Q1 2022 MBIA Inc Earnings Call
With <unk> and exchange for the Puerto Rico, Geo and PBA debt that was satisfied by National's insurance claims payments.
Last week, the Puerto Rico oversight Board filed the plan of adjustment for the Puerto Rico highways, and transportation authority, or <unk>, which resolved $657 million of National's HTH bankruptcy claims.
National will receive recovery consideration in the form of cash HCA, CVI, and possibly new HCA revenue bonds under this plan, which is subject to a proposed confirmation hearing in August of this year.
National's other significant remaining Puerto Rico exposures PREPA.
After Puerto Rico's Governor terminated the latest restructuring support agreement for PREPA in March the title III Court ordered the Puerto Rico oversight board to engage in mediation with stakeholders to develop a confirmable plan of adjustment for PREPA.
As of March 31, 2022, National's outstanding insured gross par for PREPA, and HCA was approximately $800 million and $600 million respectively.
Turning to nationals. Other insured credits the insured portfolio has continued to perform consistent with our expectations.
National's insured portfolio has continued to run off as its outstanding gross par declined by $1 3 billion from year end 2021 to $35 2 billion at March 31 2022.
In National's leverage ratio of gross par to statutory capital further declined to 17 to one at the end of the first quarter.
Over the last few quarters, the sales of our PREPA bankruptcy claims and the resolution of our insured Puerto Rico, Geo and PBA exposure have added to national's statutory invested assets and reduced its remaining salvage for.
For the first quarter of 2022 national statutory investments increased by over $300 million.
And its insured salvage reserves decreased by over $280 million from year end 2021.
On the statutory accounting at March 31, 2022 national had cash and investments totaling $2 $2 billion and salvage on paid claims of $661 million for statutory accounting the Puerto Rico Securities received from the Puerto Rico Commonwealth and exchange for Nationals, Geo and PBA bankruptcy.
<unk> continue to be treated as salvage and are not included in its investment holdings.
That should also at statutory net income and an increase in statutory capital of approximately $100 million for the first quarter of 2022.
As we've stated previously progress on the construction of our Puerto Rico credits positions us to pursue our strategic objectives, which may include a potential sale of the company <unk> special distributions from National.
Given the progress that we have made regarding our Puerto Rico exposure, we do not believe that it is necessary to fully resolve national's remaining PREPA exposure to pursue those strategic alternatives.
Now Anthony will provide additional comments about our financial results.
Thanks, Bill and good morning.
I'll begin with a review of our first quarter 2022, GAAP and non-GAAP results.
The company reported a consolidated GAAP net loss of $73 million or negative $1 48 per share for the first quarter of 2022 compared to a consolidated GAAP net loss of $106 million or a negative $2 16 per share for the first quarter ended March 31 2021.
Yeah.
The lower net loss this quarter.
It was largely driven by lower loss and LAE expense at national related to its Puerto Rico exposures as well as a higher loss benefit in MBIA Corp, partially offset by lower fair value gains on financial instruments.
National's Watson for the quarter was driven by assumption changes for PREPA related to our ongoing assessment of the value of future compensation on the anticipated date of receipt.
National's ultimate economic recovery will depend on the value realized over time from the security is expected to be received including our sale of these securities and the timing of acceleration of our insurance obligations.
To that point, but was for PREPA was partially offset by increases to recoveries on geo and HCA due to the higher market prices of the contingent value instruments versus our prior assumptions.
Going forward on a GAAP basis gains and losses related to Geo bonds in CVI received as part of the implemented plan will be reflected on a fair value basis as part of National's investment portfolio, not the loss and LAE as National's insured exposure has been fully retired and bonds and <unk>.
<unk> received are now subject to investment accounting.
The company's adjusted net loss, a non-GAAP measure was $96 million or a negative $1 94 per diluted share for the first quarter of 2022, compared with an adjusted net loss of $116 million or negative $2 36 per diluted share for the first quarter of <unk>.
2021.
The favorable change was due primarily to the lower loss and LAE at national in the first quarter of 2022, partially offset by lower premiums earned.
MBIA, Inc book value per share decreased to a negative $10 29 per share as of March 31, 2022 versus a negative $5 73 per share as of December 31, 2021, primarily due to unrealized losses on investments recorded to other com.
Prehensile are income driven by higher interest rates and wider credit spreads as well as the net loss for the first quarter.
MBIA Corp, 's book value was a negative $36 16 per share with over $1 $1 billion of accrued but unpaid interest on its surplus notes.
