Q2 2024 MBIA Inc Earnings Call
Speaker Change: ["Holiday Buspring"] ["Holiday Buspring"] Please stand by.
Operator: Welcome to the NBIA, Inc. Second Quarter 2024 Financial Results Conference Call. I would now like to turn the conference over to Greg Diamond, Managing Director of Investor and Media Relations at NBIA. Please go ahead, sir.
Gregory Diamond: The 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 in our financial results report and our quarterly opinion piece. Recorded replay of today's call will become available on the MVIA website approximately two hours after the end of the call. 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.
Gregory Diamond: Our second quarter, 2024 net loss was largely due to the Nationals net loss for the quarter.
Greg Diamond: Welcome to the NBIA, Inc. 2nd Quarter 2024 Financial Results Conference Call. I would now like to turn the conference over to Greg Diamond, Managing Director of Investor and Media Relations at NBIA. Please go ahead, sir.
Speaker Change: Thank you, Ashley.
Speaker Change: As noted, this is NBIA's conference call for our second quarter 2024 financial results.
Speaker Change: After the market closed yesterday, we issued and posted several items on our website, including our financial results, 10-Q, quarterly operating supplement, and statutory financial statements for both NBIA Insurance Corporation and National Public Finance Guarantee Corporation.
Speaker Change: We also posted updates to the listings of our insurance companies' insurance portfolios.
Speaker Change: 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.
Speaker Change: We 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.
Speaker Change: The 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.
Speaker Change: Recorded replay of today's call will become available on the MDIA website approximately two hours after the end of the call.
Speaker Change: Now for our Safe Harbor Disclosure Statement.
Speaker Change: Our remarks on today's conference call may contain forward-looking statements. Important factors such as general market conditions and a competitive environment could cause our actual results to differ materially from the projected results referenced in our forward-looking statements.
Speaker Change: Risk factors are detailed in our 10-K and 10-Qs, which are available on our website at mbia.com.
Speaker Change: 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.
Speaker Change: For our call today, Bill Fallon and Joe Schachinger 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.
Speaker Change: Our second quarter, 2024 net loss was largely due to Nationals net loss for the quarter.
Speaker Change: A significant increase in our PREPA loss reserve was the primary reason for National's net loss.
Speaker Change: While the First Circuit Court of Appeals decision was good for bondholders, the Oversight Board's reaction to the decision has increased uncertainty regarding a timely resolution for PREPA and its creditors.
Speaker Change: We believe a consensual resolution is in the best interest of PREPA, PREPA's creditors, and the people of Puerto Rico. However, this will only occur if the Oversight Board changes its approach and fulfills its responsibilities under PROMISA.
Speaker Change: PREPA has the ability to repay its creditors. The Oversight Board does not have the willingness to pay. This must change.
Speaker Change: Given the range of possible outcomes associated with Nationals 836 million dollar PREPA bankruptcy claim, we continue to believe that it is necessary to substantially resolve PREPA before we can restart the process to sell the company.
Speaker Change: Regarding the balance of Nationals Insured Portfolio, those credits have continued to perform generally consistent with our expectations.
Speaker Change: The gross par amount outstanding for Nationals Insured Portfolio has declined by approximately $1.4 billion from year-end 2023.
Speaker Change: to $27 billion at the end of the second quarter of this year.
Speaker Change: National's leverage ratio of gross part of statutory capital was 28 to 1 at the end of the second quarter of 2024.
Speaker Change: As of June 30, 2024, National had total claims paying resources of $1.6 billion and statutory capital and surplus of approximately $1 billion.
Speaker Change: Now Joe will provide additional comments about our financial results.
Gregory Diamond: I will begin with a review of our second quarter 2024 gap and non-gap results and then provide an overview of our statutory results. The higher gap net loss this quarter was largely driven by two items. The first is Higher Loss in LA National, which is largely related to revising our loss scenarios for our PREPA exposure. Within this total are the following material assets. Now I'll turn to MBI Insurance Corp. The decrease in claims-paying resources and gross par outstanding was partially driven by our proactive de-risking of exposures for which we held reserves and were paying claims.
