Q3 2022 MBIA Inc Earnings Call
Welcome to the MBIA incorporated third quarter 2022 financial results Conference call.
I would now like to turn the call over to Greg Diamond managing director of Investor and media Relations at MBIA. Please go ahead Sir.
Thank you Chelsea yes.
Welcome to Mbia's conference call for our third quarter 2022 financial results. After the market closed yesterday, we issued and posted several items on our websites, including our financial results 10.
<unk> 10-Q quarterly operating supplements and 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 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 as our company's definitive disclosures are incorporated in those documents.
Urge investors to read our 10-K and 10-Qs 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.
Definitions and reconciliations of the non-GAAP terms included in our remarks. Today are also included in our 10-K and 10-Qs.
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.
Was included in last week's press announcement and in the financial results report posted on the MBIA website yesterday.
Now for our Safe Harbor disclosure statement.
Remarks on today's conference call may contain forward looking statements imports.
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-Qs which are available on our website at MBIA Dot com.
The company cautions not to place undue reliance on any such forward looking statements 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's Bill Fallon.
Greg Good morning, everyone. Thank you for being with us today.
As we noted in our third quarter financial results report that we posted on our website yesterday.
Given the progress resolving our Puerto Rico exposures, we have retained Barclays to explore potential strategic alternatives for the company, including a possible sale of the company.
We have not established a timeline for completing this process and there can be no assurance that the process will result in a particular transaction or the strategic outcome.
Also we do not intend to disclose further developments unless and until we determine that further disclosure is appropriate or necessary.
Since our last conference call the plan of adjustment to restructure the debt of the Puerto Rico highways and transportation authority for HCA.
Has been approved by the title III Court.
The effective date for implementing the plan is still pending at this time.
When the plan becomes effective national will receive additional cash and newly issued HCA bonds and.
<unk> intends to make insurance claims payments in full that was extinguished its remaining insured exposure of HCA bonds.
National's last remaining significant Puerto Rico exposures PREPA.
In September the title III Court ordered the oversight board to submit a proposed plan of adjustment for PREPA by December one.
In addition litigation concerning the nature and extent of PREPA bondholders security interest in prep as revenues will occur simultaneously.
No date has been set for the hearing for this litigation.
As of September 30th National's remaining exposure to PREPA is approximately $710 million of gross par insured.
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 $3 4 billion from year end 2021 to approximately 33 billion at September 32022.
Also national's leverage ratio gross par to statutory capital declined to 17 to one at the end of the third quarter down from 18 to one at year end 2021.
As of September 32022 National had total claims paying resources of $2 9 billion with cash and investments totaling $2 5 billion and salvage unpaid claims of $285 million.
<unk> statutory financial reporting.
Now Anthony will provide additional comments about our financial results.
Thanks, Bill and good morning.
We'll begin with a review of our third quarter 2022, GAAP and non-GAAP results.
The company reported a consolidated GAAP net loss of $34 million or negative <unk> 67 per share for the third quarter of 2022 compared to a consolidated GAAP net loss of $123 million or a negative $2 49 per share for the third quarter ended September 32021.
The lower net loss this quarter was largely driven by a loss in LAE benefit at MBIA Corp, due to higher discount rates applied to its wrapped first lien our MBS, which caused case reserves net of recoveries to decline lower loss and LAE at national.
Higher investment income and mark to market gains on our interest rate swaps associated with our legacy <unk> business due to higher interest rates.
These favorable variances were somewhat offset by net realized investment losses on sold investments as well as mark to market losses on investments due to higher interest rates.
Lower premium earnings and via E related losses at MBIA Corp, primarily resulting from the purchase of an MBIA Corp wrapped security, which was largely equity neutral as losses were also released from other comprehensive income.
Loss in LAE expense at National this quarter was primarily due to lower estimated prices on its Puerto Rico HCA related collateral it expects to receive in the fourth quarter of 2022.
As of September 30th Nationals sold all of the Puerto Rico Geo bonds. It had received as part of the Geo debt restructuring and approximately 55% of its Puerto Rico Geo related contingent value instruments, where CBD is.
