Q2 2019 Earnings Call
I would now like to turn the call over to Greg Diamond Managing director of Investor and Media Relations <unk>. Please go ahead Sir.
Thank you Maria welcome to be always conference call for our second quarter 2019 financial results.
After the market close yesterday, we issued and posted several items on our website.
Including our financial results press release, 10-Q quarterly operating supplements and statutory financial statements for both at MBIA Insurance Corporation and National Public Finance guarantee Corporation.
We also posted updates to the listings of our insurance portfolios.
Regarding today's call. Please note that anything said on the call is qualified by the information provided in the company's 10-K 10-Q and other LTC filings.
As our company's definitive disclosures are incorporated in those documents.
We urge investors to read our 10-K and 10-Q's as they contain our most current disclosures about the company and its financial and operating results.
Those documents also contain information that may not be addressed on today's call.
The definitions and reconciliations of the non-GAAP terms included in our remarks. Today are also included in our 10-K and 10-Q as well as our financial results press release, and our quarterly operating supplement.
The recorded replay of today's call will become available approximately two hours. After the end of the call and the information for accessing it was included in yesterday's financial results press release.
All right.
Our safe Harbor disclosure statement.
Our remarks on todays conference call may contain forward looking statements important factors, such as general market conditions, and the competitive environment could cause our actual results to differ materially.
From the projected results referenced in our forward looking statements.
Risk factors are detailed in our 10-K and 10-Q, which are available on our website at <unk> Dot com.
The company cautions not to place undue reliance on any such forward looking statements. The company also undertakes no obligation to Poland publicly correct or update any forward looking statement. If it later becomes aware that such statement is no longer accurate.
For our call today, Bill Fallon and at the end of care and I will provide some introductory comments that a question and answer session that will follow.
Now here's Bill Fallon.
Thanks, Craig.
Good morning, everyone. Thank you for being with us today.
Our second quarter net loss was primarily caused by additions to our loss and loss adjustment expenses.
Most of those expenses were attributed to the crop up important eco general obligation bonds insured by Nashville.
The proper restructuring support agreement has garnered the support of about 72% of bondholders that last reporting.
Well, we are not part of the 72% we continue to evaluate our options.
Or other Puerto Rico credits.
Judge Swain has ordered a 120 day stay of litigation activity.
Mediation or about $25 billion of Puerto Rico debt.
Including the general obligation nature K bonds, we insure.
The turmoil legal proceeding surrounding the successor to former Governor on sale have caused additional uncertainty will likely further delay the restructuring process.
National's insured exposure to Puerto Rico credits, excluding the restructured COFINA exposure was $2.6 billion of gross par, including cab accreted interest at June Thirtyth 2019.
Through July 1st 2019 Nationals pay total insurance claims on Puerto Rico debt of $1.1 billion.
Since the COFINA debt restructuring is implemented last quarter. We have continued to undertake measures to further reduce our COFINA exposure.
As of July 31st 2019, our insured COFINA accreted part and debt service exposures were $553 million and $1.9 billion respectively.
Which are less than half of the $1.2 billion of accreted par and $4.2 billion of debt service.
That were outstanding at year end 2018.
The other credits or insurance portfolios continue to perform consistent with our expectations.
National's insured portfolio has further reduced to $54.5 billion gross par outstanding at June Thirtyth 2019.
It's a leverage ratio gross par to statutory capital was 22 to one.
Down from 23 to one at year end 2018.
During the second quarter national spend $49.6 million to purchase 5.4 million shares of M.B. I Inc. stock.
At an average price of $9.12 per share.
We continue to believe that repurchasing our shares at attractive prices is an effective way to increase long term value for shareholders.
As of June Thirtyth, we had approximately $148 million remaining under our existing share repurchase authorization.
After the end of the quarter, we also issued a notice to call at par $150 million or about 57%.
The $265 million of our 2022, M.B. I think debentures outstanding.
