Q4 2021 MBIA Inc Earnings Call
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, which is 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 a question and answer session will follow now here is bill Fallon. Thanks, Greg.
Morning, everyone. Thank you for being with us today.
As previously stated the resolution of our Puerto Rico exposures remains our primary focus.
Rico General obligation and public building authority plan of adjustment was confirmed by the title III Court in January and the oversight Board has indicated the plan will be effective by March 15th.
However, certain parties have requested a stay and we anticipate the judge Swain will address that request shortly.
Meanwhile, the oversight Board has also made progress regarding the restructuring of the highway and transportation authority that.
Recently certifying a fiscal plan for the HCA, which is a prerequisite to filing a plan of adjustment for HCA.
Concerning our PREPA exposure the oversight board previously stated its intent to file a plan of adjustment consistent with our longstanding RSA for PREPA.
In an effort to reduce further delay in resolving PREPA national recently submitted to the title III Court, a joint or to the urgent motion of the AD hoc group of PREPA bondholders seeking mediation of the PREPA RSA.
During the first quarter of 2022 National sold another $231 million of its bankruptcy claims associated with PREPA.
Which essentially exhausted the PREPA claims that could currently be sold by national.
Combined with the fourth quarter of 2021 sale of PREPA bankruptcy claims national and sold approximately 35% of its par claims and monetize a significant portion of its previously reported salvage recovery recovery asset that was associated with PREPA.
The sales not only reduce the potential volatility of ongoing remediation risk regarding national's PREPA exposure, but also generated additional investable assets, which will provide national with additional investment income and greater as of right dividend capacity.
At year end national hadn't remaining PREPA exposure of $809 million of gross par.
As we've stated on previous calls substantial progress restructure our Puerto Rico credits will better position us to pursue our strategic objectives, which may include a potential sale of the company and or requests for special distributions from National to MBIA, Inc.
Turning to naturals other insured credits.
<unk> portfolio continue to perform consistent with our expectations.
The outstanding gross par of National's insured portfolio has further reduced declining at $36 5 billion at December 31, 2021 down $5 4 billion from year end 2020.
At December 31, 2021, <unk> leverage ratio of gross par to statutory capital was 18 to one.
Now Anthony will provide additional comments about our financial results.
Thanks, Bill and good morning.
I will begin with a review of our fourth quarter and fiscal year, 2021, GAAP and non-GAAP results.
The company reported a consolidated GAAP net loss of $155 million or a negative $3 21 per share for the fourth quarter of 2021 compared to a consolidated GAAP net loss of $80 million or a negative $1 64 per share for the fourth quarter ended December 31 2020.
The higher net loss this quarter was largely driven by lower VII revenues as Q4 2020 revenues were positively impacted by the credit Suisse. Our MBS litigation Court verdict, and higher Puerto Rico losses related primarily to HCA, and PREPA, which I will spend a minute on now.
Regarding PREPA and the fourth quarter National agreed to a second sale of certain bankruptcy claims in a private transaction and the transfer of ownership of $231 million face amount of bonds, representing approximately 22% of the principal amount of the current bond claims in the PREPA title III case.
The CUSIP is included in the transaction had been fully satisfied by national insurance claim payments.
The transaction, which was executed at essentially the same modest discount is our first transaction monetized a portion of National's insurance loss recoverable unpaid claims into investable cash, reducing national's exposure to PREPA and furthering our goal of de risking national's balance sheet as part of our corporate strategy.
While we reflected the loss reserve activity in Q4, the transaction actually closed in the first quarter of 2022. So you will see an increase in cash received and a reduction in Puerto Rico salvage when we report first quarter earnings in May.
The two sales exhausted approximately $430 million of National's fully paid PREPA claims.
For HCA, we revised reserves to reflect greater certainty on the timing of the distribution of the contingent value instrument or CVI, which we expect to receive when the geo as effective as well as new HCA revenue bonds later this year.
Together with cash distributions the securities makeup our recovery value at HCA.
In addition.
We evaluated new information on the potential market value of these securities when distributed which we took into account in developing our current loss reserve scenarios. Our prior modeling assess the long term value associated with holding the new securities against the obligation to pay on our insured bonds until maturity.
For this quarter, we increased probabilities associated with accelerating our insured exposure prior to maturity and established estimated values for the new consideration when we project to receive them.
Taken together these changes in <unk> reserve assumptions generated higher loss in LAE for the quarter.
