Asset-/mortgage-backed
11. REINSURANCE
MBIA Corp. reinsures portions of its risks with other insurance companies
through various quota and surplus share reinsurance treaties and facultative
agreements. In the event that any or all of the reinsurers were unable to meet
their obligations, MBIA Corp. would be liable for such defaulted amounts.
Amounts deducted from gross insurance in force for reinsurance ceded by
MBIA Corp. and its subsidiaries were $57.6 billion and $50.1 billion, at
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<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996 and 1995, respectively. The distribution of ceded insurance in
force by geographic location and type of bond is set forth in the following
tables:
As of December 31
-------------------------------------------------
In billions 1996 1995
- ---------------------------------------------- ----------------------
% of % of
Ceded Ceded Ceded Ceded
Insurance Insurance Insurance Insurance
Geographic Location In Force In Force In Force In Force
- ---------------------------------------------- ----------------------
Domestic
California $ 9.4 16.2% $ 8.8 17.5%
New York 6.2 10.7 5.7 11.4
New Jersey 3.3 5.7 3.1 6.1
Texas 2.9 5.1 2.8 5.6
Pennsylvania 2.9 5.1 2.7 5.4
Illinois 2.6 4.5 2.2 4.5
Florida 2.4 4.1 2.3 4.6
Washington 1.9 3.2 1.4 2.7
District of Columbia 1.5 2.7 1.5 3.0
Massachusetts 1.4 2.5 1.1 2.1
Ohio 1.3 2.3 1.0 2.0
Puerto Rico 1.2 2.1 1.3 2.6
- ---------------------------------------------- ----------------------
Subtotal 37.0 64.2 33.9 67.5
Other states 16.9 29.4 14.4 28.8
- ---------------------------------------------- ----------------------
Total domestic 53.9 93.6 48.3 96.3
International 3.7 6.4 1.8 3.7
- ---------------------------------------------- ----------------------
Total $57.6 100.0% $50.1 100.0%
- ---------------------------------------------- ----------------------
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<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31
-------------------------------------------------
In billions 1996 1995
- ---------------------------------------------- ----------------------
% of % of
Ceded Ceded Ceded Ceded
Insurance Insurance Insurance Insurance
Type of Bond In Force In Force In Force In Force
- ---------------------------------------------- ----------------------
Domestic
Municipal:
General obligation $14.4 24.9% $11.7 23.3%
Utilities 10.2 17.7 9.0 18.0
Transportation 6.4 11.1 5.5 11.0
Health care 6.3 11.0 6.6 13.1
Special revenue 3.4 5.9 3.2 6.4
Industrial
development and
pollution control
revenue 3.2 5.6 3.0 6.0
Housing 1.6 2.7 1.4 2.8
Higher education 1.5 2.6 1.2 2.4
Other 1.0 1.7 2.4 4.8
- ---------------------------------------------- ------------------
Total municipal 48.0 83.2 44.0 87.8
Structured finance* 4.5 7.9 3.6 7.2
Other 1.4 2.5 0.7 1.3
- ---------------------------------------------- ------------------
Total domestic 53.9 93.6 48.3 96.3
- ---------------------------------------------- ------------------
International
Infrastructure 1.6 2.7 0.7 1.4
Structured finance* 1.1 1.9 0.2 0.5
Other 1.0 1.8 0.9 1.8
- ---------------------------------------------- ------------------
Total international 3.7 6.4 1.8 3.7
- ---------------------------------------------- ------------------
Total $57.6 100.0% $50.1 100.0%
- ---------------------------------------------- ------------------
* Asset-/mortgage-backed
12. EMPLOYEE BENEFITS
MBIA Corp. participates in MBIA Inc.'s pension plan covering substantially all
employees. The pension plan is a defined contribution plan and MBIA Corp.
contributes 10% of each eligible employee's annual total compensation. Pension
expense for the years ended December 31, 1996, 1995 and 1994 was $3.4 million,
$3.2 million and $3.0 million, respectively. MBIA Corp. also has a profit
sharing/401(k) plan which allows eligible employees to contribute up to 10% of
eligible compensation. MBIA Corp. matches employee contributions up to the first
5% of total compensation. MBIA Corp. contributions to the profit sharing plan
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<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
aggregated $1.5 million, $1.4 million and $1.4 million for the years ended
December 31, 1996, 1995 and 1994, respectively. The 401(k) plan amounts are
invested in common stock of MBIA Inc. Amounts relating to the above plans that
exceed limitations established by Federal regulations are contributed to a
non-qualified deferred compensation plan. Of the above amounts for the pension
and profit sharing plans, $3.0 million, $2.7 million and $2.6 million for the
years ended December 31, 1996, 1995 and 1994, respectively, are included in
policy acquisition costs.
MBIA Corp. also participates in MBIA Inc.'s common stock incentive plan
which enables employees of MBIA Corp. to acquire shares of MBIA Inc. or to
benefit from appreciation in the price of the common stock of MBIA Inc.
MBIA Corp. also participates in MBIA Inc.'s restricted stock program,
adopted in December 1995, whereby key executive officers of MBIA Corp. are
granted restricted shares of MBIA Inc. common stock. During 1996 and 1995, the
amounts amortized were $164,000 and $9,000, respectively, of which $102,000 and
$5,000 are included in policy acquisition costs.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) 123, "Accounting for Stock-Based
Compensation," effective for financial statements for fiscal years beginning
after December 15, 1995. SFAS 123 required MBIA Inc. to adopt, at its election,
either 1) the provisions in SFAS 123 which require the recognition of
compensation expense for employee stock-based compensation plans, or 2) the
provisions in SFAS 123 which require the pro forma disclosure of net income and
earnings per share as if the recognition provisions of SFAS 123 had been
adopted. MBIA Inc. adopted the disclosure requirements of SFAS 123 effective
January 1, 1996 and continues to account for its employee stock-based
compensation plans under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees". Accordingly, the adoption of SFAS 123 had no
impact on MBIA Corp.'s financial position or results of operations. Had
compensation cost for the MBIA Inc. stock option program been recognized based
on the fair value at the grant date consistent with the recognition provisions
of SFAS 123, the impact on MBIA Corp.'s net income would not have been material.