I will now spend a few minutes on the corporate segment balance sheet and our insurance company's statutory results.
The corporate segment, which primarily includes the activity of the holding company MBIA, Inc. Had total assets of approximately $798 million as of March 31 2022.
Within this total are the following material items.
Unencumbered cash and liquid assets held by MBIA, Inc. Totaled approximately $216 million as of March 31, 2022, compared with $239 million as of December 31, 2021.
The holding company has approximately $50 million of scheduled principal payments on euro denominated MTN is through the end of 2022.
There were approximately $406 million of assets at market value pledged to the <unk> and the interest rate swaps supporting the legacy <unk> operations.
Turning to the insurance company's statutory results National reported statutory net income of $104 million for the quarter ended March 31, 2022 versus statutory net loss of $35 million for the quarter ended March 31 2021.
The favorable result was primarily due to a loss in LAE benefit in Q1, 2022 on Puerto Rico exposures versus expense in the first quarter of 2021.
The reason why National stated a loss benefit for its statutory results versus loss expense for GAAP was due largely to how losses are discounted.
For GAAP the appropriate risk free rates are used to discount claims and recoveries.
Whereas for statutory accounting the investment portfolio yield is used to discount claims and recoveries, which is higher than risk free rates.
Therefore, given that PREPA recoveries are discounted at a higher rate for statutory to begin with the impact of this quarter's reduction in PREPA recovery cash flows was lower for national statutory results and was more than offset by increases CVI values for Geo in HCA.
National's gross claim payments on its insured Puerto Rico credits are as follows.
From inception as of $3 31 2022.
Close claims paid uninsured, Puerto Rico exposure totaled approximately $2 $2 billion.
Within that total in March National May GL claim payments of $277 million.
Fully repaying its geo insured par outstanding.
As of March 2022.
And PREPA are National's primary remaining insured Puerto Rico exposures.
Statutory capital was $2 1 billion and claims paying resources totaled $2 9 billion.
Turning to MBIA insurance Corp.
Sachin <unk> net loss was $14 million for the first quarter of 2022 compared to a statutory net loss of $34 million for the first quarter of 2021.
The favorable result was primarily due to the lower loss and LAE expense and lower interest expense somewhat offset by higher FX losses, and lower premiums earned.
MBIA Corp paid the full $70 million outstanding of MZ funding Junior notes after quarter end in April .
Loss in LAE expense. This quarter was due primarily to increased interest rates on floating rate insured obligations any accretion of net reserves.
As of March 31, 2022, the statutory capital of MBIA insurance Corp, with $131 million and claims paying resources totaled $726 million, both relatively unchanged from year end 2021.
MBIA Corp's insured gross par outstanding reduced by approximately $700 million during the quarter and was $4 $5 billion as of March 31, 2022, and 56% 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.
Which are anticipated to exit chapter 11 bankruptcy in June at this time.
And now we will turn the call over to the operator to begin the question and answer session.
If you have a question at this time. Please press star one on your telephone keypad, if you wish to remove yourself from the queue press. The pound key we asked that my policy. Your question you pick up your Ian Hudson hand that to about optimal sound quality.
Our first question.
From Tommy.
From K B W.
Hey, good morning, guys. Thank you taking my questions.
So could you maybe go into a little bit of detail about what's embedded in your current reserve for.
And just thinking about maybe timing or her kind of just say to the extent that we do see a new RSA come out here in the coming months kind of how we can kind of way you're kind of the reserves we've taken against those trends.
Sure Hi, Tammi its Anthony so there are several things we changed our assumptions this quarter for the value of the remaining PREPA exposure, so our losses and recoveries.
Really to reflect the estimate of what we would perceive to be the market value of new PREPA bonds on the day, we receive them previously we ran <unk> the value utilizing a hold to maturity discounted cash flow approach and for gap that's discounted in risk free rates, we made this transition.
Earlier for <unk> and <unk> when we felt we were in a position to make that assessment and we did it this quarter for proper using that as a backdrop. There is a number of factors that we considered most of which I'm sure you know the RSA determinate.
So we did reexamine the possible outcomes related to determination include.
Including the timing.
And in the form of which compensation would be we.
We did take into account some of the color that the RSA bonds are trading at in light of that and we do have more color on how the market trades, given the new geo bonds and views unexpected HCA compensation. So when we looked at all of those things.
Again, the change in our assumptions related to looking at it more of a market value when we receive new compensation thinking about different aspects of timing is it a year or is it more than that.
I'm looking at a market perception is at this point.
Made the change to recoveries this quarter, which resulted in the loss expense.