National also sold approximately 16% of its HCA CVI is during the quarter.
The company's adjusted net loss, a non-GAAP measure was $17 million or a negative <unk> 34 per diluted share for the third quarter of 2022, compared with an adjusted net loss of $76 million or a negative $1 54 per diluted share for the third quarter of 2021.
The favorable change was due primarily to the lower loss and LAE at National.
MBIA, Inc. 's book value per share decreased to a negative $15 70 per share as of September 30 of 2022 versus a negative $5 73 per share as of December 31, 2021, primarily due to unrealized losses on investments recorded.
The other comprehensive income driven by higher interest rates and wider credit spreads as well as the $143 million year to date net loss.
Included in book value as a negative $37 <unk> per share book value of MBIA Insurance Corp.
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 $622 million as of September 32022.
Within this total are the following material items.
Unencumbered cash and liquid assets held by MBIA, Inc. Totaled approximately $172 million as of September 32022, compared with $239 million as of December 31, 2021.
The holding company expects to receive a $72 million as of right dividend from National later this month.
The corporate segment's assets also included approximately $355 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 a statutory net loss of $25 million for the quarter ended September 32022 versus statutory net income of $61 million for the quarter ended September 32021.
The unfavorable comparison was primarily due to loss and LAE in Q3 2022 on the values of HCA recoveries and to a lesser extent PREPA recoveries versus a loss in LAE benefit in Q3, 2021, as well as realized losses on securities sold during the quarter.
Statutory capital and claims paying resources have remained relatively consistent year to date at $1 9 billion and $2 9 billion respectively.
From inception through 932022 gross claims paid uninsured, Puerto Rico exposure totaled approximately $2 3 billion.
Turning to MBIA insurance Corp had statutory net income was $50 million for the third quarter of 2022 compared to a statutory net loss of $17 million for the third quarter of 2021 the.
The favorable comparison was primarily due to a loss in LAE benefit in Q3, 2022, driven by higher expected Zohar recoveries, partially offset by a decline in net premiums earned due to the termination of an international public finance credit in 2021.
In Q3 2022, the Zohar bankruptcy plan became effective in MBIA Corp received its share of Zohar collateral consisting of portfolio companies and litigation assets through interest in asset recovery entities.
From a GAAP accounting changes in the estimated recovery values of these asset recovery interest will continue to be recorded as insurance recoveries in our statutory financials.
As of September 32022, the statutory capital of MBIA Insurance Corp was $162 million and claims paying resources totaled $764 million increasing from year end 2021, due primarily to the year to date net income of $30 million.
MBIA Corp's insured gross par outstanding reduced by approximately $120 million during the quarter and was $4 $1 billion as of September 32022, and 55% of that exposure is non U S public finance credits.
And now we will turn the call over to the operator to begin the question and answer session.
Thank you Sir.
If you have a question at this time, please press star one on your telephone keypad.
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We will take our first question from Tony joined with <unk>. Your line is open.
Hey, good morning, guys.
Thanks for the update on retaining an advisor.
From your perspective could you just help us understand the feasibility and perhaps the frozen con.
Sale of national versus a sale of the whole company would look like.
Yes.
Tommy with regard to that and you've highlighted people on past that suggested the whole company could be sold which would be 100% of the common shares people have also mentioned that national could be sold.
It really depends on what the prospective buyer.
Does and how they think about what the combination would be.
But at this point, a probably doesn't make sense to get into sort of the pros and cons of each one because it really does depend on the on the buyer that you are talking about.
So I think we'll let that play out and as we have more information as we said if it makes sense, we'll communicate that.
Okay, and just I was thinking of perspective buyers is it fair to think that both strategic and financial buyers should be in play.
Yes, I think that's definitely the case.
Okay.
And then just other question for me what type of opportunities for Dialling binding or settling some of your various obligations.
Creative below par values do you expect to become available.
The next few months and what is your capital flexibility at the holding company to pursue those opportunities.
Good morning, Tommy.
As the market has been.
Opportunistic for us So you know over the last couple of years, we've taken the opportunity to buyback.
Some of the ink that at very solid yields so I think as of today.
