MBIA Inc (MBI) 2006 Q2 法說會逐字稿

Good morning and welcome to the MBIA second-quarter 2006 earnings conference call. At this time all lines are in a listen-only mode to prevent any background noise. After the prepared remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS). I'd now like to turn the floor over to your host Greg Diamond, Director Equity Investor Relations. Please go ahead.

Good morning and welcome to MBIA's conference call for the second quarter of 2006. This call is also being broadcast live via the Internet and recorded replays of the call will be available by telephone and the Internet as well. You may find the necessary access information as well as our earnings press release and quarterly operating supplement on our company website at www.MBIA.com.

We will follow a similar format for today's call. MBIA's new Chief Financial Officer, Chuck Chaplin, will provide some comments and color regarding our first half and second-quarter results which will be followed by a question-and-answer session. For today's call Mitch Sonkin, who runs the Company's insured portfolio management division, will also be available to answer questions regarding the performance of credits in MBIA's insurance portfolio.

Regarding the question-and-answer session, inquiries will be granted at our discretion. That said, I'd like to encourage those of you with questions that aren't addressed on today's call to contact me directly. My direct line is 914-765-3190.

Before Chuck Chaplin commences with his prepared remarks, here's our compulsory disclosure statement. During this call we may provide forward-looking information relating to the performance, future performance of the Company. These forward-looking statements are not guarantees of our future performance. Our actual results may differ materially from these forward-looking statements due to numerous potential factors. Additional descriptions of these potential factors can be found in filings that we've made to the SEC which can be found on our website at www.MBIA.com. And with that I'll turn the call over to you, Chuck.

Thanks, Greg, and good morning, everyone. I am happy to be here at MBIA and I look forward to continuing this quarterly telephone dialogue with you and having the opportunity to meet with you face to face in the near future. Our first half financial results are largely in line with our expectations. Diluted earnings per share increased 10% to $3.08. Operating income per share, which excludes the effects of net gains and losses, increased 6% to $2.95 this period versus the first half of 2005.

Regarding the second quarter, diluted net income per share was $1.62, up 28% over the same period of 2005. The 2006 results were favorably affected by a $0.23 per share swing in net gains and losses due to a net gain of $0.12 in this year versus a net loss of $0.11 last year. Operating income per share was $1.50 for the quarter, a 9% increase.

Both our first-half and second-quarter results experienced higher-than-expected premium earnings from refunded issues and I'll address the implications of this in more detail during the discussion of earned premium. Excluding refunding related earnings, first-half 2006 operating income per share increased 3% over the first half of 2005. For the second quarter operating earnings per share, excluding refundings, increased 4%.

Turning to our writings, challenging market conditions characterized by continued tight credit spreads and intense competition from within and outside the bond insurance industry continued to impact our business production. For the first half of 2006 adjusted direct premium, or ADP, declined 38% to $400 million compared to 2005's first-half ADP of $647 million. For the second quarter we recorded $284 million of ADP which was 14% below last year's production. Despite declines in year-to-year and quarter-to-quarter comparison, our second-quarter ADP was considerably improved from our first-quarter production and was the highest quarterly ADP production since Q2 2005.

The U.S. public finance market continues to be our most challenging sector. Compared to last year's first half, the new issuance market experienced a 15% decline and insured volume was down 33%. Both measures, new issue and insured volumes, enjoyed better comparisons for the second quarter than for the first quarter; that is to say they declined less in Q2. MBIA's U.S. public finance ADP was off 57% for the first half of the year and off 49% for the second quarter.

We maintained the number two market share for par value insurer for the first half of 2006. According to reporting by the bond buyer, each of the four largest insurers experienced declines in par writings and market share versus last year's first half while the smaller insurers all gained in market share.

In non-U.S. public finance, as mentioned during the first-quarter's conference call, we closed two transactions in the first week of the second quarter, the aspire defense financed UK military housing field and the Toluca Mexican toll road transaction which accounted for almost all of the ADP written in the second quarter and in the first half of 2006 in this sector. At $102 million non-U.S. public finance ADP was up 57% versus last year's first half, and it also exceeded 2005's full-year ADP for this sector which underscores the lumpiness of our international business. We continue to see strong competition for European PFI and infrastructure deals.

