Q3 2019 Earnings Call
Director of Investor and media relations at M.B. I Hey.
Please go ahead Sir.
Thank you Dorothy.
Welcome to everybody.
The conference call for third quarter 2019 financial results. After the market close yesterday, we issued and posted several items on our web sites, including our financial results press release.
10-Q quarterly operating supplement.
Statutory financial statements for both M.B., I Insurance Corporation, and National Public Finance guarantee Corporation.
Also posted updates to the listings of our insurance portfolios.
Regarding todays call. Please note that anything else set on the call is qualified body information provided in the company's 10-K, and 10-Q's and other FCC filings as our company's definitive disclose our incorporated in those documents.
Urged investors to read our 10-K in 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 todays call.
The definitions and reconciliations of the non-GAAP terms included our remarks today are also included in our 10-K and 10-Q's.
As well as our financial results press release, and our quarterly operating supplements.
Gordon replay of todays call will become available approximately two hours after the end of the call and the information for accessing it is included in yesterday's financial results press release.
For our Safe Harbor disclosure statement, our remarks on todays conference call may contain forward looking statements important factors, such as general market conditions and 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 in 10-Q.
Which are available on our website at <unk> Dot com.
Company cautioned not to place undue reliance on any such forward looking statements.
The company also takes undertakes no obligation.
To publicly correct or update any forward looking statement if it made it becomes aware such statement is no longer accurate.
For our call today, Bill Phelan and Anthony Mckiernan provide some introductory comments then a question and answer session will follow now here's Bill Phelan. Thanks, Greg.
Good morning, everyone.
Thank you for being with us today.
Our third quarter financial results materially benefited from the sale of uninsured prep a bonds from the national investment portfolio and lower interest rates.
Lower interest rates generated the decrease in losses and loss adjustment expenses as greater estimated loss recoveries outweighed estimates of future loss payments.
There were also positive contributions from the sale unwrapped COFINA bonds that were sold out of the custodial Trust that resulted from the restructuring of COFINA earlier this year.
In addition, our per share results benefited from the repurchase of 4.3 million shares a and B I <unk> common stock during the third quarter.
Over the first nine months of this year, we have repurchased 10.3 million shares.
Subsequent to the ended the third quarter through October 29, we repurchased another 400000 shares.
The average price for the 10.7 million shares repurchased during 2019 was $9 an 11 cents per share.
We continue to believe that repurchasing our shares at attractive prices is an effective way to increase long term value for shareholders.
So October 29, we had approximately $105 million remaining under our existing share repurchase authorization.
As I mentioned earlier during the third quarter National directed the sale of uninsured COFINA bonds out of the Custodial Trust that was created earlier this year as part of the restructuring of COFINA.
The sales comprised all of the remaining COFINA bonds that were held in the custodial Trust.
The proceeds from the sale pay down a large portion of nationals COFINA obligation.
Over the course of this year.
By the restructuring of COFINA and through a combination of computations and prepayments of national custodial certificates that resulted from the sale the trust assets.
Nationals insured exposure on its COFINA obligation has reduced from $1.2 billion of gross par plus accreted interest.
Or $4.2 billion of debt service.
The only $65 million have gross par plus accreted interest or $220 million of debt service.
Turning to N.B. I inc. during the third quarter, we called at par $150 million of the 6.4% and be I Inc. senior notes due in 2022.
In doing so we project net interest savings of approximately $18 million over the remaining term of those notes.
Subsequent to quarter end in October and be <unk>, Inc. received and as of right dividend of $110 million from national.
Nationals insured portfolio has further reduced the $51 billion gross par outstanding at September Thirtyth 2019.
It's a leverage ratio gross par to statutory capital was 20 to one.
Down from 23 to one at year end 2018.
Nationals insured exposure to Puerto Rico credits, excluding the restructuring COFINA exposure was $2.4 billion of gross par, including cab accreted interest at September Thirtyth 2019.
Since last quarters conference call National signed onto the proper restructuring support agreement, which raised bondholder support for the agreement to about 90%.
Mediation continues for the Puerto Rico General obligation and H.D.A. bonds that we ensure.
The other credits at our insurance portfolios continue to perform consistent with our expectations.
No after they will cover the financial results.
Thanks, Bill and good morning, everyone I will begin with a review of our third quarter 2019, GAAP and non-GAAP results then cover the holding company balance sheet, and lastly walk through our statutory results for National and M.B. I Insurance Corp.
The company reported consolidated GAAP net income was $71 million were 86 cents per share for the quarter ended September Thirtyth 2019, compared to a consolidated GAAP net loss of $45 million or negative 50 cents per share.
For the quarter ended September Thirtyth 2018.
The results for the quarter were driven by several factors.
A loss and loss adjustment expense benefit at national related to its Puerto Rico exposures due to the effect of lower discount rates on the present value of estimated future recoveries.
