Note 12: Debt

Long-Term Debt

The Company's long-term debt consists of notes and debentures as follows:


	As of December 31,
In millions	2011		2010
6.400% Senior Notes due 2022⁽¹⁾	$	275	$	281
7.000% Debentures due 2025		56		56
7.150% Debentures due 2027		100		100
6.625% Debentures due 2028		141		141
5.700% Senior Notes due 2034⁽²⁾		329		329

		901		907
Less unamortized discount		1		1

Subtotal	$	900	$	906
14% Surplus Notes due 2033⁽³⁾		940		945

Total	$	1,840	$	1,851

(1)—Callable on or after August 15, 2006 at 100.00.

(2)—Callable anytime at the greater of 100.00 or the present value of the remaining scheduled payments of principal and interest.

(3)—Callable on January 15, 2013 and every fifth anniversary thereafter at 100.00.

The Company's long-term debt presented in the preceding table is subject to certain restrictive covenants, none of which significantly restrict the Company's operating activities or dividend-paying ability. As of December 31, 2011 and 2010, the Company was in compliance with all debt covenants as there was no occurrence of any event of default with respect to the above securities. Key events of default include (i) default in the payment of any interest or principal when it becomes due and payable, (ii) default in the performance, or breach, of any covenant or warranty of MBIA, (iii) events of default with respect to the Company's indebtedness, other than its debt securities or non-recourse obligations, in an aggregate principal amount in excess of $10 million which consist of the failure to make any payment at maturity or result in the acceleration of the maturity of the Company's indebtedness, (iv) entry by a court having jurisdiction in the premises of a decree or order for relief in respect of MBIA in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law, and (v) commencement by MBIA of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law.

On January 16, 2008, MBIA Insurance Corporation issued $1.0 billion of 14% fixed-to-floating rate surplus notes due January 15, 2033. As of December 31, 2011 and 2010, the par amount outstanding was $940 million and $945 million, respectively. The surplus notes have an initial interest rate of 14% until January 15, 2013 and thereafter at an interest rate of three-month LIBOR plus 11.26%. Interest and principal payments on the surplus notes are subject to prior approval by the Superintendent of the NYSDFS. The surplus notes are callable at par at MBIA Insurance Corporation's option on the fifth anniversary of the date of issuance and every fifth anniversary thereafter, subject to prior approval by the Superintendent and other restrictions. The cash received from the issuance of surplus notes was used for general business purposes and the deferred debt issuance costs are being amortized over the term of the surplus notes. During the first quarter of 2011, MBIA Inc., through its asset/liability products segment, purchased $5 million par value of MBIA Insurance Corporation surplus notes at a cost of approximately 55% of par value. The gain on the purchase of the surplus notes by MBIA Inc. is only reflected in the consolidated accounts of the Company. To date, MBIA Insurance Corporation has repurchased a total of $47 million par value outstanding of its surplus notes at a weighted average price of $77.08.

The aggregate maturity of debt obligations, excluding accrued interest and premiums or discounts, as of December 31 for each of the next five years and thereafter commencing in 2012 was:


In millions	2012		2013		2014		2015		2016		After 2016		Total
Corporate debt	$	—	$	—	$	—	$	—	$	—	$	901	$	901
14% Surplus Notes due 2033⁽¹⁾		—		940		—		—		—		—		940

Total debt obligations due	$	—	$	940	$	—	$	—	$	—	$	901	$	1,841

(1)—Callable on January 15, 2013 and every fifth anniversary thereafter at 100.00.

Investment Agreement Obligations

Obligations under investment agreement contracts are recorded as liabilities on the Company's consolidated balance sheets based upon proceeds received plus unpaid accrued interest at the balance sheet date. Upon the occurrence of certain contractually agreed-upon events, some of these funds may be withdrawn by the investor prior to their contractual maturity dates. Additionally, certain investment agreements provide for early termination at the option of the investor upon the downgrade of MBIA Corp. to certain credit rating levels. Such terminations significantly reduced outstanding investment agreement balances during 2009 and 2008.

Investment agreements have been issued with either fixed or floating interest rates in both U.S. dollars and foreign currencies. As of December 31, 2011, the annual interest rates on these agreements ranged from 0% to 7.38% and the weighted average interest rate was 4.31%. As of December 31, 2010, the annual interest rates on these agreements ranged from 0% to 7.38% and the weighted average interest rate was 3.73%. Expected principal payments due under these investment agreements in each of the next five years ending December 31 and thereafter, based upon contractual maturity dates, are as follows:


In millions	Principal Amount
Maturity date:
2012	$	471
2013		182
2014		140
2015		171
2016		53
Thereafter		671

Total expected principal payments⁽¹⁾	$	1,688
Less discount and other adjustments⁽²⁾		110

Total	$	1,578

(1) — Foreign currency denominated investment agreements are presented in U.S. dollars. Amounts reflect principal due at maturity for investment agreements issued at a discount.

(2) — Includes discounts of $153 million on investment agreements, net fair value adjustments of $33 million and accrued interest of $10 million.

