It's been a good-news, bad-news week for MBIA Inc. 

On Monday, the New York State Supreme Court upheld the insurancedepartment's decision to split the company in two. But yesterday,one of MBIA's subsidiaries revealed it has more than $100 millionin general-obligation-debt exposure to the city of Detroit.

The Armonk, N.Y.-based bond insurer won a long-fought battleover the 2009 decision by then Insurance Superintendent EricDinallo to allow the separation of the healthy municipal bondguarantee insurance business into a newly formed subsidiary,National Public Finance Guarantee Corp.

The structured finance instrument business, which includedtroubled mortgage-backed securities, would remain MBIA InsuranceCorp.

Originally, 18 banks challenged Dinallo's approval in an Article78 proceeding before Justice Barbara Kapnick, arguing that thefinancial-securities business—which remained MBIA—lacked adequatereserves to cover losses.

The proceeding, which began in May 2012, lasted four weeks, but dragged on until this week when thejudge finally made her decision. Prior to the proceeding, most ofthe banks challenging the insurance department's decision droppedout, leaving Bank of America and Societe Generale as the onlyremaining plaintiffs.

While the judge was making her decision, Bank of Americaattempted to purchase some of MBIA's debt, which thecarrier firmly rebuffed calling it an interference in the company'saffairs.

MBIA CEO Jay Brown said the court's decision "affirmed what wasobvious all along"—that the insurance department's decision was"proper in all respects."

Bank of America says it plans to appeal Kapnick's decision.

Yesterday, the subsidiary created to handle municipal-bondguarantees, National Public Finance Guarantee Corp., said it hasapproximately $100.7 million of insured exposure to thegeneral-obligation debt of the city of Detroit.

The city has fallen on hard times. Michigan Gov. Rick Snyderplans to take over the city's finances as Detroit struggles to getout of $14 billion in debt obligations and deals with more than$300 million deficit.

National Public's Chief Risk Officer Adam Bergonzi says that,should Detroit fail to make required debt service payments for anyreason, including bankruptcy, the insured bondholders will receiveguaranteed interest and principal payments "on time and infull."

National Public has close to $2.4 billion in exposure to variouscity of Detroit bond issues secured by distinct revenue streamssuch as water and sewage authorities.

This is not the first municipal-bond crisis National Public hasdealt with since the start of the recession. In July, the carriersaid it had $33 million in bond exposure to the city of San Bernardino,Calif., which is still seeking to steady its finances and pursuebankruptcy protection. This was in addition to $224 million ofmunicipal-bond exposure from the city of Stockton, Calif.

National Public has said it has approximately $5.7 billion inclaims-paying resources.

Corrections: The mortgage backed securities were placed withMBIA Insurance Corp. not MBIA Inc. The Article 78 proceeding wasnot a trial but a hearing that involved no witnesses. The 16 banksinvolved in the original complaint pulled out prior to thebeginning of the proceeding. Bank of America did not attempt atakeover of MBIA, but did attempt to purchase some of itsdebt.