National's ultimate economic recovery will depend on the value realized over time from the securities received including market sales and the timing of acceleration of our insurance obligations.
The company's adjusted net loss, a non-GAAP measure was $106 million or a negative $2 13 per diluted share for the fourth quarter of 2021, compared with an adjusted net loss of $36 million or a negative <unk> 74 per diluted share for the fourth quarter of 2020.
The unfavorable change was due primarily primarily to higher loss in LAE at national in the fourth quarter of 2021.
For the year ended December 31, 2021, the company reported a consolidated GAAP net loss of $445 million or a negative $8 99 per share compared to a consolidated GAAP net loss of $578 million or a negative $9 78 per share.
For the year ended December 31 2020.
The lower net loss was driven by lower year over year loss and LAE expense at MBIA insurance Corp gains on financial instruments at fair value due to favorable changes on our interest rate swaps as a result of increases interest rates foreign exchange gains on euro denominated mtm's versus foreign exchange.
Losses in 2020 and gains on debt buybacks.
These benefits were partially offset by lower VII revenues as 2020 benefited from the credit Suisse. Our MBS verdict lower gains from sales of investments and higher loss in LAE at national related to Puerto Rico.
The company's adjusted net loss for the year ended 12, 31, 2021 was $261 million.
Were a negative $5 27 per diluted share compared with an adjusted net loss of $173 million or a negative $2 93 per diluted share for the year ended 12 31 2020.
Unfavorable change was due primarily to the higher loss in LAE at National and lower investment income in 2021.
MBIA, Inc. 's book value per share decreased to negative $5 73 per share as of December 31, 2021, compared to a positive $2 55 per share as of December 31, 2020, primarily due to the fiscal year net loss of 445 million.
Yeah.
The negative GAAP book value of MBIA Corp of $35 94 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, which primarily includes the activity of the holding company MBIA, Inc. Had total assets of approximately $873 million as of December 31, 2021.
Within this total are the following material items.
Unencumbered cash and liquid assets held at MBIA, Inc. Totaled approximately $239 million as of December 31, 2021, compared to $294 million as of December 31, 2020.
For the year, the holding company has bought back $111 million of GSL mtm's at approximately 73% of par.
The holding company is approximately 50 million euro of scheduled principal payments through the end of 2022.
There were approximately $439 million of assets at market value pledged to the <unk> and the interest rate swaps supporting the legacy <unk> operations.
The holding company received the $60 million as of right dividend from National in Q4.
Turning to the insurance company's statutory results National reported statutory net income of $5 $5 million for the quarter ended December 31, 2021 versus statutory net income of $41 million for the quarter ended December 31, 2020 again.
The unfavorable result was primarily due to loss in LAE benefit in Q4, 2020 on Puerto Rico exposures versus expense in the current quarter.
For the year ended 12, 31, 2021 National reported statutory net income of $55 million versus a statutory net loss of $82 million for the year ended 12, 31, 2020 due to materially lower loss and LAE expense in 2021.
National's gross claim payments on its Puerto Rico exposures are as follows.
From inception as of 12, 31, 2021 gross claims paid uninsured, Puerto Rico exposure totaled $1 $8 billion.
In January of 2022 national paid $47 million of gross claims.
As of December 31, 2021, National's total fixed income investment portfolio, including cash and cash equivalents had a book adjusted carrying value of $1 9 billion statutory capital was $2 billion and claims paying resources totaled $3 billion insured gross.
<unk> outstanding reduced by $1 $3 billion during the quarter and was $36 $5 billion as of December 31, 2021.
Turning to MBIA insurance Corp had statutory net loss was $40 million for the fourth quarter of 2021 compared to a statutory net loss of $54 million for the fourth quarter of 2020.
The favorable result was primarily due to the elimination of interest expense due to the full repayment of the senior MZ funding notes as well as lower FX losses, which offset lower premium earnings.
Approximately $70 million of MZ funding Junior notes remain outstanding and are owned by MBIA, Inc.
Lawson LAE continues to be driven by Zohar related recovery reductions.
For the year ended 12, 31, 2021, MBIA insurance Corp reported a statutory net loss of $129 million compared to a statutory net loss of $202 million for the year ended 12 31 2020.
The favorable result was primarily due to accelerated premium earnings driven by the early termination of an international public finance credit lower loss in LAE and lower interest expense.
As of December 31, 2021, the statutory capital of MBIA Insurance Corp was $134 million claims paying resources totaled $725 million.