Medium-Term Note Obligations

MTN obligations are recorded as liabilities on the Company's balance sheets based upon proceeds received, net of unamortized discounts and premiums, plus unpaid accrued interest at the balance sheet date. The MTNs are measured at fair value in accordance with the accounting guidance for certain hybrid financial instruments, which was adopted on January 1, 2007. MTNs are issued by GFL as part of MBIA's asset/liability products. MTNs have been issued with either fixed or floating interest rates and GFL has issued MTNs in U.S. dollars and foreign currencies. As of December 31, 2011, the interest rates of the MTNs ranged from 0% to 8.68% and the weighted average interest rate was 3.19%. As of December 31, 2010, the interest rates of the MTNs ranged from 0% to 8.37% and the weighted average interest rate was 3.17%. Expected principal payments due under MTN obligations based on their contractual maturity dates are as follows:


In millions	Principal Amount
Maturity date:
2012	$	89
2013		41
2014		61
2015		253
2016		123
Thereafter		1,893

Total expected principal payments⁽¹⁾	$	2,460
Less discount and other adjustments⁽²⁾		804

Total	$	1,656

(1) — Foreign currency denominated medium-term notes are presented in U.S. dollars. Amounts reflect principal due at maturity for notes issued at a discount or premium.

(2) — Includes discounts of $773 million and fair value adjustments of $41 million, net of accrued interest of $10 million.

The Company may buy back and extinguish debt originally issued by either MBIA Inc. or its subsidiaries. Purchase prices are generally negotiated through dealers, similar to buying or selling an asset in the open market. The Company repurchases its debt at discounted prices in an effort to improve its own economic position while also providing liquidity to investors of MBIA debt. In all cases, debt buybacks were executed in response to investor or dealer inquiries.

Other Borrowing Arrangements

The Company has $10 million of outstanding letters of credit for Cutwater-ISC that is intended to support the net asset value of certain investment pools managed by Cutwater-ISC. These letters of credit can be drawn upon in the event that the liquidation of such assets is required and the proceeds are less than the cost.

In addition, the Company has issued commitments to two pooled investment programs managed or administered by Cutwater-ISC and its subsidiary. These commitments cover losses in such programs should the net asset values per share decline below specified per share values. As of December 31, 2011 and 2010, the maximum amount of future payments that the Company would be required to make under these commitments was $3.3 billion and $4.2 billion, respectively. These commitments were terminated on January 1, 2012, the date on which Cutwater-ISC and its subsidiary were no longer manager or administrator to these programs.

Debt of Consolidated Variable Interest Entities

Variable Interest Entity Notes

VIE notes are variable interest rate debt instruments denominated in U.S. dollars issued by consolidated VIEs within the Company's structured finance and international insurance and conduit segments. VIE notes within the structured finance and international insurance segment consist of debt instruments issued by issuer-sponsored consolidated VIEs collateralized by assets held by those consolidated VIEs. VIE notes related to the conduit segment consist of floating rate MTN obligations issued by a Company-sponsored conduit collateralized by assets held by the conduit. As of December 31, 2011, the interest rates of the MTNs ranged from 0.64% to 1.78% and the weighted average interest rate was 1.41%. As of December 31, 2010, the interest rates of the MTNs ranged from 0.52% to 1.76% and the weighted average interest rate was 1.37%. The maturity of VIE notes, by segment, as of December 31, 2011 is presented in the following table:


In millions	Structured Finance and International Insurance		Conduits		Total⁽¹⁾
Maturity date:
2012	$	420	$	—	$	420
2013		382		—		382
2014		304		173		477
2015		761		—		761
2016		560		605		1,165
Thereafter		5,167		325		5,492

Total	$	7,594	$	1,103	$	8,697

(1)—Includes $4.8 billion of VIE notes accounted for at fair value as of December 31, 2011.

Long-Term Debt

Long-term debt consists of borrowings under liquidity facilities drawn by Triple-A One Funding Corporation ("Triple-A One"), an MBIA-administered multi-seller conduit consolidated in the Company's conduit segment. Under private placement offerings, Triple-A One issued commercial paper with maturities of up to 270 days to fund the purchase of assets from structured finance clients. Assets purchased by Triple-A One are insured by MBIA Corp. Historically, Triple-A One maintained backstop liquidity facilities for each transaction, covering 100% of the face amount of commercial paper outstanding. These liquidity facilities were designed to allow Triple-A One to repay investors in the event of a market disruption in which Triple-A One would be unable to issue new commercial paper to replace maturing commercial paper. The financial guarantee policies issued by MBIA to insure the assets of Triple-A One cannot be accelerated to repay maturing commercial paper or borrowings under liquidity facilities and only guarantee ultimate payments over time relating to the assets. As a result of the deteriorating market environment, Triple-A One fully drew on its liquidity facilities in September 2008 and ceased issuing commercial paper. All commercial paper holders have been repaid in full and borrowings under liquidity facilities, which totaled $360 million as of December 31, 2011 and 2010, will be repaid as the assets purchased by Triple-A One mature. The Company expects that the facilities will be fully repaid by 2037. The interest rate applicable to borrowings as of December 31, 2011 and 2010 was one-month LIBOR plus 0.75%. Given the fully drawn position of its liquidity facilities and no expectation of issuing commercial paper in the foreseeable future, Triple-A One's ratings were withdrawn by Moody's and S&P at the request of Triple-A One.