For MBIA's U.S. structured finance market, ADP production was 48% lower for the first half of 2006. However, second-quarter ADP of $74 million was much stronger than the first-quarter's $16 million. The largest ADP deals in the second quarter came from several asset classes -- U.S. CDOs, equipment leases, auto loan ABS, and residential mortgage-backed securities.

For non-U.S. structured finance ADP was down 31% for the first half. This comparison was made more difficult by a particularly strong production quarter in 2005 which benefited from several large CDO and future flow transactions. This year second-quarter ADP was 64% below last year's second quarter.

Turning back to earnings, scheduled earned premiums in the first half declined 5% reflecting a lack of growth in business production as well as the effect of heavy refunding activity in prior periods. Earned premiums from refundings remained strong for the first half of this year growing 23% to $86 million from $70 million in the first six months of last year.

While interest rates have risen, our premium earnings from refunding issues have not abated. This year's refundings and terminations were strongly influenced by a handful of deals including structured finance and non-U.S. public finance transactions that have contributed disproportionately to earned premiums. For example, one structured finance deal yielded a make whole premium payment of nearly $6 million. More than 25% of our earnings from refunded deals resulted from five transactions that were retired during the first half of 2006.

Pretax net investment income in the first half of 2006, excluding net realized gains, was up 14% due to growth in interest income from consolidated variable interest entities, or VIEs, as well as growth in the insurance company's invested assets. As a reminder, beginning last quarter the interest expense component of VIEs was removed from net investment income and is now included in interest expense for the insurance segment in both current and prior periods.

Excluding VIE interest income, pretax and after-tax net investment income grew 8% for the first six months of this year. The growth was primarily due to the increase in average invested assets, but also reflects a small increase in average pretax investment yields. Fees and reimbursements, which were labeled advisory fees prior to this year, were up 15% in the first half of 2006 to $12 million.

Total insurance expenses increased 20% in the first half of 2006 to $179 million from $149 million in the first half of 2005. The increase was driven by the newly added VIE interest expense and an 18% increase in operating expenses. The increase in operating expenses stems from the lower deferral rate that the Company adopted for policy acquisition costs in the third quarter of 2005. Starting next quarter operating expenses will be on an apples-to-apples basis from a deferral rate perspective.

Gross insurance expenses, which are expenses prior to deferrals and do not include seating commission income, declined 3% versus the first half of last year. The Company uses gross operating expenses as our primary measure for expense monitoring.

In keeping with our loss reserving policy, we added 12% of our scheduled net earned premiums to our unallocated loss reserves for the first half of 2006. Now I'll take a couple of minutes to talk about the balance sheet implications of our loss reserve activity. For the first half of 2006 we experienced an $8 million increase to our unallocated loss reserve due to our case loss reserving activity which, when combined with additional loss and LAE of $40 million, boosted the Company's unallocated loss reserve by $48 million to $257 million at June 30, 2006.

In the second quarter of 2006 there was a $19 million increase in the unallocated loss reserve reflecting our active management of troubled credits in the portfolio. The largest adjustment was for our Northwest Airlines exposure. In the fourth quarter of 2005 we established a $76 million case loss reserve related to four Northwest EETC financings.

Unanticipated proceeds from the successful sale of unsecured claims as well as the sale of selected aircraft from one of the securitizations and an agreement to sell collateral from another securitization boosted our unallocated loss reserve by $57 million in the quarter. A CDO transaction provided the largest increase to case reserves in the quarter. There were other net additions to case reserves but at more minor levels to be considered normal. Again, on a net basis our unallocated reserve was increased by $19 million in the second quarter due to case activity.

Now I'd like to take a couple of minutes to update you about a few other high-profile credits in the insured book of business. During the second quarter MBIA paid a $6 million claim for a debt service payment due from the New Orleans Regional Transit Authority, or RTA, a credit adversely affected by Hurricane Katrina. MBIA currently has $24 million of net par insured outstanding for the RTA and we expect our claim payment to be fully reimbursed.

