Q3 2021 MBIA Inc Earnings Call
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Welcome to the MBIA, Inc, third quarter 2021 financial results conference call.
I'd like to turn the call over to Greg Diamond managing director of Investor and Media Relations at MBIA. Please go ahead Sir.
Thank you Britney and welcome to Mbia's Conference call for our third quarter 2021 financial results.
After the market closed yesterday, we issued and posted several items on our websites, including our financial results 10-Q quarterly operating supplements and statutory financial statements for golf MBIA Insurance Corporation, and National Public Finance guarantee Corporation.
We also posted updates to the listings of our insurance companies insured 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 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 report 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.
It was included in last week's press announcement and in the financial result report that we posted on the N V I a website yesterday.
Here's 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.
Risk factors are detailed in our 10-K and 10-Q, which are available on our website at N V I a 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 a question and answer session will follow now here is bill Fallon.
Thanks, Greg Good morning, everyone, thanks for being with us today.
Actually it's been the case for many quarters now our focus and efforts remain on the Puerto Rico title III proceedings.
Since our last conference call the schedule of a restructuring of the Puerto Rico G. O N P. B a bonds has remained on track with the confirmation hearings beginning on Monday November eight and continuing on several dates through and including November 23rd.
We expect the plant to be confirmed later this year and implemented early next year.
Which would be material development for the Commonwealth emergence from bankruptcy.
After the G O P. B a plan is confirmed.
Oversight board is expected to focus its attention on the H T. A debt restructuring plan, which is scheduled to be filed with the court by the end of January of next year.
Confirmation of that plan will also facilitate the Commonwealth emergence from bankruptcy and resolved another significant amount of National's remaining Puerto Rico exposure.
In light of this continued progress on our insured Puerto Rico credits, we modified our loss assumptions for our G. O N P b a exposure.
And we also sold $199 million or 16% of the principal amount of our PREPA related bankruptcy claims.
Anthony will provide additional details on both of these items.
The commutation and acceleration of National G O N PBA bonds and monetizing a portion of our PREPA claims will reduce uncertainty on our Puerto Rico exposure and move us closer to pursuing our strategic objectives, which may include among other options of potential sale of the company and our special distributions from national to EM.
Uh huh.
Turning to National's other insured credits.
Short portfolios continue to perform consistent with our expectations.
The outstanding gross par of National's insured portfolio has further reduced declining 37 $7 billion at September 30th 2021.
Down $4 $1 billion from year end 2020.
At September 30th 2021, National's leverage ratio of gross par to statutory capital was 19 to once.
Now Anthony will provide additional comments about our third quarter financial results.
Thanks, Bill and good morning.
I will begin with a review of our third quarter 2021, GAAP and non-GAAP results.
The company reported a consolidated GAAP net loss of $123 million or a negative $2 49 per share for the third quarter of 2021 compared to a consolidated GAAP net loss of $58 million or a negative $1 11 per share for the third quarter ended September 30 of 2020.
The higher net loss this quarter was largely driven by higher loss in LAE incurred at national This quarter, primarily due to the two Puerto Rico items Bill referenced in his opening remarks, and I will cover in greater detail here.
First national changed its loss reserving scenarios regarding the Puerto Rico Commonwealth Geo transaction to incorporate final terms and approval of the plan of adjustment.
Affirming national's ability and expectation to accelerate its insurance policies in full upon the effective date of the plan of adjustment and reflecting the 27% of bondholders, who will have their insurance policies commuted based on the bondholder ballot results.
Given that national's insured exposure will be reduced to zero. Once the plan is implemented analysis. This quarter considered such extinguishment of exposure and the fair value of new consideration to be received and implementation of the plan for the insured bonds that arent commuted.
In prior quarters, the analysis did not assume acceleration or commutation and was based on ongoing claims payments and longer term recoveries.
This change in our claim and recovery reserving assumptions transitioning to the fair value of new G O consideration generated loss and LAE for the quarter.
In the end National's ultimate economic recovery value will depend on the value realized over time from the securities received.
Second related to PREPA National sold certainly bankruptcy claims in a private transaction due to the transfer of ownership of $199 million face amount of bonds, representing approximately 16% of the principal amount of the current bond claims in the PREPA title III.
Yes.
The Q ships included in the transaction had been fully satisfied by national insurance claim payments.
The transaction, which was executed at a modest discount monetize as a portion of National's insurance loss recoverable unpaid claims into investable cash.