MBIA Corp's insured gross par outstanding reduced by approximately $500 million during the quarter and was $5 2 billion as of December 31, 2021, and 61% 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.
Yes.
At this time, if you would like to ask a question. Please press star one on your Touchtone phone you may withdraw your question at any time by pressing the pound key.
Once again that is star and one would you lastly, you pick up your handset to allow optimal sound quality.
We'll take our first question from Tommy Magellan JV Debbie. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions here. This morning, So there had been some recent headlines.
About the PREPA deal trying to be renegotiated.
Kind of where we stand on that 2019 agreement and kind of what are the scenarios where.
The Puerto Rican.
Legislation does not approve that deal.
Yes, Tommy obviously, what you are referring to and I know you are quite aware of this so we've had an RSA in place for quite a while between the oversight board and the creditors. It requires the legislature too.
Approve certain pieces of it which the new seems to be that they are not inclined.
Inclined to do that and so what you've seen recently is the AD hoc group of creditors filed a motion with the court last week.
Core mediation, we joined that.
And then other creditors have subsequently joined it as well.
In the core that is judge Swain.
Four.
Briefing from both sides, meaning the oversight board.
They put their as in saying that they would agree to mediation, but they wanted it done differently, meaning not just with the AD hoc, but with a larger group of creditors and not on the time schedule that had been put forth.
So judge Swain will rule on that you're waiting for some more papers today and she will rule on.
Whether or not she'll moved this to mediation.
And from there, we'll see what happens.
Okay. Thank you.
And then switching over.
Cash based <unk>.
<unk> received by National from the monetization of those property claims.
In January we noted to be available for investment.
So what are the plans and the flexibility with that cash it seems like national kind of pro forma cash balance should be around $300 million all else equal.
Well, yes in terms of NASA clearly adds to the investable assets and while we report certain pieces of.
The invested assets as liquid as you know national in general is very liquid and has substantial asset. So this just adds.
To the amount that we have there and as we indicated we will generate additional investment income off of that.
Which will increase the as of right dividend.
On a pro forma basis, so it's all sort of positive from that perspective.
Okay.
And then just last one for me is there a way for us to think about the amount of excess capital when we think about the potential for a special dividend from national.
Kind of assuming you can get resolved is it appropriate to look at potentially leverage ratios.
But that kind of were around before Puerto Rico and <unk>.
Out of the proxy for calculating how much excess capital there can be today, given the shrinkage in the portfolio.
Yeah. So when you think back to the way the model lines used to look at this and obviously those who are still writing business. There was always a rating agency excess capital calculation.
That was looked at in our situation given the run off that we're going through we don't tend to look at it that way anymore and I think in terms of what youre getting at it becomes much more of a case by case analysis.
And those would be the discussions that we would have with the New York Department of financial services. So you can use certain ratios to.
To give you a sense in terms of the direction that things are going but I think in terms of calculating any specific amount of a special distribution out of national you have to drill down and go much more on a credit by credit basis.
Okay I appreciate you clarifying that.
Yes.
And once again as a reminder to ask a question today that is star one and we will take our next question from John Daly with Daily Capital. Please go ahead.
Bill I have a.
A question related to MBIA insurance Corp.
Our preface it by saying I'm not an insurance.
Expert in any way shape or form.
But it seems to me that even with the delays.
Too many bureaucrats.
<unk> lawyers involved.
Puerto Rico seems to be on track to being resolved timing.
Timing is an issue.
The blueprint is there.
Uh huh.
The remaining overhang.
Within MBIA is getting rid of MBIA insurance.
I have two questions there.
John .
If you have no financial residual financial responsibility for MBIA Insurance Corp.
What is holding you up and putting that back through the appropriate regulator.
And related to that.
If you don't put it back in.
You have an opportunity.
To combined MBIA with it.
Strategic.
Clarity industry.
Bill will be.
Back to the regulator.
No win.
A transaction or is it in any way.
Hum negatively impacted by the fact that MBIA you did that transaction.
Yes, John I'm going to have Anthony at least start to answer that one hi, good morning, John It's Anthony Let me just start with the first premise which is.
The concept of putting the company to the regulator is not really an option here.
Number one we have fiduciary responsibilities as officers of the company to our policyholders of MBIA Corp, no different.
Can we do to to national So it is.
Our responsibility to ensure that policyholders are protected.
So our goal at MBIA Corp is not too to wind up in a regulatory rehabilitation scenario, but to continue the work we've done really for the last 10 years, which is two <unk>.
