MBIA Inc (MBI) 2010 Q2 法說會逐字稿

Good morning and welcome to the MBIA Inc. second-quarter 2010 financial results conference call. At this time all lines are in a listen-only mode to prevent any background noise. After the prepared remarks from the Company there will be a question-and-answer session. (Operator Instructions). I would now like to turn the conference over to Greg Diamond, Managing Director of Investor Relations at MBIA. Please go ahead, sir.

Thank you, Christy. Welcome to MBIA's conference call for our second-quarter 2010 financial results. We're going to follow the same format as last quarter's call. Jay and Chuck will provide some comments prior to holding a question-and-answer session.

We have posted several items on our website including our second-quarter 2010 Form 10-Q and our second-quarter operating supplement. The information for accessing the recorded replay of today's call is included in our financial results press release which is also available on the website.

Our company's definitive disclosures are incorporated in our SEC filings. The purpose of our call today is to discuss some of the disclosures in our most recent 10-Q to facilitate a greater understanding for investors. The 10-Q also contains information that will not be addressed on today's call.

Please note that anything that we say on this call is qualified by the information provided in the 10-Q and our other SEC filings. You should read our Form 10-Q as it contains our most current and comprehensive disclosures about the Company and its financial and operating performance. Today's Q&A session will be handled by Jay Brown, CEO, and Chuck Chaplin, President, CFO and Chief Administrative Officer.

Now for our Safe Harbor disclosure statement. Our remarks on this conference call may contain forward-looking statements. Important factors, such as the general market conditions and the competitive environment, could cause actual results to differ materially from those in our forward-looking statements. Risk factors are detailed in our 10-K which is available on our website at www.MBIA.com.

The Company undertakes no obligation to revise or update any forward-looking statements to reflect changes in events or expectations. In addition, the definitions of the non-GAAP terms that are included in our remarks today may also be found on our website. Before we begin the Q&A session Jay and Chuck will provide some introductory comments. Jay?

Thanks, Greg. When I accepted your Board's invitation to rejoin MBIA in February of 2008 I did so knowing that the Company was facing the most serious challenge in its then 34-year history. However, as I noted at that time that the Company was well-capitalized and well-positioned to satisfy its claims payment obligations even under a wide variety of adverse scenarios.

The passage of time has proven the durability of our balance sheets, as to date we have honored all claims and we expect to continue to do so, even in the face of a scenario far more adverse than we had anticipated. Where almost $5 billion has been paid out on our MBS transactions that were largely non-compliant with the terms and conditions of our insurance coverage. I'll have more on that later.

Many of you will remember that one of my first actions upon returning to MBIA was to set forth a five-year plan for the transformation of the Company. At the same time I also expressed my personal view that the bond insurance industry needed to be redesigned. To that end I shared with you our principles of transformation which outlined our plan to reestablish our core bond insurance franchise and begin rebuilding value for our shareholders.

With the halfway point of this five-year period now upon us it seems like a good time to recall what has been accomplished and what remains to be done. Most notably we spent a year working extensively with the New York State Insurance Department and others to create a new US public finance only bond insurance company.

While National has been up and running for 18 months now, some parties have chosen to contest its existence and have initiated legal action. We believe that the uncertainty caused by this litigation has prevented National from receiving high enough ratings from S&P and Moody's and, despite being extremely well-capitalized, the Company has been unable to write any new business.

Nonetheless we remain very confident that the litigation will be resolved in our favor which should lead to ratings upgrades for National and allow it to reengage with the US municipal bond market and provide much-needed insurance capacity to issuers and investors.

I should also note that, consistent with our transformation plan, National's statutory earned surplus was reached at effective as of the beginning of this year following its redomestication to New York. This positions the Company to pay dividends in the future to support its capital structure.

Given the very strong cash position at our holding company we have no need or plans to pay any dividends until the transformation litigation is ultimately resolved. Earlier this year we renamed and organized our asset management operation so that it no longer relies on leveraging the bond insurance business for the majority of its revenue.

Cutwater Asset Management activities are now focused on providing superior third-party fee-for-service asset management products for a wide variety of fixed income investors. Cliff Corso and his team are working on building out their platform and profitably growing their assets under management.

We've also successfully committed nearly all of the reinsurance on our insurance Company's insured portfolios. The most recent example of which was the third-quarter acquisition and pending liquidation of Channel Re. In general financial guarantee reinsurance made our financial position more complex to understand and provided little in the way of either significant loss protection or capital relief, so it made no sense to keep these arrangements in place.

