MBIA shares soar on reinsurance deal with FGIC

Shares jumped $4.17, or 34.8 percent, to close at $16.15. Shares have fallen 77 percent from a 52-week high of $68.98 last October.

The agreement between the two bond insurers calls for the municipal bond issuers to pay their premiums in advance, transferring $741 million to MBIA. In exchange, MBIA will pay FGIC a commission worth nearly $200 million.

The deal essentially increases MBIA's municipal bond insurance business and brings the insurer a significant capital base. Municipal bonds are considered to be among the safest types of debt to insure.

Put together by New York Insurance Superintendent Eric Dinallo, the deal is part of an effort to shore up the municipal bond market, which has struggled this year due to the ongoing turmoil in the credit markets.

The agreement could also help FGIC avoid bankruptcy. Earlier this year, FGIC's crucial financial strength ratings were cut to junk status by major credit rating agencies, making it more difficult for the company to secure new business.

MBIA shares slipped 15 cents to $16 in after-hours trading.