Debt

12 Months Ended

Dec. 31, 2017

Note 10: Debt

Long-Term Debt

The Company’s long-term debt consists of notes and debentures including accrued interest as follows:

	As of December 31,
In millions	2017		2016
6.400% Senior Notes due 2022⁽¹⁾	$	265	$	266
7.000% Debentures due 2025		46		46
7.150% Debentures due 2027		100		100
6.625% Debentures due 2028		141		141
5.700% Senior Notes due 2034⁽²⁾		21		21
Surplus Notes due 2033⁽³⁾		940		940
Accrued interest		624		506
Debt issuance costs		(16)		(34)
Total	$	2,121	$	1,986
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(1) - Callable on or after August 15, 2006 at par.
(2) - Callable anytime at the greater of par or the present value of the remaining scheduled
payments of principal and interest.
(3) - Contractual interest rate is based on three month LIBOR plus 11.26%.

During 2017, National purchased from MBIA Inc., $129 million principal amount of MBIA Inc. 5.700% Senior Notes due 2034 that were previously repurchased by MBIA Inc. and had not been retired. In addition to the preceding table, as of December 31, 2017, National owned $264 million principal amount of the 5.700% Senior Notes due 2034 and MBIA Inc., through its corporate segment, owned $13 million of MBIA Corp. surplus notes and owned an additional $54 million of Senior Notes that were previously repurchased but not retired. These amounts are eliminated on a consolidated basis.

Interest and principal payments on the surplus notes are subject to prior approval by the NYSDFS. From the January 15, 2013 interest payment to the present, MBIA Corp.’s requests for approval of the note interest payments have been denied by the NYSDFS. MBIA Corp. provides notice to the Fiscal Agent when it does not make a scheduled interest payment. The deferred interest payment will become due on the first business day on or after which MBIA Corp. obtains approval to make such payment. No interest will accrue on the deferred interest. The surplus notes were callable at par at the option of MBIA Corp. on the fifth anniversary of the date of issuance, and are callable at par on January 15, 2023 and every fifth anniversary thereafter and are callable on any other date at par plus a make-whole amount, 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.

The aggregate maturities of principal payments of long-term debt obligations in each of the next five years ending December 31, and thereafter, are as follows:

In millions	2018		2019		2020		2021		2022		Thereafter		Total
Corporate debt	$	-	$	-	$	-	$	-	$	265	$	308	$	573
Surplus Notes due 2033		-		-		-		-		-		940		940
Total debt obligations due	$	-	$	-	$	-	$	-	$	265	$	1,248	$	1,513

Investment Agreements

Certain investment agreements provide for early termination, including, in some cases, with make-whole payments, upon certain contingent events including the bankruptcy of MBIA Inc. or the commencement of an insolvency proceeding with respect to MBIA Corp. 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. All of the investment agreements have been collateralized in accordance with the contractual terms.

Investment agreements have been issued with either fixed or floating interest rates in U.S. dollars. As of December 31, 2017, the annual interest rates on these agreements ranged from 4.74% to 6.88% and the weighted average interest rate was 5.75%. As of December 31, 2016, the annual interest rates on these agreements ranged from 4.48% to 6.89% and the weighted average interest rate was 5.66%. 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:

	Principal
In millions	Amount
Maturity date:
2018	$	17
2019		7
2020		35
2021		3
2022		3
Thereafter (through 2037)		328
Total expected principal payments⁽¹⁾	$	393
Less discount and other adjustments⁽²⁾		56
Total	$	337
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(1)- Amounts reflect principal due at maturity for investment agreements issued at a discount.
(2)- Includes discounts net of carrying amount adjustments of $61 million, net of accrued interest of $5 million.

Medium-Term Notes

MTNs are denominated in U.S. dollars or foreign currencies and accrue interest based on fixed or floating interest rates. Certain MTNs are measured at fair value in accordance with the accounting guidance for hybrid financial instruments. As of December 31, 2017, the interest rates of the MTNs ranged from 0% to 6.00% and the weighted average interest rate was 2.90%. As of December 31, 2016, the interest rates of the MTNs ranged from 0% to 6.00% and the weighted average interest rate was 2.43%. During 2017, the Company repurchased $160 million par value outstanding at a cost of approximately 84% of par value of MTNs issued by the Company’s corporate segment. Expected principal payments due under MTN obligations based on their contractual maturity dates are as follows:

	Principal
In millions	Amount
Maturity date:
2018	$	36
2019		61
2020		-
2021		-
2022		121
Thereafter (through 2036)		847
Total expected principal payments⁽¹⁾	$	1,065
Less discount and other adjustments⁽²⁾		300
Total	$	765
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(1)- Amounts reflect principal due at maturity for notes issued at a discount.
(2)- Includes discounts net of carrying amount adjustments and embedded derivatives of $240 million, fair value adjustments of $65 million, net of accrued interest of $5 million.

Variable Interest Entity Notes

VIE notes are variable interest rate debt instruments that were issued primarily in U.S. dollars by consolidated VIEs within the Company’s international and structured finance insurance segment. These VIE notes consist of debt instruments issued by issuer-sponsored consolidated VIEs collateralized by assets held by those consolidated VIEs. As of December 31, 2017, for VIE notes not accounted for at fair value, contractual interest rates ranged from 1.85% to 14.00% and the weighted average interest rate was 6.01%. As of December 31, 2016, for VIE notes not accounted for at fair value, contractual interest rates ranged from 1.07% to 2.77% and the weighted average interest rate was 2.25%.

In connection with the Zohar II Claim in January of 2017, MBIA Corp. entered into the Facility. The initial outstanding principal amount of the Facility was $366 million, of which, $38 million of subordinated financing was provided by MBIA Inc. and eliminated in consolidation. As of December 31, 2017, the consolidated outstanding amount of the Facility was $330 million. Under the Facility, MBIA Inc. has agreed to provide an additional $50 million subordinated financing to MZ Funding, which MZ Funding would then lend to MBIA Corp., if needed by MBIA Insurance Corporation for liquidity purposes. The Facility is secured by a first priority security interest in all of MBIA Corp.’s right, title and interest in the recovery of its claims from the assets of Zohar I and Zohar II which include, among other things, loans made to, and equity interests in, companies purportedly controlled by the Zohar Sponsor and any claims that the Company may have against the Zohar Sponsor. MBIA Corp. was obligated to pay a commitment fee of $10 million for this facility. The Facility matures on January 20, 2020 and bears interest at 14% per annum. If funds received from MBIA Corp. under the Facility are insufficient to pay interest on interest payment dates, MZ Funding may elect to pay interest in kind, which increases the outstanding principal amount.

The maturity of the Company’s international and structured finance insurance segment’s VIE notes, as of December 31, 2017 is presented in the following table:

	Principal
In millions	Amount
Maturity date:
2018	$	203
2019		147
2020		485
2021		132
2022		116
Thereafter (through 2052)		1,206
Total	$	2,289	⁽¹⁾
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(1) - Includes $1.1 billion of VIE notes accounted for at fair value as of December 31, 2017.