Regarding and B I insurance Corp. The trial Fords RMBS Putback litigation against Credit Suisse concluded last week, and we expect to rolling out the post trial briefs have submitted.
No actually it will cover the financial results and provide an update on the holding company liquidity position.
Thanks, Bill and good morning.
I will begin with a review of our second quarter 2019, GAAP and non-GAAP results summarized the entity level liquidity positions and walk through the statutory results from National and MBJ Insurance Corp.
The company reported a consolidated GAAP net loss of $170 million and negative $2 and two to two cents per share for the quarter ended June Thirtyth 2019, compared to a consolidated GAAP net loss of $146 million or negative one dollar and 64 cents per share for the quarter ended June Thirtyth 2018.
The higher loss for this quarter was primarily due to two factors first higher loss and loss adjustment expense at national related to its Puerto Rico exposures and have them be a corp for its first lien RMBS and second fair value losses on interest rate swaps due to lower interest rates.
You will notice to 37 million dollar tax benefit on our GAAP income statement the tax benefit in earnings this quarter relates to changes in our valuation allowance attributable to tax expense on unrealized gains in other comprehensive income as required by GAAP.
The net of this tax expense in other comprehensive income and the tax benefit in earnings is equity neutral.
The company's adjusted net loss, a non-GAAP measure was $76 million or negative 90 cents per diluted share for the second quarter of 2019, compared with an adjusted net loss of $51 million or negative 58 cents per diluted share for the second quarter of 2018.
The unfavorable change was primarily due to higher quarter over quarter loss and loss adjustment expenses at national related to its insured Puerto Rico exposures.
In addition, this quarter's adjusted net loss included a $7 million or loss related to the consolidated COFINA values.
Book value per share decreased to $12.26 as of June Thirtyth 2019 versus $12.46 as of December 31st 2018, driven primarily by the year to date net wash somewhat offset by fewer shares outstanding due to share repurchases.
I will now spend a few minutes on the corporate segment and the insurance companies.
The corporate segment, which primarily includes the activity of the holding company MBIA Inc. had total assets of approximately $1.1 billion as of June Thirtyth 2019.
Within this total are the following material items.
Unencumbered cash and liquid assets held by M.B., I inc. totaled $407 million.
Approximately $550 million of assets at market value were pledged to the gics and the interest rate swaps supporting the good operation.
There were also $61 million of cumulative contributions remaining in the tax escrow account, which represents National's 2018 and year to date 2019 tax payments.
Turning to the insurance company's statutory results National reported a statutory net loss of $100 million for the second quarter of 2019 compared to the statutory net loss of $31 million for the prior years comparable quarter.
Favorable result was primarily due to higher quarter over quarter, Washington, LNG related to Puerto Rico exposure.
In July 2019, national paid $328 million or Puerto Rico related insurance claims on a gross basis.
Inception to date gross claim payments through July 2019 for Puerto Rico exposures totaled $1.1 billion.
As of June Thirtyth, 2019, National's total fixed income investment portfolio, including cash and cash equivalents had a book adjusted carrying value of $3.2 billion statutory capital was $2.4 billion and claims paying resources totaled $3.8 billion.
Gross par outstanding reduced by $1.7 billion during the quarter and now stands at $54.5 billion.
Turning to MBIA insurance Corp.
Statutory net loss was $41 million for the second quarter of 2019 compared to statutory net income of $37 million for the second quarter of 2018.
The unfavorable result was primarily due to higher loss and Ellie related to its first lien RMBS credits.
As of July June Thirtyth 2019, the statutory capital of MBI Insurance Corp was $499 million.
Claims paying resources totaled $1.3 billion.
Cash and liquid assets at the MBI Corp. totaled $135 million as of June Thirtyth 2019.
After quarter end and be a corp. completed the refinancing of the MZ funding loan facility with a new maturity date of January 2022.
And now we will turn the call over to the operator to begin the question and answer session.
Thank you at this time the floor is now open for questions. If you wish to ask a question simply press Star then the number one on your telephone keypad.
