Q1 2021 MBIA Inc Earnings Call

Welcome to the MBIA, Inc. First quarter 2021 financial results Conference call.

I would now like to turn the call over to Greg Diamond managing director of Investor and Media Relations I N V. I a please go ahead sir.

Thank you Maria welcomed the Mbia's conference call for our first quarter 2021 financial results. After the market closed yesterday, we issued and posted several items out of our websites, including our financial results 10-Q quarterly operating supplement Inc.

Statutory financial statements for both MBIA Insurance Corporation and National Public Finance guarantee Corporation. We also posted updates to the listings of our insurance companies insured 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 the comp.

<unk> definitive disclosures are incorporated in those documents.

We urge investors to read our 10-K and 10-Q as they contain our most recent 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 report and our quarterly operating supplement the.

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 is included in the last in the press announcement and in the financial results, we posted on our website yesterday.

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 risks.

The risk factors are detailed in our 10-K and 10-Q, which are available on our website at MBIA Dot com.

The 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 introductory comments and then the question and answer session will follow now here is bill Fallon.

Thanks, Greg Good morning, everyone.

Thank you for being with us today.

We are pleased to of recently.

Reached an agreement with the oversight board to resolve our Puerto Rico Highway and transportation authority exposure.

This agreement means we will continue to support the Commonwealth's general obligation and public building authority planned support agreement.

Following these agreements restructuring frameworks are now in place to address practically all of our of Puerto Rico exposure.

The proposed timelines for confirmation of the plans of incorporating these agreements.

Adjusted each of these debt obligations could be resolved by early to late 2022. However.

However, there can be no assurance that confirmation in those time frames will actually occur.

While the oversight board's attention has largely has been largely directed to the geo in HCA that this year, we remain hopeful that the process of implementing the restructuring support agreement for PREPA will soon regain momentum as well.

Regarding National's litigation against certain underwriters of some of its insured Puerto Rico debt, we continue to await a ruling on the defendant's motion to dismiss the case.

Turning to the other credits of National's insured portfolio. Most of these credits have continue to perform consistent with our expectations the outs.

Standing gross par of National's insured portfolio continues to reduce declining to $45 billion at March 31, 2021 day.

Down $1 $4 billion from year end 2020.

At March 31, 2021, National's leverage ratio of gross par to statutory capital was 21 to one.

Now Anthony will provide additional comments about our first quarter financial results.

Thanks, Bill and good morning, I will begin with the review of our first quarter 2021, GAAP and non-GAAP results.

The company reported a consolidated GAAP net loss of $106 million or of negative $2 16 per share for the first quarter of 2021 compared to a consolidated GAAP net loss of $333 million or of negative $4 62.

For the quarter ended March 31 2020.

The lower net loss this quarter was driven by several factors.

Lower loss and loss adjustment expense at MBIA Corp.

Net gains on financial instruments related to our interest rate swaps associated with the gift business due to higher interest rates.

And lower overall interest interest expense due to debt repurchases and pay downs over the last year.

These items were somewhat offset by higher loss in LAE at national.

Lower net investment income due to lower invested assets at national and lower V. I E income.

Loss in LAE incurred at National this quarter was due primarily to assumption changes in our credit loss scenarios related to the recent agreement on the Puerto Rico Highway and Transportation Authority H T E and the increase in risk free rates used to discount certain of our Puerto Rico assume losses.

And recoveries.

More than half of the loss incurred this quarter is due to the increase in GAAP discount rate with the remainder of being credit driven.

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Loss and loss adjustment expense this quarter at MBIA Corp was lower than last year's first quarter, primarily due to the increase in the risk free rates used to discount claim payments on its first lien our MBS exposure.

Which offset a reduction in estimated recoveries on claims paid on the Zohar CLO.

The company's adjusted net loss of non-GAAP measure was $116 million or of negative $2.36 per diluted share for the first quarter of 2021, compared with an adjusted net loss of $47 million or negative <unk> 65 per diluted share for the first quarter of 2000.

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The unfavorable change was primarily due to higher loss in LAE at national.

Book value per share decreased to a negative 76 cents per share as of March 31, 2021, compared to $2 55 per share as of December 31, 2020, primarily due to the first quarter 2021, net loss of $106 million in unrealized losses on it.

Investments due to higher interest rates.

As we have said previously the negative GAAP book value of MBIA Corp of $32 19 per share, which includes $1 billion of accrued but unpaid interest on its surplus notes has and will materially contribute to the decline in consolidated book value of the company.

Management believes the at MBIA Corp, does not have significant economic impact on MBIA, Inc shareholder value.

I will now spend a few minutes on the corporate segment balance sheet and the insurance companies.

The corporate segment, which includes the activity of the holding company MBIA, Inc. Had total assets of approximately $900 million as of March 31 2021.

Within this total are the following material items.

Unencumbered cash and liquid assets held by MBIA, Inc totaled $298 million as of March 31, 2021.

It was essentially unchanged from December 31, 2020.

The holding company has no principal payments coming due on the Inc debt or G. F. L notes for the remainder of 2021.

There were approximately $430 million of assets at market value pledged to the gifts and the interest rate swaps supporting the legacy <unk> operation.

As of March 31, 2021, there were no tax deposits from the tax escrow account and we expect the tax escrow releases will not be a meaningful contributor the holding company liquidity in the future.

Turning to the insurance company's statutory results.

National reported a statutory net loss of $35 million for the quarter end March 31, 2021 versus the statutory net loss of $80 million for the quarter ended March 31 2020.

