In connection with the refinance transaction, original notes issued by MZF on January 10, 2017 (the “Original MZF Notes”) will be redeemed or amended, as applicable, and the Senior Lenders will purchase new senior notes issued by MZF (the “Insured Senior Notes”) with an aggregate principal amount of up to $280 million, and the Company will receive amended subordinated notes issued by MZF (the “Insured Subordinated Notes” and together with the Insured Senior Notes, the “New MZF Notes”) with an aggregate principal amount of up to $55 million (with the New MZF Notes replacing the Original MZF Notes). The Company will not be obligated to purchase additional Insured Subordinated Notes. The New MZF Notes will mature on January 20, 2022 and will bear interest at 12%per annum, payable quarterly in arrears. Interest on the New MZF Notes will be payable in cash, but may be payable in kind at the option of MBIA Corp.; however, proceeds of, or recoveries on, the collateral and the cash sweep amount (referred to below) must be used to pay interest or principal in cash. The Senior Lenders will be paid a fee in connection with their purchase of the Insured Senior Notes.
MZF and MBIA Corp. are parties to a credit agreement (the “Original Credit Agreement”) entered into on the date of issuance of the Original MZF Notes, pursuant to which MZF lent the proceeds of the Original MZF Notes to MBIA Corp. In connection with the refinance transaction, MZF and MBIA will enter into an amended and restated credit agreement (the “New Credit Agreement” and the loans thereunder, the “MBIA Loans”), pursuant to which MZF will lend the proceeds of the New MZF Notes to MBIA Corp. to refinance the Original Credit Agreement. The maturity date of the New Credit Agreement and the New MZF Notes will be January 20, 2022. MBIA Corp. will issue new financial guaranty insurance policies (the “MBIA Corp. Policies”) unconditionally and irrevocably guaranteeing the timely payment of all principal and interest payments under the New MZF Notes, which obligations will be pari passu with the other insurance policy obligations of MBIA Corp., replacing the policies that had been issued on the Original MZF Notes. The MBIA Corp. Policies will be held for the benefit of all holders of the New MZF Notes, the benefit of which is automatically transferred without any restriction to any new holder when such New MZF Notes are transferred. The New MZF Notes and the MBIA Loans are referred to herein as the “Facility.”
The Facility will be secured by a first priority security interest in all of MBIA Corp.’s right, title and interest in the recovery of its claims from Zohar CDO2003-1, Limited (“Zohar I”) and Zohar II2005-1, Limited (“Zohar II”) which include, among other things, loans made to, and various equity or LLC interests in certain portfolio companies purportedly controlled by the sponsor and former collateral manager of Zohar I and Zohar II (the “Zohar Sponsor”) and claims that may exist against the Zohar Sponsor. Zohar I and Zohar II are debtors in chapter 11 cases currently pending before the Bankruptcy Court for the District of Delaware. The monetization of the collateral is subject to the terms of a Settlement Agreement between, among other parties, MBIA Corp., the Zohar Sponsor, and the Zohar debtors, which was filed with and approved by the Bankruptcy Court for the District of Delaware presiding over the chapter 11 cases of Zohar I and Zohar II.
The issuance of the New MZF Notes, the terms of which have been substantially agreed upon, will (except as noted above) be on substantially the same terms as the Original MZF Notes. The issuance will be subject to delivery of certain opinions and other customary closing conditions.