If at any point. Your question has been answered and you wish to remove yourself from the queue press the pound team.
Our first question comes from the line of Bose George of KBW.
Yeah good morning.
First just the provision youve had related to the prep RSC was that based on the expectation that it is going to happen or it. Once it gets approved has there been a room for further provisions related to that.
Yeah, I think with regard to prep.
The probability perhaps has been increasing over the course of this year. However, all of these things remain uncertain just given.
What we've seen with previous prep, our assays given the political situation in Puerto Rico et cetera, but we do believe that the profitability associated with that has gone up from earlier in the year.
And in terms of the timing for that can you just remind us what the next steps are.
It is a somewhat lengthy process. So there are several steps in the title three process with judge Swain.
Which likely will take us through this year and then you're in well into next year.
Before it would actually be executed.
That's assuming schedule.
Okay. Thanks, and then actually just switching to the share repurchases from National can you also just go through the capacity there for share repurchases further repurchase activity.
So our remaining repurchase authorization, which is what we are governed by at this point is $148 million, but from a regulatory capacity standpoint.
We've still got about $500 million of capacity.
Based on the.
The ratios you need to hit.
Okay and that number there's there's no need to sort of check I'd check with the regulators et cetera before that happens that's something you guys can do.
On your own essentially.
That is that is what the insurance law States, obviously, we're in touch with the regulator with all material moves we make.
Okay, great. Thanks.
Our next question comes from the line of Geoffrey Dunn of Dowling and partners.
Thank you good morning, just a couple of number questions in National's liquidity.
What was the a 323 million benefit from investing activities.
There is a number of portfolio sales.
Over the quarter as we generated cash to pay the July claims and get ready for the highs of REIT dividend in October .
Okay, and then I I should remember this is my don't can you explain the differences between the GAAP incurred losses, and stat incurred losses and specifically.
The delta between the one a six cap in the Onesixty nine stuff this quarter.
The primary difference is really the discount rate.
Good stat discount rate.
For National income just two separate discount rates for them National it's about 3.2% for corporate is little bit over 5%.
But you're discounting the claims and recoveries at the statutory rate and then for GAAP. It's the risk free rate, which obviously is that you have decreased for each of this last several quarters. So the discount rates the biggest driver in the differences.
Okay alright, thank you.
Again, ladies and gentlemen, if you wish to ask a question simply press Star then the number one on your telephone keypad.
Our next question comes from the line.
Okay.
It looks like our competition or has withdrawn their question again, ladies and gentlemen, if you wish to ask a question simply press star one.
And we have a question from the line of Julianna Baloney of B T I G.
Good morning, and thanks for taking my question.
Looking at the the call of the 2020, the partial called the 2022 maturity. It looks like that would save you roughly 9.6 million a year or call. It just under 30 million until maturity.
And interest expense are there any other opportunities at the holding company level to take out Securities ER.
In advanced maturity to the to reduce interest costs.
Well the only callable debt of any size, we have remaining or the rest of the 2020 twos.
Yeah, we focused on.
Our liquidity window in that range as you know for the last few years.
We continue to focus on that now.
But we are still in contact with with parties who.
Offer securities our securities back to us from time to time, and if something that we felt was.
Your point saved interest expense and made sense to us we certainly would look at those opportunities.
That sounds good then jumping over to the tax escrow.
Did you mentioned or is there any disclosure around the amount of the EPS growth related to 18 versus the amount related to the first ever 19.
The majority of the escrow was from 18.
It's over 50%.
His for his from 18.
And I believe $7 million is the payments to date in 19.
It sounds good thank you for taking my questions.
Again, ladies and gentlemen, if you wish to ask a question simply press Star then the number one on your telephone keypad.
[noise].
[noise] there appears to be no further questions at this time I would like to turn the call back over to Greg Diamond for any additional or closing remarks.
Thank you Maria and thanks to those of you listening to the call.
Please contact us directly if you have any additional questions.
She also recommend that you visit our website at <unk> Dot com for additional information about the company.