Reduces national's exposure to PREPA and furthers our goal of de risking National's balance sheet as part of our longer term corporate strategy.
This quarters loss in LAE reflects the sale as well as an assumption for future possible sales of the remaining fully satisfied insured PREPA bonds and our insurance loss recoverable asset the <unk>.
Base of Mt.
Of which totaled $230 million as of 930.
The cash received and reduction in our GAAP insurance loss recoverable asset.
Selected in our Q4 results.
Offsetting some of the loss in LAE was the assumed inclusion of certain fees that we anticipate receiving under the PREPA RSA.
Higher loss in LAE expense at MBIA Corp was driven by continued value deterioration of the underlying portfolio companies and the Zohar CLO bankruptcies.
In addition to the higher loss in LAE, there was lower V. I a income in the current quarter.
These adverse results were partially offset by higher premium and fee revenue due to a refinancing of an international public finance credit in MBIA Corp, and gains on the buyback of GSL medium term notes at a discount in the corporate segment as we continue to prudently take advantage of such opportunities.
Yeah.
The company's adjusted net loss, a non-GAAP measure was $76 million or a negative $1.54 per diluted share for the third quarter of 2021, compared with an adjusted net loss of $18 million or negative <unk> 34 per diluted share for the third quarter of 2020.
The unfavorable change was due to the higher loss in LAE at National in the third quarter of 2021.
Book value per share decreased to a negative $3 12 per share as of September 32021, compared to a positive $2 55 per share as of December 31, 2020, primarily due to the year to date net loss of $290 million.
The negative GAAP book value of MBIA Corp of $35 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.
I will now spend a few minutes on the corporate segment balance sheet and the insurance companies the corporate segment.
Segment, which primarily includes the activity of the holding company MBIA, Inc. Had total assets of approximately $826 million as of September 32021.
Within this total are the following material items unencumbered.
Unencumbered cash and liquid assets held by MBIA, Inc totaled $210 million as of September 32021, decreasing from $294 million as of December 31, 2020.
Through three quarters, the holding company has bought back $106 million of GSL, MTM and approximately 72% of par.
The holding company has no material principal payments coming due on the inkjet or GFS notes for the remainder of 2021 and has only 50 million euro or schedule GSL principle payments through the end of 2022.
There were approximately $445 million of assets at market value pledged to the guests and the interest rate swaps supporting the legacy <unk> operation.
Turning to the insurance company's statutory results National reported statutory net income of $61 million for the quarter ended September 32021 versus a statutory net loss of $8 million for the quarter ended September 32020.
The favorable result was primarily due to a loss in LAE benefit in Q3, 2021 on Puerto Rico exposures versus expense in the prior comparable quarter.
The Puerto Rico changes I described earlier had the opposite effect on the statutory results versus GAAP.
Due to the materially higher discount rate used for stat applied to the PREPA recoveries, which produced a lower loss from the sale and ultimately a loss in L. A benefit from the probability weighted inclusion of fees due to national under the PREPA RSA.
And for the Geo bonds under Stat accounting, we continue to utilize scenario based loss reserving with pricing and timing sensitivities to ultimate disposition to measure loss and recovery value versus the fair value day, one analysis required this quarter under GAAP.
As recoveries for stat are discounted at materially higher rates than gap to change in recoveries. This quarter produced a loss in LAE benefit.
The prior period's results included current tax expense in the third quarter of 2022.
Decreasing national's year to date benefit related to the cares Act.
National's gross payments gross claims payments on its insured Puerto Rico credits are as follows.
In July National paid $226 million of gross claims and inception to date gross claims paid on insured, Puerto Rico exposure totaled $1 $8 billion.
As of September 32021, National's total fixed income investment portfolio, including cash and cash equivalents had a book adjusted carrying value of $1 $8 billion statutory capital was approximately $2 billion and claims paying resources totaled $3 billion insured gross par outstanding.
Reduced by $1 $8 billion during the quarter and was $37 $7 billion as of September 32021.
Yeah.
Turning to MBIA insurance Corp. Its statutory net loss was $17 $17 million for the third quarter of 2021 compared to a statutory net loss of $35 million for the third quarter of 2020.
Third quarter 2021 loss in LAE was attributable to higher losses on projected recoveries related to so har CLO claim payments in the third quarter of 2021 compared to the third quarter of 2020 offset by a material increase in premium and fee income due to the termination of an international public finance.