In the case of Channel Re where we received capital credit due to trust funds maintained by Channel Re for MBIA's benefit. The reinsurance commutation affords MBIA a boost to statutory capital and current liquidity. So where does that leave us and what remains to be done?

We still have work to do on reestablishing our international infrastructure platform, realigning our expense structure and reconfiguring our capital structure to support stand-alone businesses. But our most immediate priority is resolving the litigation we're involved in, both as a defendant and as a plaintiff.

On the defendant side where the most significant litigation involves entities challenging our transformation, the article 78 proceeding has been taking considerably longer to resolve than we had hoped and expected considering the typically expedited nature of such proceedings. However, the process has given the banks every opportunity to make their case, but I remain confident that the judge will ultimately find that the New York State insurance Department approval of our transformation was properly given and that he will rule in our favor. We continue to believe that both the facts and the law are clearly on our side.

On the MBIA's plaintiff side, we are continuing our vigorous efforts to recover the billions of dollars of shareholder assets that have been or will be paid to our policyholders as a result of contractual breaches or outright fraud by the sponsors of the mortgage-related securitizations we insured. We're among the very first parties to take legal action to enforce contractual representation and warranties that would require the repurchase of ineligible mortgage loans in a variety of our MBS transactions.

To say that there was a fair amount of market skepticism regarding the validity of our claims in the fall of 2008 would be a significant understatement. But with favorable legal developments, increased recognition of the issue in the media, growing provisions for loan repurchases by mortgage originators as noted in their most recent regulatory filings and no less than Fannie, Freddie, the Federal Home Loan Banks and the Fed in addition to uninsured bondholders now pursuing similar claims, it's no longer a question of whether we will realize our contractual recoveries, the question is simply when and how much.

The wheels of justice are turning slowly, but we are making progress on several fronts. Our litigations against several major mortgage securitization sponsors continue to move forward surviving motions to dismiss, including one we received yesterday, and entering the discovery phases with the first trial scheduled to begin in 2011.

At the same time, as you might imagine, we have worked in earnest and good faith with a number of parties in an attempt to resolve our differences out of court. I'm extremely pleased that after a very productive dialog with one mortgage securitization sponsor we reached a resolution recovery a few weeks ago on mutually beneficial terms. Conversations with others continue and I can only hope that they behave as professionally as this one did.

Along similar lines, we've also been talking to a number of our CDS counterparties and recently entered into a commutation agreement with one that eliminates a substantial portion of our remaining CDO squared exposure at a reasonable cost to the Company.

As you might expect, negotiated settlements are extremely arduous and involve significant compromises on both sides to achieve a settlement which is acceptable to both parties. Given the confidential nature of these agreements we have provided the information that we concluded we needed to disclose as a public company and will not be providing any additional detail on these settlements.

We still have a long way to go in recovering amounts that we should never have had to pay out on our insured mortgage and CDO exposures. But we are firmly convinced of the validity of our claims and remain determined to aggressively pursue them for the benefit of other policyholders and our shareholders. I am as optimistic as I've ever been that our efforts will ultimately result in substantial recoveries for the Company.

So to sum up, about halfway through our five-year transformation we've made good progress through what have been the most challenging and difficult times. It has been a personal disappointment to me that during that timeframe our company's adjusted book value has decreased approximately 10% to $35.70, a larger decreased than I had contemplated. Adjusted book value is the simplest way to measure whether we are adding shareholder value over time.

I had expected some movement up and down as we moved through our transformation, just not that much. But with ABV where it is, MBIA remains a significant investment opportunity given the Company's current stock price trading levels. And as we progress through the transformation your management team will remain focused on growing value over time. We will continue our absolute commitment to maximize the efficiency of our operations and to seek out those transactions that will further increase shareholder value.

As always, we continue to appreciate your support and encouragement. Now Chuck will talk about the specifics of our second-quarter financial results.

Thank you, Jay, and good morning, everyone. Our second-quarter financial results are consistent with the stage of our corporate transformation that Jay just discussed. Thematically, after many quarters of volatility and very substantial losses, this quarter was characterized by basically breakeven operating performance. The performance trends in our insured RMBS transaction show some signs of moderation as do losses on our ABS CDOs.