We also continue to closely monitor the performance of other credits that have been negatively impacted by Hurricane Katrina. Several of these credits have been placed on different levels of our caution list. So far we do not believe that any of these MBIA insured credits are likely to cause an ultimate loss other than immaterial loss adjustment expenses.

As you may have seen in the news, Eurotunnel has petitioned the French commercial court for a safeguard procedure, a new procedure under French law with limited similarities to U.S. Chapter 11 reorganization. At the July 25th hearing the Paris commercial court decided to delay its decision until August 2nd. Debt restructuring talks are ongoing and MBIA continues to work with the ad hoc creditors committee toward a consensual restructuring plan to be approved by all stakeholders. In the meantime Eurotunnel has indicated that it will continue to make payments on its debt obligations pending the court's decision. MBIA does not believe that it will incur an ultimate loss on our $1.5 billion net par outstanding Eurotunnel exposure.

Touching briefly on the credit quality of the overall portfolio, 81% of our outstanding book carries an underlying rating of A or better which is unchanged from a year ago and from year-end. The percentage of our portfolio rated non investment grade increased slightly to 2.2% due to a downgrade of the Cendant Rental Car funding deal by S&P. This transaction provides fleet funding to the Avis and Budget rental car brands and was downgraded by S&P due to Cendant's reliance upon Ford and General Motors. Moody's and MBIA continue to assign investment-grade underlying ratings to the deal. In spite of the additional capital requirements associated with S&P's downgrade of the deal, MBIA is very comfortable with the performance of the rental fleet companies and the insured securitization.

Turning to investment management services, our asset management business registered an excellent first half. Driven by continuing strong demand for the Company's asset management expertise, average assets under management for the year, excluding the conduit, grew 15% over the same period last year to $49 billion. Investment management service's pretax operating income of $50 million increased 17% versus last year's first half and resulted in a 9% contribution to the Company's pretax operating income.

MBIA recorded net realized gains of $17 million for all business operations for the first half of 2006 compared to net realized gains of $1 million in the first half of 2005. In the second quarter of 2006 net realized gains included a $10 million gain related to the sale of our common stock investment in RAM Re which went public during the quarter. MBIA's operating return on equity for the second quarter of 2006 was 12.4%.

As we noted on the last three quarterly conference calls beginning in third quarter last year, we have refrained from repurchasing shares pending the final settlement relating to the regulatory investigation. There are still approximately 5 million shares remaining under the existing share repurchase authorization. We continue to believe that share repurchase can be an effective capital management tool.

As a reminder, before we open the lines for questions, we're still awaiting final settlement on our regulatory investigation and we won't be able to comment on many aspects of those investigations at this time.

To sum up then, our financial results are in line with our expectations, our second-quarter ADP production was improved from the first quarter of 2006, we're seeing growing opportunities in the global capital markets that we hope will allow us to capture more ADP in the second half of the year compared to our business production in the first half of the year. As always, we continue to adhere to our pricing and underwriting disciplines which we believe are critical for adding long-term shareholder value. Now let's open up the call for your questions.

(OPERATOR INSTRUCTIONS). Gregory (sic) Dunn, KBW.

Good morning, it's Jeff. I know you can't talk to the regulatory front, but is there anything legally preventing you from buying back stock right now or is it more an internal decision?

It's been management's decision to hold off on share repurchases while the settlement discussions are going on.

Given that the delays are getting to the point of being a little ridiculous, is there any course of action where you could get approval from the SEC to protect yourselves down the road for any acquisitions and actually proceed and buy back stock ahead of that?

Again, we have been holding off on share repurchase, but I will acknowledge that we are watching carefully the progress of the settlement discussions as well as our capital position which, quite frankly, is getting stronger and stronger. And our hope is that there's a resolution of the settlement discussions in the near term at which time we would strongly consider going back into the market to repurchase shares. So we're monitoring it on a real-time basis at this point.