Joe Schachinger: Thank you, Bill, and good morning all. I will begin with a review of our second quarter 2024 GAAP and non-GAAP results and then provide an overview of our statutory results.
Joe Schachinger: The company reported a consolidated gap net loss of $254 million dollars.
Joe Schachinger: or a negative $5.34 per share.
Joe Schachinger: for the second quarter of 2024 compared to a consolidated gap net loss of $74 million or a negative $1.46 per share for the second quarter of 2023.
Joe Schachinger: The higher gap net loss this quarter was largely driven by two items.
Joe Schachinger: First is Higher Loss in LA National, which largely related to revising our loss scenarios for our PREPA exposure.
Joe Schachinger: Our lost scenarios now contemplate a range of negotiated and litigated outcomes that reflect a greater degree of uncertainty around the ultimate resolution of PREPA's debt.
Joe Schachinger: And the second item is higher losses on financial instruments carried at fair value.
Joe Schachinger: which largely related to the revaluation of an equity interest received by MBI Insurance Corp in a Zohar related portfolio company in connection with claims paid on the Zohar CDOs.
Joe Schachinger: In addition to these items, lower net investment income was mostly offset by lower VIE losses and lower operating expenses this quarter versus the second quarter of 2023.
Joe Schachinger: The company's adjusted net loss, a non-gap measure, was $138 million, or a negative $2.90 per share for the second quarter of 2024.
Joe Schachinger: compared with an adjusted net loss of 22 million dollars or negative 45 cents per share for the second quarter of 2023.
Joe Schachinger: The unfavorable change was primarily due to higher loss in LEE at National in the current quarter related to PREPA.
Speaker Change: MBI Inc.'s book value per share decreased $6.51 to a negative $39.07 per share as of June 30, 2024.
Speaker Change: versus a negative $32.56 per share as of December 31, 2023, primarily due to our $340 million consolidated net loss for the 2024 year-to-date period.
Speaker Change: Included in NBIA Inc.'s book value as of June 30, 2024 is a negative $47.89 per share of NBIA Insurance Corp.'s book value.
Speaker Change: versus a negative $44.91 per share as of December 31, 2023.
Speaker Change: I will now spend a few minutes on our Corporate Segment Balance Sheet.
Speaker Change: The corporate segment, which primarily comprises the activities of the holding company, NBIA, Inc., had total assets of approximately $657 million as of June 30, 2024.
Speaker Change: Within this total are the following material assets.
Speaker Change: Unencumbered cash and liquid assets held by NBIA Inc. totaled $315 million, compared with $411 million as of December 31, 2023.
Speaker Change: The decrease was largely due to spending approximately $62 million on retiring GFL Euro-denominated medium-term note liabilities before their maturities.
Speaker Change: of which $26 million was spent in the second quarter of 2024.
Speaker Change: In addition, NBIA Inc. spent $16 million in the current quarter to purchase its senior notes.
Speaker Change: Both the medium-term notes and the senior notes were purchased at prices accretive to equity.
Speaker Change: In addition to the unencumbered cash and liquid assets I mentioned, the corporate segment's assets included approximately $232 million of assets at market value pledged to guaranteed investment contract holders, which fully collateralized those contracts.
Speaker Change: Turning to the insurance company's statutory results.
Speaker Change: National reported a statutory net loss of 131 million dollars for the second quarter of 2024 compared to a statutory net loss of 11 million dollars for the second quarter of 2023.
Speaker Change: The unfavorable variance was primarily driven by higher loss in LAE related to revising our loss scenarios for the PREPA debt restructuring and, to a lesser extent, lower net investment income.
