Bond insurer MBIA faces a suit filed in the Federal District Court for the Southern District of New York. The filing alleges its decision to split its mortgage and other structured finance exposures from its public finance obligations hurts its ability to meet its obligations to policyholders.

MBIA called the complaint's claims "broad-based and unsubstantiated allegations" that are "without merit" and said it intends to defend itself against the suit "vigorously."

The bond insurer said its actions in restructuring "were approved by the New York State Insurance Dept. after a thorough examination, including an assessment by both the company's outside advisers and the NYSID of MBIA's ability to meet its obligations to all policyholders. In addition, the Illinois Division of Insurance approved all transactions entered into by MBIA Insurance Corp. of Illinois in connection with the transformation," MBIA said.

Aurelius Capital Master, Aurelius Capital Partners, Fir Tree Value Master Fund, Fir Tree Capital Opportunity Master Fund and Fir Tree Mortgage Opportunity Master Fund are the plaintiffs in the suit.

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