Okay. And then investment income and the interest expense within the financial guarantee business, I think it was distorted by some of the VIE stuff and other things. Can you give a breakdown of the components of each of those so we get a clearer picture of what's actually going on?

Sure. Net investment income was 14% -- was up 14% from $126 million to $144 million in the quarter. Of that -- of those amounts $16.7 million in second quarter '06 and $5.1 million in second quarter '05 are related to entities that we're consolidating now under either FIN 46 or FAS 140. Then if you go and look at the interest expense side of that, we have the impact of those items and we also have $2.3 million in the second quarter of '06 and $1 million in the second quarter of '05 of expense that's related to the restatement of our relationship with Munich Re. You'll recall that we unwound reinsurance accounting on that agreement last year so you have about a $1 million delta due to that effect as well on the interest expense side.

And so I guess the way to interpret it is the VIE stuff is effectively a wash. And what should we expect from the Munich stuff? Is that eventually going to trail now or what's the duration of the policy still outstanding there?

Well, it remains in effect so long as the underlying policies remain in place. And to the extent that there are flows between us and Munich that would have been characterized as reinsurance payments, they're going to be reflected in the interest income. So what we're seeing now in terms of the delta quarter-over-quarter is sort of reflective of the fact that our unallocated reserves went up in the quarter.

Okay, thanks.

Rob Ryan, Merrill Lynch.

Good morning. Any specifics on the competitive environment or the overall extent of direct and indirect competition? Anything that's at the margin changing?

That's a good question. In the last four or five quarters we had talked about the market environment being challenging and, frankly, we see that continuing. The market is characterized by tight spreads, competitive pricing, lower insured penetration and some predatory behavior among monolines with respect to terms. We're seeing virtually every meaningful deal that takes place in the marketplace and we're continuing to make bids on them in a way that's consistent with our underwriting and pricing standards. And in the second quarter obviously we acquired more transactions than we did in the first quarter.

And as to whether that reflects a change in the marketplace generally or if it's more a -- the mix of transactions that are available, it's a little hard to say. I'll give you a couple of snapshots. In the first quarter in the public ABS new issue market, more than 80% of the issuance was in the mortgage-backed securities sector, that's a sector where we have not been very active. In the second quarter that percentage fell from 80 to about 50%, therefore there was in effect more product out there available for us to compete on.

The same is a little bit true in the domestic public market where a big proportion of the deals done in the first quarter were healthcare related; we've not been a very big player in healthcare of late and there was a smaller proportion in healthcare in the second quarter, so our participation is a little better. So our production is going in the right direction at this point, but as to whether conditions in the market with respect to competition or pricing are really changing, it's a little hard to say. We don't really see any consistent indicators that would suggest that.

Thank you.

Ken Zerbe, Morgan Stanley.

Just want to talk a little bit about the international outlook. Obviously I guess those two transactions that you highlighted in April, as you mentioned, accounted for almost all your international production. I guess if you sort of back those out you really kind of have been fairly slow internationally. Can you just give us a sense of -- are conditions changing? What's the outlook there? I know you said the European banks are being quite competitive, but just trying to reconcile I guess the sharp slowdown that we've seen with you guys with the exception of those two deals.

I guess I can answer that generally, that we continue to be optimistic about the international market in the longer-term. But if you look at our experience going back to 2004 it's been very lumpy. We've had quarters where we had $100 million in production, we've had quarters where we had zero. And there's just no way for us to predict what we're going to get quarter-to-quarter. The transactions typically have very long gestation periods. And so they're just a little bit difficult to predict. But in general we're pretty optimistic about where we're going internationally.

All right. And the other thing I had a question on, aside from MBS in healthcare which you just touched on, are there other areas where you guys see the environment as being too difficult or the pricing as being too low that you're staying away from where the other guarantors are actively participating?

I wouldn't say that there's any part of the market that we're really staying away from. The domestic public market, sort of the core municipal finance business, is incredibly competitive right now and pricing is very thin and returns are low pretty much across the board. So that's the area where the competition is the stiffest and where we've yielded -- or yielded some market position.

All right, great. Thank you very much.

Mark Lane, William Blair & Co.