Speaker Change: As a reminder, net investment income in 2024 reflects lower invested assets due to the as-of-right and special dividends paid by National to NBIA, Inc. in the fourth quarter of 2023.
Speaker Change: which totaled almost six hundred and fifty million dollars.
Speaker Change: National statutory capital as of June 30th, 2024 was 969 million dollars.
Speaker Change: down $148 million compared with December 31, 2023, largely due to its net loss for the 2024 year-to-date period of $142 million.
Speaker Change: Claims paying resources were $1.6 billion, down $51 million from December 31, 2023.
Speaker Change: As of June 30, 2024, National had gross par outstanding of $27 billion, which is down about $1.4 billion from year-end 2023.
Speaker Change: This decrease was largely due to regular regular amortization of Nationals insured portfolio.
Speaker Change: Now I'll turn to MBI Insurance Corp.
Speaker Change: NBI Insurance Corp reported a statutory net loss of $35 million for the second quarter of 2024 compared to a statutory net income of zero for the second quarter of 2023.
Speaker Change: The net loss in the second quarter of this year was driven by loss in LAE on primarily ZOHAR related salvage.
Speaker Change: As of June 30, 2024, the statutory capital of MBI Insurance Corp. was $85 million.
Speaker Change: Down from $152 million at year-end 2023, primarily due to its net loss for the 2024 year-to-date period of $70 million.
Speaker Change: Claims paying resources totaled $355 million at June 30, 2024, compared to $504 million at year-end 2023.
Speaker Change: NBI Insurance Corp's insured gross par outstanding was $2.5 billion as of June 30, 2024, down about 12% from year-end 2023.
Speaker Change: The decrease in claims paying resources and gross part outstanding was partially driven by our proactive de-risking of exposures for which we held reserves and were paying claims.
Speaker Change: And now we will turn the call over to the operator to begin the question and answer session.
Operator: Certainly, at this time, if you have a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, please press star 2. We ask that when you ask your question, you please pick up your handset to allow optimal sound quality. We'll pause for a moment to allow questions to queue.
Speaker Change: At this time, if you have a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, please press star 2. We ask that when posing your question, you please pick up your handset to allow optimal sound quality.
Speaker Change: We'll pause a moment to allow questions to queue.
John Staley: And we'll take our first question from John Staley with Staley Capital Advisors. Please go ahead.
Bill Fallon: Yes, Bill.
John Staley: It's just process, I find.
Unknown Attendee: Probably not as frustrating as you think. Very frustrating. I don't understand. Unknown Speaker, Unknown Speaker
Speaker Change: Probably not as frustrating as you should be. Very frustrating. I don't understand.
Speaker Change: How you have wrapped up and settled.
Speaker Change: So many other Puerto Rican exposures and yet PREFA stands there being roadblocked by this oversight committee or by the government or by whatever the hell the issue is.
Speaker Change: What is the difference?
Speaker Change: between the ability to have settled
Speaker Change: Other exposures to Puerto Rico, and yet Preface stands out there all by itself.
Speaker Change: Unable to be resolved.
Speaker Change: and even a conditional agreement that was sitting up there before the 11th circuit.
Speaker Change: I think you guys withdrew from even before the court ruled. I mean, there's something different about PREPA than the other guarantees you had that you wrapped up. And I'm just curious, as a lay person, how would you explain that difference?
John Staley: Yeah, John, good morning. Prior to PROMESA, which was the law that Congress passed that went into effect approximately eight years ago, and the initial oversight board chose not to approve that agreement. So we've now been at this. As you know, Judge Swain has requested mediation. We're about halfway through that 60 day period.
John Staley: John , good morning.
Speaker Change: First of all, you're absolutely correct. There were four large credits that we had insured in Puerto Rico. And so just to fill in what you obviously know, three of the four had been resolved. That was the Geo, the Cofina, and the Highway, which were all sort of similar size to PREPA.
Speaker Change: And it's interesting and is probably.