Credit.
MBIA Corp, we paid the $130 million of senior notes of MZ funding during Q3 2021.
The repayment will materially reduce interest expense going forward.
Approximately $70 million of MZ funding junior notes remain outstanding.
As of September 32021, the statutory capital of MBIA Insurance Corp was $143 million.
<unk> payment claims paying resources totaled $728 million.
MBIA Corp's insured gross par outstanding reduced by over $600 million during the quarter and was $5 $7 billion as of September 32021, and 63% of that exposure is non U S public finance credits.
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.
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And we will take our first question from.
Tony May join with <unk>. Your line is now open.
Hey, good morning, guys. Thanks for taking my questions. So the.
The private agreement of the sale of the PREPA claims was interesting do you think there is an appetite and available capital from other market participants should you want to monetize some or even all of the remaining salvage and we're comfortable assets that you hold and can you go through which pieces of the recoverable are free to monetize right now.
Sure Good morning, Tammi its Anthony a.
A few things one there is definitely appetite in the market for more shale opportunity like we achieved during the quarter specifically.
Theres, a face value of $230 million left on our PREPA salvage.
That represents the face amount of <unk>, where national has fully paid claims I'm sorry paid claims to fully satisfy those Q sips.
Make that distinction because those <unk> are the easiest and most available to sell with full and clear transfer of ownership and the associated rights in the bankruptcy with those ones that are partially satisfied it's very difficult to achieve that so there's a two month is 230 million.
PREPA available to sell the.
The largest remaining amount of what I'll call satisfied CUSIP or on the <unk> transaction and our salvage asset but at this point, we're looking to move forward with the transaction.
That we described today.
Weighted to the new G O.
Our plan of adjustment. So we don't anticipate at this time selling any more of those claims are selling any of those claims doesn't mean, we couldn't but that's really the inventory we have for <unk>. We have a minimal amount of CUSIP that had been fully satisfied it's under $100 million. So there's less to do there.
That's helpful and so was the decision to monetize somebody PREPA versus the G. O R. H T E just given that the.
G O was I guess more certain in terms of Manhattan.
The timing of the upcoming deal is that kind of the right way to think about it.
That's correct. The G O deal is right around the corner, we still have a material amount of PREPA exposure and that is obviously lagging behind.
G O and H T. A at this point and we were able to execute at a level that we were pleased with.
Okay. Thank you.
And then switching over to the to the holding company could you talk about any upcoming opportunities at the Holdco has to take out some of its remaining liabilities that accretive prices. Obviously the last two quarters have featured some small take out to some of the medium term notes at a at a nice 30% discount to par.
So if you could put some numbers around how much of the cash balances available there and kind of which liabilities are callable or available to be repurchased in the market that'd be helpful.
Sure. So again, we've got a little over $200 million of liquidity at the holding company right now again, our first priority is getting through the near term and as we've said the combination of cash today and as of right dividends at National gets us through 2025 at this point so we.
Really focused on in the past looking at repurchases within the 2022 to 2025 window.
To the degree in these opportunities have increased for us over the last few quarters.
Opportunities beyond 25 come available like they have over the last two quarters, if they come in at attractive prices like we've achieved we will certainly continue to look at that there's a very little callable debt left so the rest of this is really due to market opportunity. So we've got you know give or take.
$500 million of MTM.
And $600 million of ink debt of which on the ink side about 300 million is actually held by national.
So that just gives you kind of an idea of the inventory that's out there, but really we'll continue to look.
Get approached relatively often at this point.
So when opportunities arise at the levels that we've seen will certainly continue to look at it.
Yeah.
Thanks, and then just just last one could you walk through some of the.
Kind of helping us out with sizing up the potential size of the special distribution from National to Inc.
I guess you have to make a fair number of assumptions that the fair value marks on the reserves and recover those are accurate.
And I guess, just thinking about how much capital is there a national that could be distributed.
Yes tell me on that one it's hard at this point to put a number because obviously it will depend as Puerto Rico gets restructured and we received some of the collateral or the exchange of bonds.
She has to do for example, as we didn't feel free to sell some of those will depend on where we are what the remaining portfolio. It looks like so it's hard to give you a precise answer.
We do look at metrics, such as the leverage which we talked about which continue generally to come generally is coming down.
But we don't have a number at this point for it.
Okay. Thank you.
And we will take our next question from John Steve Lee with Daily Capital. Your line is now open.