Good morning. Just a question on competitive environment and then one on reserves. One of the things that you mentioned -- the discussion on competition has been pretty consistent in the last several quarters, but it's been primarily focused on price. And one of the questions you -- one of the comments you made was -- which I thought was pretty strong language -- was predatory behavior on term. Is that on a transaction-by-transaction basis or are you actually seeing competition move away from price into conceding on credit terms, etc.?

I believe that the trend towards thinner pricing and more aggressive terms has been in place for at least four quarters. And we observe it from deal to deal out in the marketplace that we -- as we're bidding on business -- we lose some business on price where the ultimate pricing doesn't reach our return hurdles, but we also see business done away from us because of terms. It's hard to say that one of those effects versus the other predominates. I mean, it again varies with the mix of deals that we see.

And how would you compare the competitive environment in U.S. public finance this quarter to last quarter, same or worse?

Pretty much the same. It's been tough and aggressive out there for at least the last four quarters.

But not any worse in the second quarter versus the first quarter?

I don't think that it was any worse in the second quarter versus the first quarter.

Okay. And then on the reserve movement, I don't understand why you just didn't release the reserve if you were able to get an unintended benefit back from a previously established case reserve? Why didn't it just drop to the bottom line?

Because in addition to releasing the case reserves on our Northwest securitization we also had some net increases to reserves. I mentioned one of them was a CDO in which we saw asset deterioration, collateral deterioration of late. But then we had a handful of other increases to reserves in the quarter as well so that the net impact on the bottom line is about $19 million -- not on the bottom line, on unallocated reserves is about $19 million.

But those reserve changes on those other transactions, those were case reserves?

Yes, so that all of those changes get resolved in the unallocated reserve as opposed to on the income statement.

Okay. All right. Okay, thank you.

Joshua Shanker, Citigroup.

Following up on the last question, the first thought for accounting, if you do get an unintended benefit from a case reserve, that goes back into unallocated reserve or goes back into equity? How would you account for that?

Into unallocated. What happened was for Northwest we set up a reserve in 2005, and then as a result of the sale -- primarily as a result of the sale of the unsecured claims in those securitizations, we had a reduction in reserves -- a reduction in the reserves that had been set for Northwest. So where that gets adjusted is in our unallocated reserves.

You know that our game plan around reserve accounting is that we set 12% of our scheduled earned premiums as an addition to unallocated each quarter, and then to the extent that there is case reserve activity it would be adjusted in and out of unallocated.

Okay. Now the moving parts to the unallocated reserve, it improved by $56.7 million for Northwest; it also improved from the incurred accounting from the income statement around $20 million, and then this CDO and other transactions were net negatives on that number?

Yes.

Was the CDO half that amount? In proportion how big was the CDO loss?

The CDO was the greater proportion of the amount of the net increase on reserves -- in (indiscernible) reserves.

And is this a new case or is this in addition to a previous case that's already been set up?

It is an existing deal where we did at about $30 million to an existing reserve.

Okay, thank you very much.

Mike Grasher, Piper Jaffray.

Just to follow up on Jeff's question from earlier, could you update us on capital position, the funding available to execute on share repurchase?

Sure. We have a very strong capital position at this point. Recently S&P published its year-end 2005 report on MBIA. They showed our margin of safety to be in the high end of the 1.4 to 1.5 range. We've not yet had a formal response from Moody's, although we've had ongoing dialogue with them. We believe that when Moody's finally does publish they're going to find that our capital position is likewise well in excess of their 1.3 multiplier minimum for AAA.

So we believe that we're well ahead of AAA minimums with respect to both agencies. Our own internal models showing us having a substantial amount of capital available for share repurchase activity. As I mentioned before, we've been holding off on share buybacks as a result of the pending regulatory settlements. To the extent that settlements were to be entered in the very near-term, we have more than adequate capital and liquidity resources both at the holding company and in the insurer to carry out the share repurchase that's currently authorized by our Board.