On the other hand, our expected loss on insured CMBS transactions grew. Our paid claims continue to be dominated by second lien RMBS transactions and most of those losses appear to have resulted from ineligible mortgage loans that were inappropriately included in the securitizations. We increased our estimate of recoveries relating to seller servicer repurchases of those loans in the quarter.

On the public finance side, National continues to churn out earnings from its existing book of business and is getting closer to writing new business as we get closer to resolving the article 78 litigation. Obviously the headline net income number is very positive at $1.3 billion and pretax income was $1.97 billion in the quarter. However, as in many prior quarters, our economic performance is masked by unrealized gains on insurance policies that will never be realized.

There are two mark to market effects that account for essentially all of the pretax income. First, our insured credit derivatives had an unrealized gain of $1.54 billion. Also our insured variable interest entities that are subject to fair value accounting had a gain of $270 million. Both of these effects were driven by the change in the prices of credit derivatives on MBIA Corp. The cost of protection on MBIA Corp. increased by approximately 13% in the quarter, both driving down the net derivative liability and driving up the net equity of insured VIEs.

These accounting results, of course, do not reflect the actual economics of our insurance business. In order to see those economics one needs to strip away the noise of the mark to market on insured credit derivatives and consolidation of insured VIEs and replace them with the actual credit impairment trends on the insured exposures.

When we do this we see pretax earnings as adjusted for those items with a gain of about $14 million in the second quarter. This represents a positive trend as the same statistic was a loss of $198 million in the first quarter and a loss of $531 million in the fourth quarter of 2009. While there are reasons to continue to be cautious, it does appear that we're entering a period of somewhat lower volatility in economic performance.

The other consolidated measure that provides insight to our operating performance's adjusted book value, which includes the impact of the amortization of deferred premium revenue, includes the future spread performance of the ALM portfolio and, of course, it is an after-tax measure.

ABV fell slightly in the quarter going from $36.01 per share at March 31 to $35.76 per share at June 30. Insured losses were approximately $0.68 per share and share buybacks contributed about $0.51 of gain. All other impacts on ABV resulted in $0.08 of loss. We believe that the change in ABV in a period is related to actual shareholder value creation, as Jay referenced, so value was nearly flat in the second quarter.

At the segment level I'll provide some information on adjusted pretax earnings, as well as statutory information for the insurance companies. First, at National Public Finance we had operating performance basically in line with expectations; adjusted pretax income was $128 million. Insured losses in National were $10 million this quarter.

The parts of the portfolio that have been generating most of the losses for National in the trailing 12 months have been healthcare, affordable housing and student loans, and those losses have averaged nearly $17 million per quarter. These sectors account for about $22.7 billion of total net exposure or 5% of National's overall portfolio.

We have looked at our exposures to credits in the Gulf of Mexico region and we did not take any reserves for them in the quarter. In addition, we have not experienced, nor do we anticipate, any systemic changes in the performance of the general obligation and tax backed portfolios, so many states and municipalities are faced with significant budget shortfalls and will be required to raise taxes and cut revenues. We have not added any material reserves for those sectors.

On a statutory accounting basis National earned $100 million and its statutory capital was $2.2 billion at June 30. As its stat capital grows and its book of business amortizes National grows closer to the quantitative requirements for AAA ratings from both S&P and Moody's. When the Article 78 litigation is favorably resolved its need for external capital to reach of those levels may be quite small.

MBIA Insurance Corp.'s adjusted pretax loss was approximately $120 million; the largest driver was insured losses which totaled $156 million in the quarter. We had a net reduction of reserves for RMBS of approximately $220 million as a result of an increase in expected put back recoveries.

This quarter the put back recovery increase resulted from an additional 2,200 files that were reviewed. Also, we identified additional breaches as a result of an independent re-examination by the forensic review consultants of previously analyzed loan files which also resulted in additions to the estimated receivable. The underlying securitizations performed in line with the projections we made in the first quarter.

We increased our estimate of loss for our ABS CDOs driven by the CDO Squared portfolio by $129 million as a result of actual and projected collateral deterioration. Finally, we increased loss estimates for our CMBS exposures by $230 million in the quarter. We still haven't seen any material deterioration in our deductibles in those deals, but we have seen operating incomes decline in the underlying mortgages which contributed to an increase in our expectation of potential losses.

While some indicators for the overall commercial property market are trending positively, there is substantial uncertainty around any projection of foreclosure and liquidation activity in our portfolio. Our loss reserves reflect our view that conditions most likely will continue to improve.