Second.
Gains from the sale of all of the uninsured PREPA bonds held at National which had previously been written down from their original cost.
And gains on VI is due to two items.
An increase in our estimate for RMBS put back claims from credit Suisse.
And mark to market gains on the COFINA two bonds that were sold out of the troughs that our consolidated on the balance sheet.
These items were partially offset by higher loss and loss adjustment expense at MBIA insurance Corp. as well as fair value losses at M.B. I think on interest rate swaps hedging assets supporting the get portfolio due to lower interest rates.
The tax expense this quarter relates to changes in our valuation allowance attributable to taxes on an unrealized gains and other comprehensive income as required by GAAP.
The quarter the tax the net of a tax benefit and other comprehensive income and the tax expense and earnings is equity neutral.
The company's adjusted net income and non-GAAP measure was $115 million or one dollar and 46 cents per diluted share for the third quarter of 2019, compared with an adjusted net loss of $32 million or negative 35 cents per diluted share for the third quarter of 2018.
The favorable change was primarily due to the loss and loss adjustment expense benefit at National in Q3, 2019 related primarily to its insured Puerto Rico exposure is due to lower discount rates.
In addition, this quarter's adjusted net income included a $32 million gain related to the consolidated COFINA values.
Book value per share increased to $12, an 86 cents as of September Thirtyth 2019 versus $12.46 as of December 31st 2018, driven primarily by fewer shares outstanding due to share repurchases.
I will now spend a few minutes on the corporate segment balance sheet and the insurance companies.
The corporate segment, which primarily includes the activity of the holding company MBIA Inc. had total assets of approximately $940 million as of September Thirtyth 2019.
[noise] within this total or the following material items.
Unencumbered cash and liquid assets held by MBS, <unk> inc. totaled $232 million versus $407 million in Q2 2019.
The decrease from the prior quarter was primarily due to the voluntary recall at par of $150 million of MBS <unk> Inc., 6.4% notes due in 2022 in August .
After quarter end and be Inc. received and as of right dividend from national in October totaling $110 million.
Approximately $530 million of assets at market value were pledged to the gics and the interest rate swaps supporting the kick operation.
There were also $61 million of cumulative contributions remaining in the tax escrow account, which represents nationals 2018 and year to date 2019 tax payment.
Turning to the insurance companies statutory results National reported statutory net income of $87 million for the third quarter of 2019 compared to a statutory net loss of $5 million for the prior years comparable quarter.
The favorable result was primarily due to gains on investments driven by the aforementioned sale of the uninsured bonds.
And lower quarter over quarter loss from Ellie related to Puerto Rico exposures.
In July 2019 National paid $328 million of Puerto Rico related insurance claims on a gross basis.
Inception to date gross claims through July 2019 for Puerto Rico exposures totaled $1.1 billion.
As of September Thirtyth like 2019 Nationals total fixed income investment portfolio, including cash and cash equivalents had a book adjusted carrying value of $2.7 billion.
Statutory capital was $2.5 billion and claims paying resources totaled $3.7 billion.
Gross par outstanding reduced by $3.2 billion during the quarter and now stands at $51.3 billion.
Turning to MBIA insurance Corp. The statutory loss was $26 million for the third quarter of 2019 compared to statutory net income of $95 million for the third quarter of 2018.
Dan favorable results was primarily due to a decline in premiums earned as a result of the acceleration of premiums related to the terminations in the prior year quarter as well as higher loss in Helsinki related to Zohar credits, partially offset by an increase.
In RMBS related salvage and the current year quarter.
As of September Thirtyth 2019, the statutory capital of MBJ Insurance Corp was $533 million versus $555 million as of December 31, 2018, and claims paying resources totaled $1.3 billion.
Cash and liquid assets, and then MBI corp. totaled $115 million as of September Thirtyth 2019.
During the quarter and be a core completed the refinancing of the MZ funding loan facility.
And now we will turn the call over to the operator to begin the question and answer session.
At this time, if he would like to ask your question. Please press Star then be number one on your telephone keypad. If you would like to destroy your question press. The pound key we will pause for just a moment to compile the culinary roster.
Well first question comes from the line of Bose George with KBW.
This is Tony with join on for those.
Now that you guys have joined the the breath, our I say can you walk through the next steps though.
Well with regard to the or I'd say the next key step is the 90 19 motion, which at this point is scheduled to be hurting.
Mid January in front of judge Swain so.
So that's that's the next key step in terms of just moving the process along so.
We'll wait and see what happens then.
Okay.
And then switching over the the pace of National public finance gross par.
Runoff was picked up a bit this quarter does have an outlook for where you expect that pace to the head going into Fourq, you and then next year as well.
In general you can find in our materials the schedule the amortization.
Which at this point just given the size of the book in absolute dollar amounts is coming down the part that is hard to predict is the refundings that take place each quarter, we've indicated in the past.