At the holding company has enough cash and with the as of right dividends. We're really looking past 2025 at this point to debt maturities through 2007. So it will continue to take a look at that as.
As opportunities progress.
Obviously, we're very sensitive to market volatility related to the <unk> business.
But I think we feel confident enough in our liquidity position.
That if opportunities arise we will take advantage of it.
Okay.
Got it thanks.
Just last one I, probably forgot to follow up on the first part of my question.
Just confirming that.
The kind of the posture is that PREPA does not need to be fully resolved before a sale of the company can happen is that is that still the case.
Yes, we believe that it's definitely the case.
Okay. Thanks, guys.
Thank you.
Our next question will come from Geoffrey Dunn with Dowling and partners. Your line is open.
Thanks, Good morning.
I was hoping you might be able to provide a little bit more color on PREPA outside looking in it seems like judge Swain was losing patients with a lack of development on PREPA back in the spring it sounded like discussions were constructive in the summer, but now we're stretching into.
The winter in another deadline has been set.
Can you share anything about how negotiations have been going on is this been constructive and then become more frustrating or is this just the normal play out of how this is going to proceed.
Yes, Jeff there was an omnibus hearing yesterday as I'm sure you're aware and so.
The sequence that you just described continued.
Most of this I think if not all of it is in the public domain at this point so as Youre aware the remediation sessions, a while back there was an impasse reached judge Swain.
Sort of recommended ordered everyone back and then in the last sort of four to six weeks in sheet.
Recommended or required everyone go back what came out in court yesterday was that there hadn't been a lot of.
Interaction between the parties.
<unk> indicated that she wanted any plan that needs to be submitted by the oversight board on December one require real input that would come from these mediating mediation sessions.
And Thats really where we are today so.
Again, there is this.
Date of December 1st one plans have to be filed by the oversight board and we would expect that there would be.
Some type of interaction between now and then.
Okay, great. Thank you.
Thank you.
Our next question will come from Paul Saunders with Hutch capital. Your line is open.
Hey, guys. Good morning, Thanks for taking my call.
I actually got the operator interrupted during the first call. So I hope I'm not asking any repeat questions here, but but my first question is just on.
On your thoughts on debt buybacks I know you bought a nice.
A nice slug of debt in the second quarter and I see you didn't buy any.
This quarter.
And I'm sure you guys know.
Your first to maturity.
Our notes are sort of offered below 90 now.
<unk> got a lot of cash to address those.
I'm just curious your thoughts on those and then obviously.
The longer dated notes are also at huge discounts, yielding double digits and that kind of thing. So just kind of your general thoughts on.
Sitting with cash at the hold at the holding company versus <unk>.
Buying back debt.
Sure Paul Good morning, it's Anthony So part of this is going to be able to repetitive because someone did ask previously so forgive me for that but.
So again, where the holding company is today, we've got enough cash and with the ASIC REIT dividends coming in we're really looking to 2025 to 2027 at this point.
As you said, we've been opportunistic and I think we've accomplished some solid outcomes on buying back debt over the last couple of years. So we will continue to look at it we've been sensitive to obviously the market volatility in general the last few months, which is why we've.
Hesitated.
To embark on additional buybacks, but we're going to continue to look at that as opportunities arise given the holding company liquidity position over the next few months on the later dated paper, we've just generally held to.
Looking at the.
The earlier Windows, just making sure that we're allocating properly for the holding company's liquidity needs. So generally speaking, we've called that kind of a liquidity window and for those who have been following that's been expanding over time as the holding company's liquidity position has gotten stronger so as I said now.
We're kind of looking at 25% to 27.
Yes, okay.
And then you mentioned on the prepared remarks.
I saw the big increase in salvage value for MBIA Corp, and you said that that was a write up.
Our increase in value for Zohar can can you provide any more color specifically.
Just specifically, what what they'll hard collateral that was or or just any color. You can provide yes sure. So over the last two quarters. The salvage at MBIA Corp has gone up for two reasons. One is we bought back some of our own wrapped paper for remediation purposes and that has been classified as salvage.