Across MBIA Corp.'s entire insured portfolio the trend in insured losses compared to the last few years was favorable. Losses in the two quarters of 2010 are averaging about one-third of the quarterly average loss levels for the nine quarters from Q4 2007 to Q4 2009.

After the quarter we entered into a commutation of $4.4 billion of MBIA Corp. CDO Squared exposure for a payment of about $72 million, or $34 million after reinsurance. While this will result in additional incurred loss in the third quarter, it eliminated half of our exposure to a CDO sector that has proven to be volatile.

On a statutory basis, MBIA Corp. had a net loss of approximately $30 million and its statutory capital ended the quarter at $3.3 billion. Our statutory balance sheet show something unusual this quarter. The loss in LAE reserve account has turned negative at $79 million, that is to say that liability account is a net asset in the second quarter. That means that we expect that there's more recovery to collect in the form of put back recoveries and excess spread on second lien securitizations than there are claims to be paid on all reserve deals based on our loss projections.

In Cutwater Asset Management, our advisory segment, we had a pretext loss of $290,000 as we incurred some additional expenses to position Cutwater for growth. We dividended $10 million of excess capital to the holding company leaving Cutwater with enough capital to operate its advisory only business. Average third-party assets under management were a little over $26 billion or about 61% of Cutwater's total AUM.

The corporate segment had a pretext loss of $9 million which is below its run rate of about a $20 million quarterly loss. This difference is primarily due to the mark to market on the liability for warrants issued in our 2008 capital raise.

Moving on to wind down operations, it had pretax income of $11 million. The drivers were realized gains on derivatives in variable interest entities within the segment. Unlike the gains and losses on VIEs in the insurance segment, here the Company can actually benefit from these gains. We bought back $75 million of debt for $57 million in the quarter and we realized about $12 million in asset impairment, so the book value deficit in the ALM business was modestly reduced.

The segment has benefited from an intercompany loan from MBIA Corp. which was originally $2 billion in amount. After paydowns of $355 million in the second quarter, that balance is now $1.1 billion and the loan is due to be fully repaid in the fourth quarter or by the fourth quarter of 2011.

Liquidity improved during the second quarter. In MBIA Corp. we made payments in the quarter of about $421 million on our insured RMBS as the trend of declining payments continued. The second lien RMBS exposure has been the source of much of the payment volatility we've experienced in the past two years.

And while the unprecedented level of ineligible mortgage loans in these deals has made predictions difficult, it is a fact that delinquency pipelines are much smaller now than they were a year ago and the net exposure and has also declined from about $14 billion at second quarter 2009 to $11 billion at June 30, 2010.

We also made payments on some CDO Squared's in the quarter, but the potential exposure and volatility in that part of the portfolio are both far smaller than on the RMBS transaction. So against this backdrop of lower payments, we had growth in cash assets in the quarter. Our tax refund of $251 million and principle payments received on the intercompany loan of $355 million contributed to a total cash balance of $1.1 billion compared to $962 million at March 30.

After the quarter, we had a recovery on a put back receivable that also increased our cash position. We have a long way to go in that regard, but there is a growing recognition that mortgage lenders and securitization sponsors are responsible for purchasing these ineligible mortgage loans.

Also in the third quarter as previously referenced MBIA Corporation accord the 83% of Channel Re it didn't already own, we paid $40 million for the shares and then entered into a commutation of all reinsurance coverage for which MBIA Insurance Corp. received approximately $470 million of cash and liquid assets.

We expect to liquidate the Company in the third quarter and at that time MBIA Corp. will also receive all of Channel's remaining net assets. All in all, while there continues to be risk, we believe that the near-term cash picture is solid at MBIA Corporation. In the ALM portfolio we have $1.1 billion in cash and short-term assets and about $400 million in cash and short-term assets that are unencumbered as of June 30.

We have liquid assets pledged against all of the demand liabilities of this business, but we also need to hold unencumbered cash to cover potential increases in collateral requirements on hedging derivatives. We believe that we have an adequate cushion against those needs today. And we expect that the business will be able to pay off the remainder of the secured loan over the next six quarters. At the same time we continue to look for ways to close the book value deficit.

At the holding company level we also benefited from our tax refund of about $169 million in the quarter. We used about $19 million to buy back stock, about $35 million to retire debt and about $160,000 to buy some more of MBIA Corp.'s preferred stock. The cash and short-term balance at the holding company level at June 30 was $390 million compared to $321 million at March 31.