Speaker Change: too long to cover in this call, but there were many people who thought PREPA should have been the first of the credits resolved. And as you recall, there was actually an agreement in place
Speaker Change: prior to PROMESA, which was the law that Congress passed that went into effect approximately eight years ago, and the initial oversight board chose not to approve that agreement. So we've now been at this
Speaker Change: In terms of this board, or the continuation of this board for seven years.
Speaker Change: But there was probably almost two years prior to that.
Speaker Change: where the creditors had agreed to forbear.
Speaker Change: And so it's been a very long process.
Speaker Change: And as I said, many people thought it should have been the first of the large credits to be restructured and here we are.
Speaker Change: And it's going to be the last one.
Speaker Change: I suppose there's lots of opinions as to why.
Speaker Change: This one's been difficult. I won't bore you with all the things that we've heard during this period of time.
Speaker Change: The situation however is, here we sit, there was a first circuit decision a couple of months ago that was favorable to bondholders.
Speaker Change: As you know Judge Swain has requested mediation. We're about halfway through that 60-day period.
Speaker Change: and we'll see what what the results of the mediation are but trust me I'm like you I'm sure there's a lot of frustrated parties to this whole situation.
Speaker Change: But there's really no...
Speaker Change: Subjective Difference.
Unknown Attendee: within your guaranteed tremendous rights against revenue, et cetera. What is the oversight board hanging their hat on? What is their issue? independent parties to resolve the damn thing. I mean, these guys are nothing but appointed politicians and lawyers and that guy who's the dean of a school or some thing, they're not even, they're nothing but guys who are sucking off the public tits.
Speaker Change: Within your guaranteed tremendous rights against revenue, etc. What is the oversight board hanging their hat on? What is their issue?
Speaker Change: It wouldn't allow
Speaker Change: the independent parties to resolve the damn thing.
Speaker Change: I mean, these guys are nothing but appointed politicians and lawyers and that guy who's the dean of a school or some damn thing. I mean, they're not even, they're nothing but guys who are sucking off the public tip.
Speaker Change: So, I mean, I don't get it. What is it that they're contending, we can't let you settle this, yet you've settled three other ones? I mean, it makes no sense to me.
Speaker Change: John I think you've just articulated what many of the creditors have expressed in different ways over several years so
Speaker Change: It looks as though this one is going to have to be strongly influenced by the courts, right, decisions that are either made by Judge Swain or by the First Circuit on appeal.
Speaker Change: That's just the mediation that was requested. What happens after that?
Speaker Change: is very hard to predict at this point.
Speaker Change: Are you still at odds?
Unknown Attendee: with some people who own the bonds like Invesco and Golden something or another hedge fund. Is that still part of the issue? Thanks for keeping this thing from being wrapped up.
Speaker Change: with some people who own the bonds like Invesco and golden something or other some hedge fund. Is that still part of the issue?
Speaker Change: No, we're very much aligned now with the majority of the bondholders.
Speaker Change: Unknown Speaker So the people, nope, we're all, there's a large group of us that are all aligned in terms of trying to resolve this with the board. Unknown Speaker So it's literally this appointed oversight board that's keeping this thing from being wrapped up.
Speaker Change: It's probably a little bit more complicated than that, but you know, they're staking out their position in
Speaker Change: What their offer is to bondholders and the bondholders have a different view.
Speaker Change: And, as Judge Swain indicated, she would like to hope that there could be some compromise and a resolution that would end this in her court, but we'll have to wait and see whether that's possible.
Speaker Change: Okay. Thank you very much.
Speaker Change: Thank you. Thank you. And once again, as a reminder, that is star and one for your questions. We will take our next question from Maestro, private investor, please go ahead.
Speaker Change: Hi, thanks for taking my call. Just a couple of questions. One is, is there still about $70 million remaining under the repurchase authorization?
Unknown Attendee: Okay. And do you have any intention to begin to buy back stock?