Under a permitted practice, we've got from the New York Department of financial services. The other reason is an increase in Zohar recoveries.
Which has resulted since the bankruptcy ended in August there were a few assets in particular that we had not prescribed value too because we couldnt before the bankruptcy ended so there were a few escrow account items and a litigation trust that's been formed after the bankruptcy.
Then affect the bankruptcy date when effective in those values aided to the increase in salvage for Corp.
Okay. That's helpful and just last one for me.
The retention of Barclays is definitely exciting I think a lot of investors are happy to hear that can you provide any.
Just sort of context on what that process will look like how long you think it will last and just sort of steps that you guys are are running down in terms of just sort of for us to understand what that timing will look like.
Yes, it's hard to predict exactly.
How that may play out, but we've been working with Barclays as you're probably aware in these types of situations.
There is a bunch of things we needed to do internally to get ready for the process.
As part of the process I should say and we've done all that work and then it really is talking to perspective buyer.
Buyers are interested parties.
And that has started but beyond that it's very hard to predict.
And I think the nature of these things is that we will let it play out in a lot of the things will be confidential as we indicated when we have something to say, we'll make sure we communicate communicated to shareholders.
Okay, and maybe you can't answer this but is it are you running it like a traditional M&A auction process or is this or is it more I guess information gathering.
I think it's closer to the former which is I would view this as a pretty traditional process recognizing that.
Everyone is different and there's some things about our company that may be very unique to us, but I would consider a very traditional process, which we think will be beneficial for the shareholders.
That's great. Thank you guys.
Thank you.
And as a reminder, that is star one to ask a question.
Our next question will come from John Daly with Daily Capital Advisors. Your line is open.
Thank you Bill I have two separate lines.
The lines of questions.
Help me as a very long term shareholder tried to understand this better.
Some months ago, you indicated in the release you received happens.
Puerto Rican highway.
Upon settlement proceeds.
Then the rest of it saying we get tied up.
In a squabble between various bondholders as opposed to the Puerto Rican part of Puerto Rican authorities. Once you guys get settled then the lawyers for the bondholders start to argue with you now.
You indicated that there has been.
Resolved I assume and you.
From the highway foreign proceeds that you expect to get.
Will they be comparable to what you got on the first half or did you have to give up something there.
Invesco and the other guys that were suing.
And how does that play over to the PREPA.
Uh huh.
We're going to have another situation, where you get your stuff politically resolved and then you have squabbles between yourself and the bondholders.
Seems very confusing to me.
Seems like a tab roaming for lawyers.
There is.
There's a lot of that I could probably comment on.
None of that has been reduced youre absolutely correct, we received part of it.
Back in the summer and there is an additional amount upon the completion of the execution of the deal. The court has approved the plan there was a process. They go through where there is a period where objections can be filed.
And therefore, the actual date.
The plan will be consummated and consideration will be.
Exchange has not been set.
We thought perhaps it would be discussed yesterday in the omnibus hearing in front of judge Swain and the title III Court, but there was no specific date set hard to predict but.
It wouldn't surprise us if that all occurs this month, but again, there's no specific date, but we will keep our eye on that but.
Rest assured none that we did not give up anything in the two or three months that you were describing so nothing has been lost in terms of the original HCA.
Settlement amount.
As it relates to the PREPA, while I suppose there are some things that are similar.
It is very different in that there is no agreement that has been approved by the court.
This point with regard to PREPA, we thought we had an agreement that went back quite a while ago that we refer to as the restructuring support agreement or RSA.
That was then rejected by the government of Puerto Rico, and subsequently by the oversight Board.
So as I indicated in an earlier response to a question.
Now in mediation.
With the oversight board on behalf of PREPA.
And.
Again, we're not in a position to make any predictions how that will play out but that's the focus at this point.
Okay, and then when you.
My second question.
You.
Good gauge with Barclays.
It strikes me that while you're obviously well be having some financial buyers what could this which would essentially be a liquidation play it seems to me that.
The compelling opportunity here is strategic.
Perhaps a naive question.
But if you if you had a strategic buyer I would guess a G. O is probably as likely one is anybody because they also have the Puerto Rican expertise and exposure.