Thank you for your interest in India today and Goodbye.
Thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.
I would now like to turn the call over to Greg Diamond managing director of Investor and media Relations at MBIA. Please go ahead Sir.
Thank you Maria welcome to Mbia's Conference call for our second quarter 2019 financial results.
After the market closed yesterday, we issued and posted several items on our websites <unk>.
Including our financial results press release, 10-Q quarterly operating supplements and statutory financial statements for both MBIA Insurance Corporation and National Public Finance guarantee Corporation.
We also posted updates to the listings of our insurance portfolios.
Regarding today's call. Please note that anything said on the call is qualified by the information provided in the company's 10-K 10-Q, and other SEC filings as our company's definitive disclosures are incorporated in those documents.
We urge investors to read our 10-K and 10-Q s as they contain our most current disclosures about the company and its financial and operating results.
Those documents also contain information that may not be addressed on today's call.
The definitions and reconciliations of the non-GAAP terms included in our remarks. Today are also included in our 10-K and 10-Q as well as our financial results press release, and our quarterly operating supplement.
The recorded replay of today's call will become available approximately two hours. After the end of the call and the information for accessing it was included in yesterday's financial results press release.
Now I'll read our safe Harbor disclosure statement.
Our remarks on today's conference call May contain forward looking statements important factors, such as general market conditions, and the competitive environment could cause our actual results to differ materially from the projected results referenced in our forward looking statements.
Risk factors are detailed in our 10-K and 10-Q, which are available on our website at MBIA Dot com.
Company cautions not to place undue reliance on any such forward looking statements. The company also undertakes no obligation to publicly correct or update any forward looking statement. If it later becomes aware that such statement is no longer accurate.
For our call today, Bill Fallon and Anthony Mckiernan will provide some introductory comments then a question and answer session that will follow now here's Bill Fallon. Thanks, Craig.
Morning, everyone.
For being with us today.
Our second quarter net loss was primarily caused by additions to our loss and loss adjustment expenses.
Most of those expenses were attributed to the PREPA, Puerto Rico general obligation bonds insured by National.
The PREPA restructuring support agreement has garnered the support of about 72% of bondholders that last reporting.
But we are not part of the 72% we continue to evaluate our options.
For our other Puerto Rico credits Judge Swain has ordered a 120 day stay of the litigation activity.
Mediation will about $25 billion of Puerto Rico debt, including the general obligation.
Bonds, we insure.
The turmoil in legal proceedings surrounding the successor to former Governor Roselle.
Caused additional uncertainty will likely further delay the restructuring process.
National's insured exposure to Puerto Rico credits, excluding the restructured co Phoenix Bossier was $2 $6 billion of gross par, including cab accreted interest at June 32019.
Through July one 2019, National's paid total insurance claims on Puerto Rico debt of $1 $1 billion.
Since the coffee in a debt restructuring has implemented last quarter. We have continued to undertake measures to further reduce our kofinis exposure.
As of July 31, 2019, our insured coughing or accreted par and debt service exposures were $553 million and $1 9 billion respectively.
Which are less than half of the $1 $2 billion of accreted par and $4 $2 billion of debt service.
That were outstanding at year end 2018.
The other credits in our insurance portfolios continue to perform consistent with our expectations.
National insured portfolio has further reduced to $54 $5 billion gross par outstanding at June 32019.
Its leverage ratio gross par to statutory capital was 22 to one down from 23 to one at year end 2018.
During the second quarter National spent $49 6 million to purchase five 4 million shares of MBIA, Inc. Stock at an average price of $9 12 per share.
We continue to believe that repurchasing our shares at attractive prices is an effective way to increase long term value for our shareholders.
As of June 30, we had approximately $148 million remaining under our existing share repurchase authorization.
After the end of the quarter, we also issued a notice to call at par.
$50 million or about 57%.
$265 million of our 2022 MBIA, Inc. Debentures outstanding.
Regarding MBIA insurance Corp. The trial for its RMB as Putback litigation against Credit Suisse concluded last week, and we expect a ruling after post trial briefs are submitted.
