NEW YORK (Bloomberg) — Bermuda-based CIFG Holding Ltd. reached an agreement to cancel default protection on about $12 billion of collateralised debt obligations at a discount, bolstering the bond insurer's ability to meet other claims.

The settlement includes cash and equity for a group of credit-default swap counterparties, forcing CIFG's main shareholders, Groupe Banque Populaire and Groupe Caisse d'Epargne, to end their control of the insurer, the company said in a statement yesterday. The counterparties received $1.3 billion and a 90 percent stake, according to Moody's Investors Service.

To combat losses from soaring US foreclosures, other bond insurers including Ambac Financial Group Inc., Syncora Holdings Ltd. and FGIC Corp. have also canceled contracts on mortgage-tied CDOs, reaching agreements with banks including Merrill Lynch & Co. and Credit Agricole SA. CIFG is the owner of the smallest of the formerly AAA rated bond insurers.

CIFG's CDO transaction "increases the company's claims-paying resources, better enabling the company to honour its remaining obligations to policyholders", chief executive officer John Pizzarelli said in the statement.

The company said in a separate statement that Pizzarelli will be replaced by Lawrence P. English, CEO of turnaround management firm Lawrence P. English Inc. and the former head of health-care information and technology company QuadraMed Corp.

CIFG, whose insurance ratings were cut by Moody's and Standard & Poor's to non-investment grade, also agreed to buy reinsurance on about $13 billion of municipal debt in the US from Assured Guaranty Ltd. to lessen capital needs. Moody's yesterday upgraded CIFG by three levels to Ba3. The rating, still three steps below investment grade, is because CIFG is "exposed to substantial performance volatility in light of its concentrated exposure to structured assets and stressed mortgage risks".