I'm curious.
I mean, theres obvious synergy when you eliminate corporate overhead if you're already in the business.
All the overhead you guys are from directors to officers et cetera, et cetera, you got it already.
But is there any arbitrage.
Where you move from a stand alone M B, a or national and you move natural into a larger entity like a G O do they pick up some relief on reserves or from their ratings or from the size, maybe they're ensuring the same bonds that.
Did you have in some cases is there some kind of arbitrage to the strategic cast.
The ability to pay more.
I suppose that question is better answered by those particular parties, but what youre describing.
It's definitely possible.
Yes, I would focus on up more with regard to the amount of capital you combined two insurance operations and in particular.
The company is focused on their ratings and therefore, when you put the two companies together you can actually hold less capital alright.
Alright retain rating that to your point, we clearly be a benefit or a synergy the other one would be to the extent that you are trying to remove money and you need.
Our case department of financial Services' approval same thing to the extent that the portfolio is larger and more diversified and therefore when you combine the two you don't need to keep the combined capital and that can be released to shareholders to your point that would also be a benefit to shareholders.
Okay.
Once before related to MBIA, Inc.
Orange entity, there, where you have no financial recourse from that company back to your holding company or to national or anything else is that transferable because somebody comes in Dubai.
The company, which will clearly be the cleanest transaction is there any issue.
<unk>.
Separation of liability exists to the acquiring company.
To your point MBIA insurance Corp is completely separate their obligations are not the obligations of MBIA, Inc.
Or of National So it is a legally.
<unk> entity, where the stock is 100% owned by MBIA, Inc.
Has no obligation to support it.
Okay and that transfers in the deal.
Correct, if you buy 100% of the stock of MBIA, Inc, which is I think what youre, referring to right then that that would be.
That structure would remain.
Thank you very much.
Echo the comment of another person on here.
Very very pleased that.
You guys are moving forward and getting something done.
Let's hope it works out well and fast.
Thank you for your call John .
Thank you.
And at this time I am showing no further questions. So I would like to turn the floor back over to management for any additional or closing remarks.
Thank you Chelsea.
Thanks to those of you listening to the call today. Please contact us directly if you have any additional questions.
We also recommend.
Hold on a second we've got another person in the queue.
We have a question next from.
Doug <unk> with J capital your line is open.
Hi, it's actually Seth but.
Quick question, the formality of the strategic alternatives process are actually retaining Barclays.
Was this in response to an unsolicited approach and somebody reaching out to you guys or did you feel comfortable with that finally, many ducks in a row based on what was going on in Puerto Rico.
It's the latter.
And in past calls you guys have talked about.
Formally or informally looking to maximize shareholder value.
What is different about this step versus in the prior quarters.
I think as we've indicated for awhile, we have now.
Coming to conclusion.
That the Puerto Rico restructuring has been.
It's substantially complete at this point I mean, I know, we have PREPA, but depending on how you want to estimated we're probably 75% to 80% of our way through our large exposures and even with PREPA given the back and forth in the negotiations and mediation sessions.
At least a sense of the parameters around which that one might get settled so we again don't believe we have to wait and as Youre, probably aware it can take a while even from the time and agreements reached to the fully executed.
We thought it was best for our shareholders that we move now in terms of.
Pursuing strategic alternatives.
And that ambiguity or not is ambiguous, but.
Even though there are parameters. The fact that there is not a final conclusion won't impede in.
Maximization.
<unk> or financial buyers will be able to get their arms around I guess the range there'll be comfortable enough to pursue something now.
We believe that to be the case if for some reason things change we can always adjust our approach.
Great. Thank you.
Thank you.
At this time, we have no further questions I'd like to turn it back to management for closing remarks.
Thanks, again, Chelsea and thanks to everybody else listening to the call.
Please call US directly if you have any additional questions. We also recommend that you visit our website at MBIA Dot com for additional information on the company. Thank you for your interest in MBIA, Good day and Goodbye.
Thank you ladies and gentlemen, this does conclude today's MBIA, Inc. Third quarter 2022 financial results Conference call you may now disconnect.
Okay.
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