The discount rate does have a factor here because as youre discounting cash flows using the risk free rate.
For GAAP purposes in this example.
When you look at a market value approach you are taking an impact to those recoveries because of that change for stat. As I had said in my comments, we're already discounting recoveries at a higher rate. So the same change made for stat had a much less of an impact on the financial results for national.
That's kind of the the mosaic we looked at for the quarter.
Okay and then.
With me about your base case assumption for kind of the same point.
Online I know that it's in mediation right now until June one or July one.
Kind of after that.
One of the key dates and milestones that we should be on the lookout for in your kind of your base case scenario.
In terms of prep time.
On what comes about from this mediation, which the parties have just entered into so we should know more probably on the next earnings call and at that point, maybe there'll be a timeline that you are.
Asking about.
Okay got it.
Just switching gears.
What are you guys doing to kind of manage the operating expense side of the business unit portfolio has been shrinking so you're kind of taking actions that can kind of right size. The organization just kind of as it continues to run down.
The answer to that is yes, we are.
A few years back made a considerable reduction in operating expenses.
And we keep looking at that constantly and are looking at ways to.
Right size the organization.
As the portfolio runs off as you just described.
Okay. Thanks for taking my questions.
Once again that is star one on your telephone keypad, if you'd like to ask a question.
We'll take our next question from John Staley.
Stanley Capital Advisors.
Bill.
Disappointed to see of course, I don't know all the reasons.
One of the directors sold stock.
And on the other side of that there were no purchases or stock company.
Obviously, you're right.
Quite a bit of liquidity restored.
Again, a clearer picture.
Perfect.
And the market and hence.
Punishing your stock.
I'm not so sure it as we've traded lower than some of the language.
Purchased stock in the past I'm just curious.
With the pictures.
You are getting relatively clear.
And still trading.
As of yesterday's close.
And what appears to be.
Minimal.
2% is correct.
Adjusted book, maybe more.
I'm curious what your views on potentially buying stock in the market.
Yes, so John with regard to the comments you mentioned and we think the liquidity at the holding company is good relative to the debt service obligations that we have over many years actually at the holding company with regard to repurchasing shares as you know we have bought almost all of those shares through.
National.
And I don't have the number off top my head I think the average purchase price is a little under $8.
Yes.
So that in essence has worked out well for shareholders. However, we're now at a point because of regulatory requirements national is not able to purchase any more shares at this time.
So we've kind of tapped out at this point using national's liquidity to purchase shares again that could change based on certain calculations, but we don't anticipate.
In the near future that that calculation would change, but we will continue to look at it.
Are there other areas that you can.
Since you purchased it back through the holding company.
We could but we use most of the liquidity at the holding company to service the debt obligations of the holding company and as you know the liquidity for the holding company comes primarily from the as of right dividend of National That's why when I talked about strategic alternatives that we now think.
We're better positioned to pursue one of them would be getting a special distribution from national up to the holding company in the future.
Alright. Thanks.
Thank you.
Thank you.
We will take our next question from William <unk> from private Investor.
Good morning, I think you said big resolution of PREPA.
Not necessary to pursue a sale of the company. So I assume at this point you've met with.
Prospective buyers I'm wondering if there's any feedback that you can share.
Particularly as they're pushed.
Pushback on price.
Some subset of buyers, saying only take a look after <unk>.
Fair to Rico's fully resolved what can you say regarding timing of the transaction price portions of the portfolio, they're interested in and so on.
Yes, we've mentioned the Puerto Rico restructuring is one of the things that we've indicated is an important.
Obstacle however, as I did mentioned in my comments and you also just mentioned.
Think we need to resolve all of Puerto Rico. So we think we are now well positioned.
And we've seen this really progressing now for several quarters with regard to specifics of conversations we have with prospective buyers.
Nothing really that we can share at this point.
As you would know.
Many of those details.
When we get into them would be confidential in nature.
So at this point, there's really nothing else that we can share other than we do think we are well positioned to pursue these alternatives.
Thank you.
It appears we have no further questions at this time.
I will go ahead.
Turn the floor back over to management for any additional or closing remarks.
Thank you Gretchen and.
Thanks to those of you listening to our call today. Please contact me directly if you have any additional questions questions. We also recommend that you visit our website at MBIA Dot com for additional information on our company. Thank.
Thank you for your interest in MBIA, Good day and Goodbye.
Yes.
Thank you ladies and gentlemen, this does conclude today's first quarter 2022 financial results Conference call you may now disconnect.
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