We have 5 million shares left on the existing share buyback authorization and today we have about $300 million in cash at the holding company. So if we were to enter into a settlement we could start buying back shares in the near-term. And of course, there is capital in the insurance company that can be dividended up to the hold co. Although we would need to make a request for an extraordinary dividend from the insurer to the extent that it were to take place before 12 months after the last approval which was December of 2005.

Okay. Thank you for that. And then you also spoke to the below investment-grade credit that arrived in the top ten there, the Cendant Rental Car funding. Were there others or would others be sort of below that level that are newly monitored concerns?

That is the -- the addition to below investment-grade is really just the Cendant transaction.

And that was the only change then?

Yes.

Okay. Thank you very much.

(inaudible), Banc of America Securities.

Good money. Just a question on refundings, they were the highest they've ever been and I know there were a few extra items in there this quarter, but if you could just address that and talk about what you would expect for the remainder of this year that would be helpful. Thank you.

It's hard to say what to expect with refundings because internally we've said to ourselves we expect them to fall because rates have risen and then they haven't fallen. In the second quarter we had four transactions to refund that provided more than $20 million of the refunding income in the quarter. The reasons for those refundings are -- varies, they're not strictly interest rate driven, they're not even driven by expectations of future interest rate increases. So it's a little bit hard to have sort of a macroeconomic indicator that tells us where that's going to go with respect to these large transactions. So I'm a little loathe to offer a forecast of refundings going forward, but we did have a record level of refundings in the second quarter.

Okay. And then just generally, with the comments that you've already made about the pipeline competition, insured penetration in the municipal area seems to be returning to more historical levels. And would you expect that to stay there and off of its 55 to 60% range that it's previously been in?

I don't have a firm opinion about that. I mean I understand that insured penetration today is at the levels that we were sort of used to up until a couple of years ago and that it had sort of blipped up. I don't have any forecast around that. With respect to our pipeline, we do see more activity today than we've seen over the past couple quarters and we have a hope and expectation that our second half ADP will be better than the first half.

Okay, thank you.

Darin Arita, Deutsche Bank.

Good morning. Maybe a question for Chuck and also a question for Mitch. For Chuck, with respect to the investment portfolio, can you talk about what sort of investments you're directing new money? Is it in taxable or tax-exempt or anything else?

Our allocation to tax-exempt is about 50% in the insurance company portfolio and we're seeking to maintain that. It continues to be a high-quality portfolio. The one thing that has happened in our investment strategy that you've sort of seen unfold over -- actually two things that have happened in investment strategy that you've seen unfold over time is that we had shortened the duration on the portfolio from about seven down to about five and that -- given that interest rates are now rising, that reduction in duration has helped us from a preservation of capital perspective.

The other thing that's going on is that we are reducing the proportion of the portfolio that is in MBIA raft bonds. And so we've sold down some of that position over the past year. But other than that it's pretty status quo.

Okay, great. And for Mitch, I guess other than Eurotunnel and your Hurricane Katrina related credits, are there any sort of credits that are taking up your attention as you monitor the portfolio?

Well, we don't have anything that jumps out that I could really point out. We've had the activity that you've referred to. At any given time we may have some items that are on our screen, but nothing that approaches the significance that you mentioned and I think overall the portfolio is in not only solid shape but improving shape.

Okay, great. Thanks very much.

Gary Ransom, Fox-Pitt Kelton.

I just had a question about spreads, we all know they're narrow, but are there any sectors anywhere where you're seeing any change at all?

Gary, good morning. I'm sorry to say that my appreciation of spreads in the subsectors that we play in may not be nuanced enough to fully respond to that question. So I'd be happy to take it up with you off-line. In general spreads continue to be at types that would be historic.

Okay. Just another question. You mentioned earlier that you were seeing response to a question about the pipeline -- you were seeing more activity or a little bit more activity. Where is that coming or where are you seeing that?

I would say in all the sectors we're seeing a little more activity than we had earlier in the year. Domestic public continues to be just an area where there is business being done, but, as I've said, a lot of the transactions end up not meeting our pricing criteria or criteria for terms. But we do see some activity in the international public and structured and there are some domestic structured transactions that we expect to continue to work on for the balance of the year.