But those keep coming down as well just given that we're beyond really the 10 year call on most of those so hard to predict but we're seeing a little bit come off every quarter and as I said the scheduled amortization is listed in materials.
Okay. Thanks, and then just last one did you say what the dollar amount of the gain was on the sale of the uninsured proper bonds.
The total gains for the quarter from National was $78 million audits PML.
Which about 69 million was proper.
Okay. Thanks, guys.
Your next question comes from the line.
Geoffrey Dunn with Dowling and partners.
Thanks, Good morning.
Few few questions first I just want to make sure I understand that the accounting on the discount.
Obviously rates have been volatile. So you had the drop in the second quarter generate that benefit but with rates up I think quarter to date is it's correct that we'd see basically some of that reverse in the fourth quarter.
It's really going into good morning, it's really going to depend on just what the what's the rates are at the top loss reserves in the fourth quarter. We had about 33 basis point decline on average and the risk free rate this quarter, which helped drive.
The results as far as increasing the recovery value primarily for the Puerto Rico exposures. So it's really just kind of depends on where rates are in the fourth quarter and we do our loss reserves.
Okay, but obviously if it goes back up there's there's offset right. There is no mitigating factor if rates go back up.
All things being equal that's correct okay.
And then what changed with respect to prep.
M.B. I was pretty adamant weigh against the our us a previously.
What happened during the quarter to prompt you to sign onto this did anything change versus the terms we've seen publicly out there can you elaborate a little bit.
The the primary factor Jeff was the fact that they had more than two thirds of the creditor group supporting the our say.
Okay.
And then lastly.
The COFINA bonds sale. So those bonds were on trust for the remaining liability.
Did I hear correctly that you originally I guess book them added.
Lower value than the par originally received and then you were able to turn around the Selamat, a again to that adjusted value.
So.
For the quarter. That's correct. We had we had every quarter from a GAAP standpoint. These are just as a VIP. It's a consolidated VIP. So the fair market value from last quarter.
And then the sales this quarter, we experienced again based on the fair value estimate at the time of the sale.
So how does that coincide with the the accounting for the reserving was that gain something that was anticipated in the reserving that you had a higher expected valuation on those bonds than what you had to book because of Mark to market.
Well for again for GAAP purposes.
Again as a VIP.
Really kind of the concept of loss reserve isn't there. So you had the assets in the liability is just the result is the assets are gone off the balance sheet and after all the proceeds have been.
Put in and certificate holders have been repaid the remaining.
Liability for National is the 65 million dollar par plus accrued which essentially is nationals.
Insurance liability obligation that it's that is owed in 2040 and beyond for stat purposes. It's a normal credit analysis that we do and the loss reserve that we had at the end to last quarter was not materially change. So you still wind up in the same place with 65 million par plus accrued.
Based on our prior credit analysis, there was no material change on a stat basis.
Okay. Thank you.
As a reminder, if you would like to ask a question. Please press Star then the number one on your telephone Keypad joined next question comes from a line of.
The lab know from BP I T.
Good morning, and the congrats on good corner.
Thank you.
I guess jumping back to the rep.
Okay.
Topic.
I think there were couple additions in the numerous right. We're national has the ability to kind of wrap some of the bonds and has a couple other.
In the news in the revised or say that.
National joined.
Is there any upside potential from wrapping.
And some of the bonds on the other side of the transaction.
At this point as you stated.
National has the option and whether or not there is upside remains to be seen but they do have the option.
That makes sense.
Then thinking about on the ink liquidity side.
The next to 110 million of liquidity comes up.
Would it make sense to look at the calling or any of the 22 notes early or are you, calling some additional 22 notes early.
I think we'll do we've done every quarter, we did the $150 million this quarter.
We continue we had a view that we want to make sure we have a robust cash position at the holding company, but clearly as we look out. The next several years, we'll look at the 20 twos as we move forward.
That makes sense.
Then.
A question is in thinking about via the operating expense roll forward looks like there's a little tick up on the expense on a national today or in the last quarter and sorry is there anything driving that and how should we think about the opex going forward.
Yes on the operating expense side. The main increase for for National is the the litigation expense related to the.
The case that we filed.
Against the Wall Street banks associated with the with our Puerto Rico credits.
So the.
Legal expense associated with that filing is what drove the operating drug operating expenses.
That sounds good.
That's a.
So for me I appreciate the time.
Thank you. Thank you.
There are no further questions at this time.
During the call back over to Mr. Craig Diamond.
Thanks, Ken Dorothy and thanks to all of use list and listen to the call today. Please contact US directly if you have any additional questions. We also recommend that you visit our website and the dot com for additional information on the company.
Thank you for your interest at MBJ today and Goodbye.
Ladies and gentlemen that does conclude today's conference call. We thank you for your participation asset you. Please disconnect your lines.