The favorable result was due to lower loss and LAE on Puerto Rico exposures, partially offset by a current tax benefit in the first quarter of 2020 that included an additional benefit related to the cares Act.

During the first quarter of 2021 national paid $51 million of gross claims on its insured Puerto Rico bonds.

With $1 $6 billion paid inception to date.

As of March 31, 2021, National's total fixed income investment portfolio, including cash and cash equivalents.

Had a book adjusted carrying value of $2 billion.

Statutory capital was $1 $9 billion and claims paying resources totaled $3 $1 billion, Inc.

<unk> gross par outstanding reduced by $1 $4 billion during the quarter and now stands at $45 billion.

Turning to MBIA insurance Corp. The star.

<unk> net loss was $34 million for the first quarter of 2021 compared to the statutory net loss of $91 million for the first quarter of 2020 the.

The favorable comparison was due to lower loss and LAE, partially offset by lower foreign exchange gains.

Loss in LAE of this quarter was driven by the decrease in expected recoveries on the Zohar CLO.

As of March 31, 2021, the statutory capital of MBIA Insurance Corp was $237 million compared to $273 million as of December 31, 2020, due to the net loss for the quarter.

Claims paying resources totaled $895 million.

Cash and liquid assets increased materially during the quarter to $503 million as of March 31, 2021 versus $130 million as of December 31, 2020, due principally to the $600 million cash received in February from the R. M. B S put.

Back settlement with credit Suisse that we announced last quarter.

MBIA Corp paid $150 million towards the pay down of the MZ funding senior note during the quarter with remaining senior notes outstanding of $127 million in subordinated notes of $67 million as of 331 2021.

MBIA Corp's insured gross par outstanding reduced by $419 million during the quarter and was seven $3 billion as of March 31 2021.

With credit Suisse now behind at MBIA Corp, 's largest remaining legacy remediation and projected recoveries are related to the Zohar CLO.

And now we will turn the call over to the operator to begin the question and answer session.

Thank you the floor is now open for questions. If you wish to ask a question at this time simply press Star then the number one on your telephone keypad again that of Star one.

If at any point. Your question has been answered or you wish to remove yourself from the queue press the pound key.

Our first question comes from the line of probably Mcdonald of K B W.

Hey, good morning, guys. Thanks for taking my question.

So you mentioned being hopeful that the negotiations should regain some momentum soon is there any specific date or events kind of we should be thinking about all of that timeline to look for the next.

There is no specific day.

At this time, Tommy but we do think now everyone's attention will turn towards the PREPA given that the <unk>.

H T a and the D O deals have been agreed to but again no specific date.

Okay. Thanks.

And then can you discuss kind of the board's thinking on potentially authorizing additional buybacks at Nashville.

Sure Anthony you want to talk about some of the details with regard to buybacks.

Sure so.

At this point as you know Tommy we're repurchasing or purchasing of MBIA, Inc shares through national.

National has capacity constraints.

That are limited by our calculations for New York insurance law that essentially.

Require it that it can purchase no more shares than 50% of the surplus of nationals. So for example at the end of the first quarter. The surplus was about $1 5 billion.

Give or take 50% is about 750 million of capacity and when you look at the amount of shares the nationals repurchased to date.

The market value of those share has exceeded the $750 million so as of today Nash.

National doesn't have capacity to buy MBIA, Inc shares to the degree that surplus goes up or the market value of the stock goes down.

That could open up availability for national the purchase shares in the future.

Yeah.

Okay. That's helpful put some numbers around that thanks, and then just lastly, thinking about kind of over the next year or two you mentioned there being planned.

Plans in place potentially getting resolution on all of the Puerto Rico credits by early to late 2022.

What kind of actions or are you kind of thinking about the great value for shareholders kind of loopnet.

Interim time period.

Well as we've mentioned in the past Puerto Rico, We think is the high.

Highest priority so getting those deals actually executed is the are the top priority as well as prep as we've already talked about.

During that time, we expect the portfolio to continue to decline, which we think is helpful and as we've talked about the key things for us are getting money from national up to the holding company and then also looking at strategic alternatives, which we've been pretty clear about we think there's further consolidation of industry and net.

We're likely to be of seller at some point in the future. So those of the things that we will continue to focus on.

That's helpful. Thanks for the kind of.

Again, ladies and gentlemen, I know what the task of question simply Press Star then the number of one on your telephone keypad. Our next question comes from the line of John's Daily of state of the capital Advisors.

I'm just curious.

Settlement agreements that you're working with the oversight committee.

Or are they completely consistent with the assured guaranty who announced.

Several times during the quarter of their progress and you guys Didnt announce anything or you guys. One of the same page.

Yes, so the agreements on HCA, which is the most recent one which then has the link back to the Geo deal.

John we ensured of both in those deals.

Okay.

So I'm, assuming then you know who you are.

You and your management team.

Our holdings of yours, holding your stock.

Haven't noticed in the selling or buying insiders.

Look I can't speak for everybody, but the.

Other than for.

What we call tax settlement I've never sold a share of stock I've been progressing as you know.

Yeah, you're not on the same page okay. Thank you.

Yep.

And at this time I am showing no further questions I'd like to turn the floor back over to Gregg Carman for any additional or closing remarks.

Yes.

Thank you Maria.

And thanks to those of you listening to our call per day. 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 our company. Thank.

Thank you for your interest in MBIA, Good day and Goodbye.

Thank you ladies and gentlemen, this does conclude today's first quarter 2021 financial results Conference call you may now disconnect.

Yes.

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