However, since the options vest over five years and additional awards could be
made in future years, the effects of applying SFAS 123 in 1996 are not likely to
be representative of the effects on reported net income for future years.
13. RELATED PARTY TRANSACTIONS
Since 1989, MBIA Corp. has executed five surety bonds to guarantee the payment
obligations of the members of the Association, one of which is a former
principal shareholder of MBIA Inc., which had their Standard & Poor's
Corporation claims-paying rating downgraded from Triple-A on their previously
issued Association policies. In the event that they do not meet their
Association policy payment obligations, MBIA Corp. will pay the required amounts
directly to the paying agent instead of to the former Association member as was
previously required. The aggregate amount payable by MBIA Corp. on these surety
bonds is limited to $340 million. These surety bonds remain outstanding as of
December 31, 1996.
MBIA Corp. had investment management and advisory agreements with an
affiliate of a former principal shareholder of MBIA Inc., which provided for
payment of fees on assets under management. Total related expenses for the years
ended December 31, 1995 and 1994 amounted to $2.5 million and $2.6 million,
respectively. These agreements were terminated on January 1, 1996 at which time
CMC assumed full management of MBIA Corp.'s consolidated investment portfolios.
Total fees paid to CMC on assets under management for the years
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<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ended December 31, 1996 and 1995 amounted to $2.8 million and $0.1 million,
respectively.
MBIA Corp. has various insurance coverages provided by a former principal
shareholder of MBIA Inc., the cost of which totaled $2.1 million, $1.9 million
and $1.9 million, respectively, for the years ended December 31, 1996, 1995 and
1994.
Included in other assets at December 31, 1996 and 1995 is $2.0 million and
$1.1 million of net receivables from MBIA Inc. and other subsidiaries.
As of December 31, 1996, MBIA Corp. held securities subject to agreements
to resell of $108.9 million, and transferred securities subject to agreements to
repurchase of $108.9 million with IMC and MBIA Inc. These agreements have a term
of less than one year. The interest expense paid and income received relating to
these agreements for the year ended December 31, 1996 was $2.3 million and $2.4
million, respectively.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of financial instruments shown in the following
table have been determined by MBIA Corp. using available market information and
appropriate valuation methodologies. However, in certain cases considerable
judgment is necessarily required to interpret market data to develop estimates
of fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amount MBIA Corp. could realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.
FIXED-MATURITY SECURITIES - The fair value of fixed-maturity securities is based
upon quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
SHORT-TERM INVESTMENTS - Short-term investments are carried at amortized cost
which approximates fair value.
OTHER INVESTMENTS - Other investments include MBIA Corp.'s interest in a limited
partnership and a mutual fund that invests principally in marketable
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<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
equity securities. The fair value of these investments is based on quoted market
prices.
CASH AND CASH EQUIVALENTS, RECEIVABLE FOR INVESTMENTS SOLD AND PAYABLE FOR
INVESTMENTS PURCHASED - The carrying amounts of these items are a reasonable
estimate of their fair value.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL - The fair value is estimated
based upon the quoted market prices of the transactions' underlying collateral.
PREPAID REINSURANCE PREMIUMS - The fair value of MBIA Corp.'s prepaid
reinsurance premiums is based on the estimated cost of entering into an
assumption of the entire portfolio with third party reinsurers under current
market conditions.
DEFERRED PREMIUM REVENUE - The fair value of MBIA Corp.'s deferred premium
revenue is based on the estimated cost of entering into a cession of the entire
portfolio with third party reinsurers under current market conditions.
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES - The carrying amount is composed of
the present value of the expected cash flows for specifically identified claims
combined with an estimate for unidentified claims. Therefore, the carrying
amount is a reasonable estimate of the fair value of the reserve.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - The fair value is estimated
based upon the quoted market prices of the transactions' underlying collateral.
INSTALLMENT PREMIUMS - The fair value is derived by calculating the present
value of the estimated future cash flow stream discounted at 9%.
-24-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 1996 As of December 31, 1995
----------------------- -----------------------
Carrying Estimated Carrying Estimated
In thousands Amount Fair Value Amount Fair Value
- -------------------------------------------------- -----------------------
ASSETS:
Fixed-maturity securities $4,149,700 $4,149,700 $3,652,621 $3,652,621
Short-term investments 169,889 169,889 198,035 198,035
Other investments 14,851 14,851 14,064 14,064
Cash and cash equivalents 3,288 3,288 2,135 2,135
Securities purchased under
agreements to resell 108,900 124,471 --- ---
Prepaid reinsurance
premiums 216,846 189,631 200,887 174,444
Receivable for
investments sold 975 975 5,729 5,729
LIABILITIES:
Deferred premium
revenue 1,785,875 1,545,976 1,616,315 1,395,159
Loss and loss adjustment
expense reserves 59,314 59,314 42,505 42,505
Securities sold under
agreements to repurchase 108,900 115,838 --- ---
Payable for investments
purchased 48,811 48,811 10,695 10,695
OFF-BALANCE-SHEET INSTRUMENTS:
Installment premiums --- 287,969 --- 235,371
-25-
