Bank of America (BAC) has agreed to pay the bond insurer MBIA $1.6 billion to settle a five-year-old dispute over losses related to soured mortgage-backed securities.

In addition to the cash payment, the agreement stipulates that BofA will provide the bond insurer a credit line of $500 million and that MBIA will offer BofA warrants to purchase a 4.9% stake in MBIA's holding company, BofA said Monday. The warrants will give BofA the option to purchase shares at $9.59 a share, a 33% discount to MBIA's Monday closing price.

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