In terms of international business by itself, I realize there's a long leadtime. Are there things -- even if it's like a two-year leadtime, are there new things constantly cropping up that might hit in '08 or something?

Yes.

Yes, okay. And it's at the same steady flow as it has been before?

I think that right now, again, on international both public and structured we're seeing a little bit more robust activity in deal log than we would have seen in the first six months of this year.

Okay, thank you very much.

Geoffrey Dunn, KBW.

Chuck, I just want a clarification. Did you say you had $300 million of capital at the holding company?

Of cash at the holding company.

Right. I think last quarter you said 4. What's the difference sequentially?

Shareholder dividends.

Okay, that's all there is then?

And expenses.

Okay, great. Thanks.

Michael O'Brien, KBW.

It's actually Howard Shapiro. Just two questions. Are you still comfortable with the reserve that you've established in anticipation of the regulatory settlement?

Yes, very comfortable.

Okay, good. And the second question is -- and I don't mean to parse your words too closely, but you said that you don't expect any ultimate losses on your exposure to the European tunnel. Is there anything that could happen in the interim that should concern us?

I think that I would ask Mitch to address the details of our Eurotunnel experience.

Let me try to comment on it, mindful of the fact, as you know, that we're in the middle of intensive negotiation with subordinated debt holders. I am confident that whether we get to the consensual deal that we hope to get to and, in fact, as you know, we have a signed restructuring agreement with the company, with the ad hoc committee of senior creditors and that's been fully funded by a consortium led by Goldman. Or if we wind up having to resort to the remedies that we have as creditor, that at the end of the day we will not suffer any loss at all.

If the company makes a move, which would wind up having the company be in an insolvency proceeding for some period of time, then depending on the duration we may have some payments which we will need to make along the way which we would anticipate. But at the end of the day we would also anticipate that they will be fully reimbursed and we will not have a loss.

And is there any way of quantifying what those could be?

I wish I could, but I can't. As it has everything to do with moves that can be made by parties outside of our control, but, as I said, at the end of the day, irrespective of the outflow, we think that the recovery will be fall and there will be no loss to MBIA.

Thank you very much.

Michael Rogers, Conning Asset Management.

Good morning. More of a macro question I guess. But when you look at the competitive environment out there right now and it continues to be the same story quarter after quarter for number of quarters, when do you think that these types of conditions become more of a secular concern and could drive competition or consolidation in your industry or maybe even become an issue for your ratings -- for your AAA ratings?

That is a subject that we think about all the time. The competitive environment is one that we monitor closely. We are continually trying to come up with ways to identify sectors in which our product can be value added for customers and generate positive returns for us. And frankly we think we've been pretty successful at that over time and we're continuing to plow that same row in such a way as to generate the capital and the earnings that will maintain our ratings at AAA level.

It is true that we have been seeing these challenging market conditions for several quarters. We don't believe that this is a several quarter business, it's a several year business and we just have not seen and don't anticipate that market and competitive conditions will remain the same for that long a period of time. We are believers that there is a business cycle and that there is a credit cycle. And that right now the perception of credit risk is lower than the actual credit risk and we think that that is not a good time to be really aggressive in the financial guarantee business, but we do believe that that will shift over time.

Any comments -- thank you for that. Any comments on the consolidation thing with a lot of capital, a lot of competition? Do you think consolidation is ultimately something we shall see?

I have to say that I have been in this industry and in this company two short a time to have an opinion about that macro element. I would say in other industries with these kinds of conditions, if they persisted over a long period of time I would expect to see consolidation. The financial guarantee space is a little bit unique.

Thanks very much.

There appear to be no further questions at this time.

Thank you very much, Markita. We'd also like to thank everyone who participated on the call today. Once again, we encourage those of you with additional questions to contact me at 914-765-3190. We also recommend that you visit our website at www.MBIA.com where you can find a wide array of additional information on MBIA and the products and services that our company provides. Thank you for your interest in MBIA. Good day and good-bye.

Thank you. This does conclude today's conference call. You may now disconnect your lines and have a pleasant day.