Good morning, Bill I have a fairly simple question.
President of Puerto Rico.
Unsolicited commented in a recent speech most houses or their government have.
As he said will approve the restructuring plan.
Obviously it has to go through this oversight committee.
<unk>.
Two questions one do you see anything at this point.
The rail.
Approvals of what you've already agreed to which I assume the other bond holders have agreed to if you have any implicit approval from the president and the implication that both sponsors and their government to approve it do you see anything to upset the strain that seems to be moving very rapidly to conclusion.
And secondly to a labor and a non insurance Guy like me.
How will the already paid claims.
Be handled in a recovery how horrible the handle that in terms of the.
Negotiations that you have.
Agreed to and are being reviewed by this oversight committee.
Okay. Thanks, Jon.
With regard to the second one let me deal with that first which is where we've insured bonds and we paid the claims essentially we step into the shoes of the bondholders. So.
We talk about receiving a new bonds or collateral depending on how the structure works out.
So we step into their shoes effectively in terms of any other recoveries, but then we're still obligated to the extent that there are bonds outstanding to pay the debt service on those either as it comes due on accelerated basis with regard to your first question.
There was a lot of news over the last couple of weeks with regard to legislation down in Puerto Rico in terms of what the.
Our politicians were doing down there at this point, though we have the approvals the oversight board under promise us believes that they work they have sort of explain their view and any concerns they might have to judge Swain and there was no need for mediation, which judge Swain a couple of weeks.
<unk> had.
Indicated was going to occur but the parties reached.
Appropriate agreement the legislation was passed finally by the Senate in Puerto Rico, the Governor is supportive of it.
And as we mentioned the confirmation hearings will start next week.
On Monday, with judge Swain, and again, while there'll be I'm sure lots of discussion and.
And back and forth, we believe that those will now be approved but they do have the necessary legislation from the pop.
Politicians in Puerto Rico to move forward.
And another question that you did not address on this call.
That is in the litigation.
Uh huh.
Number the underwriters on Wall Street on the whole underwriting Puerto Rican debt, where they had moved for summary dismissal matter was denied is there any update on that litigation.
Yeah with regard to that and you indicated correctly, we have filed a lawsuit against eight banks with regard to their status as underwriters on Puerto Rico debt.
The bank's appeal that decision.
Yes.
And we're waiting at this point for the appeal decision. So it could come at any time, but it is hard to predict when it will come.
But that's the status there so essentially nothing new.
Thank you and good luck good luck wrapping it all up I E.
Look the exit with you.
Thank you Tom.
[laughter].
And we will take our next question from Paul Saunders with Hutch Capital. Your line is now open.
Good morning, Thanks for taking my question.
Two quick ones for me.
The DFL repurchase that you guys made can you guys disclose which bond or bonds or even just kind of the year maturity that that you purchased.
Paul We purchased a 2026 and 2031 maturities this quarter.
Got it okay.
It it.
Sort of deduce that by the prices, it's hard to back into it if there.
It was one bond and then just the second question is.
Just on the MBIA Corp side, and the decline in the Zohar recovery value can.
Can you comment at all that's obviously really just kind of gone one way down can you just like broadly speaking.
And then on.
You know roughly where you have that recovery marked in sort of your expectations on achieving you know some recovery there.
Well you are correct things have generally gone in one direction since the bankruptcy three years ago. So we've written down recoveries materially over the last few years right now MBIA Corp has I'm going to look at the statutory balance sheet about $240 million.
Of our remaining salvage.
The majority of that number is.
As related to Zohar recoveries, which again is substantially down from the last prior years. So.
Essentially.
The remaining companies that are in the queue to be sold we are hopeful that the value there will meet or exceed our current salvage expectations, but total salvage which is.
Zohar related and primarily some excess spread.
On our first lien MBS portfolios $240 million this quarter.
Yep, Okay. Thanks for that color I appreciate it.
Sure.
Okay.
You've seen what the oversight board is said to judge Swain as recently as this week and so we'll wait and see how this plays out but again, we think at this point it looks like the she will confirm the plan, but again, we'll wait and see what happens starting next week, but I have I can't give you a a quantitative answer to that way.
<unk> question.
Okay and then this may be a little technical I guess, but how do you go about.
Assessing a sale price for your irrecoverable <unk>.
You know obviously you have what you booked what was the process of coming to a sales price, obviously weighing uncertainty of potential future collateral and market prices, but but how did you go about doing that and then also.