Reduce the risk in the portfolio to a point, where it's in a normal run off mode. Just the way National is at this particular point. So again the portfolio of Corp has gone from about $190 billion at its peak to about 5 billion today and it should go down to a little under $3 5 billion at.
The end of this year.
In the meantime, we've positioned corp in a way that its liquidity position is better than it's been.
And probably seven or eight years, given the credit Suisse outcome and now our goal is to reduce the risk associated with two items. One is our existing loss reserve credits is there a way to de risk the book.
And a surplus accretive way.
That's beneficial to policy holders and other stakeholders and number two we need to bring the zohar.
Yeah.
The zohar situation to win and which we will try to do over this year from a credit perspective, and once we do that.
The company will look.
Certainly cleaner when it comes to any potential ultimate transaction that we would enter that said, we're always looking at potential options for MBIA Corp.
No different than we are for the remainder of the company. So we will continue to look at that but at this point, that's our strategy regarding Corp, and John Let me just add because you started off with sort of the fact that MBIA, Inc. Shareholders don't have necessarily an economic interest, but there is positive surplus capital in Corp.
And so really what we have is we're running this for the benefit of the surplus note holders who do have an economic interest. So it's not a question of whats.
Either the shareholders or it goes to the department because now it's just about the policyholders the capital structure is just a little bit different.
And everything we do is to make sure that the surplus note holders maximize their value and this which again there is.
A substantial amount of positive capital in Corp.
So I guess the question I have been.
It's not resolved through a regulator.
Infra strategic.
Fire.
Okay.
Youre, an obvious tuck in to our strategic plan and margin wise.
National.
Got rid of a lot of overhead et cetera.
MBIA insurance would they look at it the same way and say okay.
We've calculated value here.
And we'll manage it with the same fiduciary.
Approach and try to.
Again as much recovery for the noteholders.
Noteholders as possible.
Or is it a barrier if somebody is going to look at this and say Okay. You guys were cleaned up Puerto Rico, but you've got this other mess over here called MBIA insurance.
I'm trying to yes.
It's been a barrier or is it is it something that keeps us.
Strategic acquirer for looking at you and saying man I would love to put this on my books picked up 36 billion of additional credits I suspect. It would have to have quite the reserves you have and I'd say, it but we're not going to screw around with MBIA insurance or is it all just.
The industry and you can do the same thing you're doing.
Yes, I think the answer is that they will be able to add value. Just as you indicated even corp. You can continue to reduce the expenses and as Anthony I indicated there are only about $5 billion of par left. So this is getting very close to the end and there probably are some things that can be done in the near future to accelerate there.
And off of this company.
Thank you very much.
Thanks.
Okay. Thank you.
Once again as a reminder to ask a question today that is star one.
And we will take our next question from William Heidelberger, a private Investor. Please go ahead.
Good morning, Thank you for taking my question, which pertains to timing.
We're seeing the resolution of the general obligation bonds.
As of March 15th.
Is it your understanding.
On discussions you've had or your beliefs or prior experience that a strategic acquirer would require the resolution of the remaining obligations of national in the same way that the general obligation bonds are being resolved circa $3 15 in order to.
Pursue pursue national directly and make a bit or is there some.
Intermediate.
Level of reorganization of the remaining obligations that a strategic acquirer would feel comfortable with.
Bidding on national.
Yes. Thank you for the question.
The answer is that we do not believe that we need to resolve all of the Puerto Rico credits in some final sense to sell the company, which I think is what you're getting at.
And I can't speak for every potential buyer out there, but no we do not need to resolve in the same way for example, the coquina is now absolutely off our books.
To your point Geo it looks like it's getting pretty close to having the exchange go effective.
We do not believe that we have to wait for then HCA and PREPA to reach that same level of finality.
Yeah.
Do you have any other comments. Thank you for that do you have any other comments as to what might be an appropriate point for you to aggressively sell the company or is it really you are waiting for.
And so someone to make a bid.
No we're not waiting we continue to analyze that and at this point Theres nothing additional at this point to add but we're looking at that.
Continuously and quite actively.
Thank you very much.
Yeah.
And there are no further questions at this time I will now turn the call back over to Greg timing for any closing remarks.
Thank you Ashley.
Thanks to those of you listening to our call today. 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 you for your interest in MBIA, Good day and Goodbye.
Thank you ladies and gentlemen, this does conclude today's fourth quarter and full year 2021 financial results Conference call. You may now disconnect and have a wonderful day.
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