Q2 2021 MBIA Inc Earnings Call

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

Regarding today's call. Please note that anything said on the call is qualified by the information provided in the company's 10-K, and 10 Qs and other SEC filings as our company's definitive disclosures are incorporated in those documents the earth.

Investors to read our 10-K and 10-Q as they contain our most current.

The disclosures about the company and its financial and the operating results.

Those documents also contain information that will not be addressed on today's call.

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 recorded replay for today's call will become available approximately 2 hours. After the end of the call and the information for accessing it was included in last week's press announcement and in the financial results report that we posted on MBIA website yesterday.

Now I'll read the 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.

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.

Per our call today, Bill Fallon and Anthony Mckiernan.

We 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.

Earlier this year, we announced that national signed on as a party to the Puerto Rico, Geo Slash PBA and HCA agreements the.

The scheduled to incorporate those agreements into confirmed plans of reorganization has remained on track.

Last week Judge Swain approved the disclosure statements of the Geo plant.

The Geo plan is expected to be confirmed the November of this year and the HPA plan is expected to be filed by January 31.2022.

In addition.

And back in Paycheck recently joined the Geo in HCA agreements.

This brings the HCA creditor support level above, 67%, which is the threshold for confirm ability of the HCA plan under pro Medusa.

And an important precondition to receiving some of the HCA planned distributions on the.

<unk> plan effective date expected early 2022.

Although there are schedules in place to consummate these agreements there can be no assurance of this or that they will become effective on the currently expect the timelines.

Once these debt restructuring plans of confirmed and effective we will be better positioned to implement our longer term strategic plans for the company.

National also has made important progress in its litigation against certain underwriters of some of its insured Puerto Rico debt.

In June of this year the Commonwealth Court denied the defendants motion to dismiss the case and the discovery process has begun.

Defendants have filed the appeal of the motion to dismiss ruling.

Turning to other credits in National's insured portfolio. Most of these credits of continued to perform consistent with our expectations. The.

The outstanding gross par of National's insured portfolio has further reduced declining to $39.5 billion at June 30 of 2021.

Down $2.3 billion from year end 2020.

At June 32021, National's leverage ratio of gross part of statutory capital was 21.

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

Thanks, Bill and good morning.

We'll begin with a review of our second quarter 2021, GAAP and non-GAAP results.

The company reported a consolidated GAAP net loss of $61 million or of negative $1.23 per share for the second quarter of 2021 compared to a consolidated GAAP net loss of $106 million or a negative $1.69 per share for the quarter ended June 32.

2020.

The lower net loss this quarter was driven by lower loss and loss adjustment expense at National and MBIA Corp, and a gain on the buyback of GFS medium term notes at a discount in the corporate segment.

These items were partially offset by net mark to market losses on financial instruments in 2021 related to our interest rate swaps associated with the gift business due to lower interest rates from 2021 compared with net gains in 2020.

There were lower gains on sales of securities at National and lower VII income.

Watson LAE incurred at National this quarter was negative $42 million due primarily to the decrease in risk free rates used to discount our Puerto Rico assumed losses and recoveries.

There were no material assumption changes in our credit loss scenarios.

The <unk> LAE incurred this quarter at MBIA Corp of $51 million was lower than last year's second quarter of $64 million with this quarter's losses driven by a reduction in estimated recoveries on claims paid on the Zohar CLO and lower discount rates impacting the insured first lien our MBS book.

The company's adjusted net income of non-GAAP measure was $37 million or <unk> 76 per diluted share for the second quarter of 2021, compared with an adjusted net loss of $72 million or of negative $1.15 per diluted share for the second quarter of 2020.

The favorable change was primarily due to the loss in LAE benefit at National on the second quarter of 2021 versus expense in the second quarter of 2020.

Book value per share decreased to negative 66 cents per share as of June 30 of 2021 compared to $2.55 per share as of December 31, 2020, primarily due to the year to date net loss of $167 million.

The negative GAAP book value of MBIA Corp of $33.51 per share, which includes over $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 that MBIA Corp does not have significant economic.

<unk> on MBIA, Inc. Shareholder value, which is why it is 1 of the book value of adjustments implemented by management.

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

The corporate segment, which primarily includes the activity of the holding company MBIA, Inc. Had total assets of approximately $850 million as of June 30 of 2021.

Within this total are the following material items unencumbered.

And on encumbered cash and liquid assets held by MBIA, Inc. Totaled $238 million as of June 30 of 2021 decreasing from $294 million as of December 31, 2020.

In the second quarter, the holding company bought back 53 million Euro of GFS MTN due December 3.2024 at approximately 78% of par.

U S dollar proceeds utilized were approximately $50 million.

We will continue to evaluate debt buyback opportunities.

The holding company has no material principal payments coming due on the inkjet or GFS notes for the remainder of 2021.

There were approximately $445 million of assets at market value pledged to the <unk> and the interest rate swaps supporting the legacy <unk> operations.

As of June 32021, there were $1.5 million of tax deposits from the tax escrow account and we expect the tax escrow releases will not be a meaningful contributor of the holding company liquidity in the future.

Turning to the insurance company's statutory results National reported statutory net income of $23 million for the quarter ended June 30 of 2021 versus the statutory net loss of $35 million for the quarter ended June 30 of 2020.

The favorable result was due to lower loss on early on Puerto Rico exposures, partially offset by higher prior year gains on asset sales of national lower premiums earned and investment income in.

And the current tax benefit in the second quarter of 2020 that included an additional benefit related to the cares Act.

National's gross claims payments on its insured Puerto Rico credits are as follows.

During the first half of 2021 national paid $51 million of gross claims.

In July National paid $226 million of gross claims.

And inception to date gross claims paid on insured Puerto Rico exposure total 1.8 billion.