Now Anthony will cover the financial results and provide an update on the holding company's liquidity position.
Thanks, Bill and good morning.
We'll begin with a review of our second quarter 2019, GAAP and non-GAAP results summarize the entity level liquidity positions and walk through the statutory results for National and MBIA Insurance Corp.
The company reported a consolidated GAAP net loss of $170 million or negative $2 <unk> per share for the quarter ended June 32019, compared to a consolidated GAAP net loss of $146 million or.
$1 64 per share for the quarter ended June 32018.
Higher loss for this quarter was primarily due to two factors first higher loss and loss adjustment expense at national related to its Puerto Rico exposures and at MBIA Corp towards first lien, our MBS and second fair value losses on interest rate swaps due to lower interest rates.
You will note a $37 million tax benefit on our GAAP income statement the tax benefit in earnings this quarter relates to changes in our valuation allowance attributable to tax expense on unrealized gains and other comprehensive income as required by GAAP.
The net of this tax expense and other comprehensive income and the tax benefit in earnings is equity neutral.
Yeah.
The company's adjusted net loss, a non-GAAP measure was $76 million or negative <unk> 90 per diluted share for the second quarter of 2019, compared with an adjusted net loss of $51 million and negative <unk> 58 per diluted share for the second quarter of 2018.
The unfavorable change was primarily due to higher quarter over quarter loss and loss adjustment expenses at national related to its insured Puerto Rico exposures.
In addition, this quarter's adjusted net loss included a $7 million loss related to the consolidated <unk>.
Book value per share decreased to $12 26 as of June 32019 versus $12.46 as of December 31, 2018, driven primarily by the year to date net loss somewhat offset by fewer shares outstanding due to share repurchases.
I will now spend a few minutes on the corporate segment and the insurance companies.
The corporate segment, which primarily includes the activity of the holding company MBIA, Inc. Had total assets of approximately $1 $1 billion as of June 32019.
Within this total are the following material items.
Unencumbered cash and liquid assets held by MBIA, Inc totaled $407 million.
Approximately $550 million of assets at market value were pledged to the <unk> and the interest rate swaps supporting the gig operation.
There were also $61 million of accumulative contributions remaining in the tax escrow account, which represents National's 2018 and year to date 2019 tax payments.
Turning to the insurance company's statutory results National reported a statutory net loss of $100 million for the second quarter of 2019 compared to a statutory net loss of $31 million for the prior year's comparable quarter.
The unfavorable result was primarily due to higher quarter over quarter loss in LAE related to Puerto Rico exposure.
In July 2019 National paid $328 million of Puerto Rico related insurance claims on a gross basis and.
Inception to date gross claim payments through July 2019 for Puerto Rico exposures totaled $1 1 billion.
As of June 32019, National's total fixed income investment portfolio, including cash and cash equivalents had a book adjusted carrying value of $3 2 billion statutory capital was $2 4 billion and claims paying resources totaled $3 8 billion.
Gross par outstanding reduced by $1 $7 billion during the quarter and now stands at $54 $5 billion.
Turning to MBIA insurance Corp.
Statutory net loss was $41 million for the second quarter of 2019 compared to statutory net income of $37 million for the second quarter of 2018.
The unfavorable result was primarily due to higher loss in LAE related to its first lien RMB as credits.
As of June 32019, the statutory capital of MBIA Insurance Corp was $499 million claims paying resources totaled $1 $3 billion.
<unk> liquid assets in MBIA Corp totaled $135 million as of June 32019.
After quarter end MBIA Corp completed the refinancing of the MZ funding loan facility with a new maturity date of January 2022.
And now we will turn the call over to the operator to begin the question and answer session.
Thank you at this time the floor is now open for questions. If you wish to ask a question simply press Star then the number one on your telephone keypad.
If at any point. Your question has been answered and you wish to remove yourself from the queue press the pound key.
Our first question comes from the line of Bose George of K B W.