Given the appetite in the market.
Do you think basically all of your Puerto Rico, Recoverables theoretically could be monetize through this through this method if if the.
If you judge the valuations appropriate.
So H good morning, Jeff That's Anthony let me let me.
Answer this in and kind of two parts on the PREPA sale in particular, we looked at again. This is part of just the bigger picture strategy of Derisking Nationals book, and and obviously you know a a large part of that has been in the negotiations on the separate Puerto Rico credits entitled three but.
Also continuing to look at other ways to Derisk the book, where we can when it came to PREPA. When we looked at is essentially when you looked at the future consideration under the RSA well, what we perceive to be the future consideration the risk of of execution.
The amount of PREPA exposure that we have on the books and we'll still have on the books. After this.
And the timing associated with it we thought about really what amount of proceeds would it take for us to engage in a trade.
Where we would forfeit the RSA consideration.
<unk> ties the salvage the portion of the salvage asset we could and convert that to investable cash at national which serves several purposes. It's obviously a strong asset versus a salvage asset it is.
Investable and it will increase nationals as of right and ultimately special dividend capacity. So that's the thought process. We went to there was at the end of the day and again, there's more trades potentially to be done so I'm not going to go into specific pricing.
But we were quite disciplined and the fact that we did not want to take a material discount because this was an option to us versus something we had to do but.
But ultimately we were able to come to terms at a level that we felt having the cash in the door. That's now deployable.
Was absolutely worth us doing and taking some PREPA exposure off the table as.
As far as the remaining salvage again, the salvage asset for the third quarter for nationals are around $1.3 billion.
Again, I talked about the face value crop of bonds that are left the bankruptcy, it's associated with the $230 million face value of Q sips of claims we've paid.
A good percentage of the remaining.
Salvage is on Geo in Hte a claim payments.
And as we said earlier, we're about to enter into the Geo transaction, assuming all goes according to plan. So I don't.
Currently contemplate a sale of future salvage.
The timeline early next year of completing the Geo transaction.
As we continue to pay more claims on PREPA, an H T. A and more two sips are fully satisfied as an inventory grows will certainly be open to looking at trades, if it makes sense.
Yeah, the other thing.
Jeff, giving it the more we can reduce Puerto rico exposure or reduce the.
Of you with regard to volatile would expose the quicker we can get to our strategic alternatives. So that is also a factor as we look at these things because selling those claims obviously helps.
With that in that regard.
Yeah, I have to imagine there's a value every bond internal put on just put them in some of those behind you with certainty and I understand that just a accounting question I guess, but the salvage asset of $1.3 billion is that the same as what you were saying in the face value.
No. So the distinction there is the salvage asset is are essentially a <expletive> scenario based.
Re value of the agreements that we're going to enter into whether it's PREPA G O.
<unk>, obviously this quarter, we moved to a fair value.
Analysis on G O.
That is separate from the face value of the queue ships that we insured. So how we look at the sales of these type of deals Jeff was that selling bankruptcy claims and rights they happen to be attached to the transfer of ownership of cue tips, but will really selling is the whites under in this case the prep RSA.
So can you translate your salvage asset as a 932 a face value.
No.
Okay alright. Thanks.
And we do have a follow up question from John Stevie with Stephen capital I might as well open.
Very quick question, how did you monetize.
Some of these claims would bring liquidity <unk> <unk>.
You have capacity to have more stock buybacks will you be buying stock in the market at these levels with that liquidity.
So John we are we there are limitations, we have to buy shares factors, there's regulatory limitations to what you can buy and just as a as a kind of a thumbnail calculation.
It's essentially 50% of national surplus is what we're limited to given where the share prices today and the fact that national owns a little more than $84 million 84 million shares of the holding company.
We are well beyond any regulatory limit that would allow us to buy shares a couple of hundred million dollars at this point over the limit so we.
We don't have capacity at this point to repurchase any shares a national.
Thank you.
Yeah. It's my first time I am sending out for any questions I'd like to turn to put it back over to Craig's done is there any additional are closing remarks.
Thank you Brittany.
Thanks to those of you listening to our call. Please.
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 the company. Thank.
Thank you for your interest in MBIA.
Good day and Goodbye.
[noise] [noise]. Thank you ladies and gentlemen, this does conclude the cheeseburger.
<unk> 2021 financial results Conference call you may now disconnect.
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