As of June 32021, National's total fixed income investment portfolio, including cash and cash equivalents had a book adjusted carrying value of $2 billion.

Statutory capital was approximately $2 billion and claims paying resources totaled $3.1 billion.

Insured gross par outstanding reduced by almost $1 billion during the quarter and was $39.5 billion as of June 30 of 2021.

Turning to MBIA insurance Corp. Its statutory net loss was $37 million for the second quarter of 2021 compared to the statutory net loss of $23 million for the second quarter of 2020.

The second quarter 2021 loss in LAE was attributable to lower negative incurred losses in the insured second lien our MBS book, partially offset by lower losses on projected recoveries related to the Zohar CLO claim payments in the second quarter of 2021 compared to the second quarter of 2020.

As of June 30 of 2021 of the statutory capital of MBIA Insurance Corp was $160 million MBIA Corp received non this approval from the New York Department of financial services for $125 million of contingency reserve release Intuit the statutory surplus during the quarter claim.

Claims paying resources totaled $786 million.

MBIA Corp's insured gross par outstanding reduced by almost $1 billion during the quarter and was $6.3 billion as of June 30 of 2021.

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 at this time, if you would like to ask the question. Please press star 1 on your telephone keypad.

If you would like to ask the question press the pound key.

We'll pause for just a moment for your first question.

Your first question is from the line of Tom May join the.

K B W.

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

The the parent company repurchased those medium term more of about 78% of our.

Can you add in the any details on the Optionality.

Half of the of appetite the buyback or settle on the other liabilities there to the extent there.

<unk> low bar.

Sure.

Turning.

We've said that our liquidity window as we call. It now really looks to 2025, so to the degree we find opportunities primarily within that zone that.

Of that are attractive to us we will seriously explore those outside of the 225, probably less attractive at this point, but we continue to look at every opportunity, but within that 2025 time frame as the target.

Okay, Okay that makes sense.

And then of switching over to the the Puerto Rico side, you touched on the G. O on <unk> could you give the quick summary of where we stand in terms of the support levels in terms of timeline for the PREPA restructuring plan.

As you know Tom PREPA agreement in place the <unk>.

Pension really has been on the Geo in HCA deals for the first half of this year.

So we would expect to be more attention.

With regard to moving the PREPA deal forward, but at this point in time, that's really been the.

On the summary view of what's happened this year.

Okay makes sense.

And then last 1 so with the CBI and the contingent value of an instrument of expected to be.

A big part of the recovery here.

Want to make mark to market estimates of that CVI the value in anticipation of issuance.

Included in the interest.

Actually the deal or is it more of said that you have to wait until the restructuring deal is actually finalized in the courts and the key guys actually issued before you would book.

Book on the Mark to market recovery.

Yeah at this point, we don't have the CVI, so what you're seeing is.

That play out through the loss reserving process.

Right. So we go through the scenario is still in terms of setting reserves.

But since we don't have the CPI.

Right. There is nothing we account for other than the loss reserves and at the I don't know if you want to add anything at this point.

No I think that right now on our loss reserves as Bill said, we're looking forward at the.

Proposed compensation and exchanges related to the Puerto Rico transactions, we're making certain assumptions at that point related to all of the compensation, including the CVI, but at.

At this point until things are more formalized and until those securities are issued.

Really where you see any.

The analysis of that and any movement.

Okay.

I guess, what would you expect that over kind of of course the air.

Until we get to the.

Of these timelines in November and January.

The majority of men in March.

Adjustments for the loss and loss recovery would just be driven by discount rates in the midst of it rather than on changing assumptions.

As long as we continue to be on schedule and there are no material changes to the actual underlying agreements.

Our assumption would be correct, we would expect that changes would be far more driven by discount rate movements as we move closer to completion.

Okay. Thank.

Thank you.

Yes.

As a reminder, if you would like to ask the question Press Star 1 on your telephone keypad.

Your next question is from the line of John Standley, The Stanley Capital Advisors.

The Bill good morning, I have 2 questions.

At some point in time.

Through the early stages in the later stages of the Puerto Rican discussions.

You were not the MBIA, Inc was not totally consistent with the objective.

The assured guaranty with AGL.

<unk>.

1 of the different than the ensuring different sections of the bonds types of bonds are you guys built on that way are you all of consistent now.

On the same page in terms of the restructuring and the.

Compensation related to it.

All related to it that's my first question.

Yes, John again, thanks for the question.

And some of them I think the answer is yes. We are now part of the same agreements.

Okay, so on that sense.

I think we're aligned and consistent as you say.

<unk>.

And secondly, the market is beginning to validate your strategy for capital allocation of our you brought back.

So much stock.

Recognizing there were a lot of other issues today the liquidity.

But would you still look at your stock.

Buyback.

Attractively, adding to the intrinsic value at these levels of if you were able to buy it back.

Yes with regard to that as you know right the big part with the last part of your of your question, which is if we could buy it back and as you know we're not done amongst all of that through national.

We've never said.

What the exact dollar amount is weak.

We sort of let our actions speak for set for itself. So at this point, we don't have the ability to national.

It's possible that could change in the future its possible at some point that would be enough liquidity at the holding company that we could repurchase shares there.

And so that's how we'll address that situation.

To your point, we I think have been very consistent over time, where we have repurchased shares indicating that we do think it is answering the long term shareholder value.

Thank you I'm glad to see the market regaining the agree with you.

Thank you John.

At this time I am showing no further questions I'll, let you share the floor back over to the management for any additional or closing remarks.

Thank you tamika 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 Dot com for additional information about our company.

You for your interest in MBIA, Good day and Goodbye.

Thank you ladies and gentlemen, this does.

Todays second quarter 2021 financial result conference call you may now disconnect.

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