Since last year, the Feds have been looking into three of Tilton's funds, Zohar I, Zohar II and Zohar III. Regulators are trying to discern whether or not Tilton hid losses in those funds. Investors are suing saying that she misled them on accounting standards.
Zohar I filed for bankruptcy last year, but Zohar II and III were left out of that. It's Zohar II that's giving S&P pause now.
MBIA is on the hook to pay if Zohar II falls apart, and S&P thinks that means MBIA's "liquidity position is weak, and the company may not meet all of its insurance policy obligations in the next 12 months."
From the rating agency's release:
On Jan. 20, 2017, the insured notes issued by Zohar II 2005-1 Ltd. will mature and likely result in the company paying a claim in excess of $700 million. The claim payment will be an immediate payment. Management's plan to meet MBIA Corp.'s near-term liquidity needs includes various actions, none of which on its own would be sufficient to meet the potential claim payment on Zohar II. If management is successful in meeting the Zohar II payment, the company's liquidity will likely remain weak. MBIA Corp.'s liquidity position is subject to risks from payment timing on credit-default swap contracts, second-lien residential mortgage-backed securities excess spread recoveries and timing of backlog payment demands, and asset put-back success and recovery timing.
You'll recall that MBIA has fallen before. Hedge fund billionaire Bill Ackman of Pershing Square correctly predicted that it would be swallowed by subprime mortgage delinquencies back during the financial crisis.