Speaker Change: Yes.
Speaker Change: Okay, and do you have any intention to begin to buy back stock?
Joseph Schachinger: As we've said before, we continue to look at lots of things, including the liquidity of the holding company and the different obligations of the holding company. As Joe indicated, we did actually buy back some debt in the second quarter. We'll look at what the future liquidity will be of the holding company and, at any point in time, if we think it is the best choice that we have.
Speaker Change: As we've said before, we continue to look at lots of things, including the liquidity, the holding company, the different obligations of the holding company. As Joe indicated, we did actually buy back some debt.
Speaker Change: In the second quarter, we'll look at what the future liquidity will be of the holding company and at any point in time, if we think the best choice that we have.
Joe Schachinger: is to use that to buy back stock then we will do that as we've done in the past.
Unknown Attendee: Okay, I wanted to check. So the operating expenses came down a little bit in Q2, but they're still $15 million. So that's basically a $16 million run rate.
Speaker Change: and possibly LTOR Alexandria, there's really no problem credits, right, within Nashville.
Speaker Change: I think that's a reasonable description of the situation.
Speaker Change: So can we expect those operating expenses to come down?
Unknown Attendee: The answer is we have, for a while, been focused on reducing operating expenses. I think if you go back, the trend is down. We would like to continue to reduce operating expenses. But keep in mind, we also have core businesses, which when you look at those operating expenses, right, it's part of the situation as well, as well as the
Speaker Change: The answer is we have for a while been focused on reducing operating expenses. I think if you go back the trend is down. We would like to continue to reduce operating expenses. Keep in mind we also have core
Speaker Change: runoff of the old asset liability management business at the holding company. So we are very focused on continuing to get those expenses down. There are already some things we've committed to, which we think over the next year or so we'll continue to bring those down.
Speaker Change: I'm sorry is that a question yeah I mean is that I mean so so basically that's kind of our bogey for wherever a settlement or a resolution comes out
Speaker Change: Yeah, we've never actually communicated exactly what level of recovery the PREPA reserves reflect.
Unknown Attendee: Okay, but I mean, at National, I don't think there are any significant reserves other than PREPA, right?
Speaker Change: Okay, but I mean that at National I don't think there are significant reserves other than PREPA, right?
Unknown Attendee: It would be fair, given our portfolio, to conclude that PREPA is a significant portion of our reserves.
Speaker Change: It would be fair given our portfolio to conclude that PREPA is the significant portion of our reserves.
Speaker Change: Okay.
Unknown Attendee: Yeah, well, there's not a whole lot I can say at this point, right? You'll see it. It's listed as one of our classified credits. Right, it's office space in and around most major cities; this one is in the D.C. area. A plan in place that will result in a resolution to this that will not have any material impact on the company at this point.
Speaker Change: Right, it's office space. I think everyone's familiar with what has happened with office space in and around most major cities. This one is in the DC area.
Speaker Change: We have been focused on it for quite a while and we think there is.
Speaker Change: a plan in place that will result in a resolution to this that will not have any material impact on the company at this point.
Speaker Change: Okay.
Speaker Change: And then finally, I just wanted to see, you know, there's a lot of activity in the credit synthetic risk transfer market. Is that something where you've explored? I wonder if there's an opportunity with the national portfolio to look at transferring a portion of that.
Unknown Attendee: to the Synthetic Risk Transfer Market.
Speaker Change: to the synthetic risk transfer market.
Speaker Change: Thank you and once again as a reminder that is star and one for your questions.
Speaker Change: Thank You Ashley and thanks to those of you listening to our call today. Please contact us directly if you have any additional questions.
Speaker Change: We also recommend that you visit our website at NBIA.com for additional information on the company.
Speaker Change: Thank you ladies and gentlemen. This does conclude today's NBIA second quarter 2024 financial results conference call. You may now disconnect your line and have a wonderful day.
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