Yes, good morning.
First just the provision you had related to the PREPA RSA.
Is that based on the expectation that it is going to happen.
Or once it gets approved is there room for further provisions related to that.
Yes, I think with regard to PREPA the probability perhaps has been increasing over the course of this year. However, all of these things remain uncertain just given what we've seen with previous PREPA RSA given the political situation in Puerto Rico et cetera, but we do believe that the <unk>.
Profitability associated with that has gone up from earlier in the year.
And in terms of the timing for that can you just remind us what the next steps there.
It is a somewhat lengthy process. So there are several step.
Steps in the title III process with judge Swain, which likely will take us through this year and then youre in well into next year before.
Before it would actually be executed.
Assuming closing.
Schedule.
Okay. Thanks, and then just switching to the share repurchases from National can you also just go through the capacity there for share repurchases with further repurchase activity.
So our remaining repurchase authorization, which is what we're governed by at this point is a $148 million, but from a regulatory capacity standpoint.
We've still got about $500 million of.
City.
Based on the <unk>.
The ratios you need to hit.
Okay and that number there is there is no need to sort of chug checked with the regulators et cetera before that happens thats something you guys can do.
On your own essentially.
That is that is what the insurance law States, obviously, we're in touch with the regulator with all material moves we make.
Okay, great. Thanks.
Our next question comes from the line of Geoffrey Dunn of Dowling <unk> partners.
Thank you good morning, just a couple of number questions in National's liquidity.
What was the $323 million benefit from investing activities.
There is a number of portfolio.
Sales.
Over the quarter as we generated cash to pay the July claims and get ready for the as of right dividend in October .
Okay.
Then I should remember this and I don't can you explain the differences between the GAAP incurred losses, and stat incurred losses and specifically.
The delta between the 106 gap in the 169 stat this quarter.
The primary difference is really the discount rate.
The stat discount rate.
For National and there's two separate discount rates for them National it's about three 2% for corporates little bit over 5%, but.
But youre discounting the claims and recoveries at the statutory.
Right and then for GAAP, it's the risk free rate, which obviously has not decreased for each of the last several quarters. So the discount rates the biggest driver in the differences.
Okay alright, thank you.
Again, ladies and gentlemen, if you wish to ask a question. Please press Star then the number one on your telephone keypad.
Our next question comes from the line.
Okay.
Okay.
<unk> has withdrawn their question again, ladies and gentlemen, if you wish to ask a question simply press star one.
Okay.
And we have a question from the line of Giuliano Bologna of BT.
Good morning, and thank you for taking my question.
Looking at the.
The call of the tweet tweet the partial call of the 2022 maturity.
It looks like that would save you roughly $9 6 million a year, just under 30 million until maturity.
And interest expense are there any other opportunities that the holding company level to take out securities.
In advance of maturity to the to reduce interest costs.
Well the only callable debt of any size. We have remaining are the rest of the 2020 twos.
We focused.
Our liquidity window in that range as you know for the last few years.
And we continue to focus on that now, but we are still in contact with with parties, who offer securities or securities back to us from time to time and if something that we felt was.
<unk> saved interest expense and made sense to us we certainly would look at those opportunities.
That sounds good then flipping over to the tax escrow.
Did you mentioned or is there any disclosure around the amount of the escrow that's related to 18 versus the amount related to the first half of 19.
Okay.
The majority of the escrow was from 18.
It's well over 50%.
As for 2018.
And I believe $7 million is the payments to date and 19.
That sounds good thank you for taking my questions.
Again, ladies and gentlemen, if you wish to ask a question simply press Star then the number one on your telephone keypad.
Yes.
There appears to be no further questions at this time I would like to turn the call back over to Greg Diamond for any additional or closing remarks.
Thank you Maria and thanks to those of you listening to the call.
Please contact us directly if you have any additional questions.
We also recommend that you visit our website at MBIA com for additional information about the company.
Thank you for your interest in MBIA, Good day and Goodbye.
Thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.