Cash on hand and expected flows to the holding company should cover its cash needs through 2015, even if no dividends are received from the operating businesses. So the quarter turned out reasonably well, earnings were about breakeven, liquidity was somewhat improved.

It's too soon to deem the credit crisis over, but here on what I see as its third anniversary, the adverse volatility in our book appears to be subsiding and the Company's balance sheet has proven to be as resilient as we previously thought it would be. At this point I'll pause and Jay and I will take your questions.

(Operator Instructions). Darin Arita, Deutsche Bank.

Good morning. I had a question -- first question is on the July settlement on the reps and warranties. I was wondering is this the first major settlement for MBIA on these second lien RMBS (multiple speakers)?

Yes, it is.

Oh, it is, okay, good. And I was wondering if there's any way you can give us a sense of the scope and the size of the settlement here?

No.

Okay, all right. Thought I'd try at least on that. And then secondly, on National, Chuck, it's sounds like your comments -- based on your comments is it still fair to assume that this is a AA level of capital?

Yes, that's the way we view it. At this point we have capitalization on the Moody's scale that's in the AAA range and in the AA range for S&P.

Okay. And can give us a sense of how far we are away from a AAA level of capital?

That's a good question, Darin. The Company gets a little closer each quarter. We have about $100 million of earnings. One of the things that we're a little unsure about is how the agencies are actually going to be calibrating models going forward. So it's a little bit tough to pin down.

Okay, great. Thanks very much.

Sure.

[Ali Lomsten], [CQS]

Yes, could you give us an idea of what percentage of the revenue warranty put back that you'd actually recognized in your accounts you actually achieved with the agreement that you made this quarter?

It was in excess of 90% of what we had on the balance sheet at the end of the first quarter.

Just relative to the aggregate amount of put back recoveries that are recognized, which is about $2.1 billion, the amount of this resolution is not material to that overall balance.

Sure. And it's at 90%, do you think that's relevant going forward in terms of what you'd expect on those put backs that you've taken away from this settlement?

No, I think one of the things to understand about all settlement negotiations is that each one of them is unique, there are no two transactions which are identical. And basically it has to do with the level of misrepresentation and how we are dealing with the existing and forecasted claims.

What we have on the balance sheet is the minimum estimate that we expect to recover across all of the transaction. Based on my experience, some will be substantially greater than what we have on the balance sheet and some could be less. In each case we're evaluating the transaction against the economics of getting it out of the way and having certainty and, importantly, eliminating litigation expense.

As some of you have noted, our litigation expense over the last two years has climbed from under $10 million a year to over $100 million. So the cost of litigation is an important part of our consideration in each transaction in determining how and whether it makes sense to settle at this time or to continue through the courts to achieve an ultimate resolution at a greater value.

Right. And that claim ticket seems to go up every quarter at the moment. Are you near the final total of what you think those put backs are going to be?

The issue on the amount that's on our balance sheet is a function of the amount of loans that we've actually had access to and our ability to review those files to determine which of the loans are in fact in violation of the reps and warranties. Those efforts have been significantly stymied by the litigation in that a large number of the file have not been available to us.

In some of the litigation we're starting to see more of those files at this point in time and that could lead to additional put back. In each individual litigation our goal is to achieve complete recovery for all loans in the securitizations that were in violation of the reps and warranties.

As I stated at the beginning of the year, when you look across the entire portfolio of losses that we've paid or will pay on RMBS transactions, that number is in excess of $5 billion. And almost without exception, in some cases the numbers are as low as 75%, in some cases they're above 90% in terms of the total loans that we've reviewed are in violation of the reps and warranties.

The number of $2 billion represents our estimate based on the loans we've actually looked at. What we're actually seeking in court are amounts substantially greater than that. And if they're eventually recognized you will see those flow through the income statement and the balance sheet at that time.

So this (inaudible) I didn't quite follow there though -- you didn't have access to these files in the first place? I thought when you were actually underwriting the risk you add access to the loan files to actually assess the level of risk you were taking?

The transactions were done under a process that existed at the time where we relied on the reps and warranties of the issuers rather than a review of the loan-by-loan file. And that is part of what the litigation contentions are all about. Subsequent to the securitizations being formed, we have requested from all servicers the actual underlying loan files to perform our review.

In some cases the servicers have been very forthcoming and provided those files; in other cases they refuse to provide a single file. And those are the cases that we're now involved in severe litigation over which we believe if you read each of the individual litigation transcripts and files and motions you could distinguish how each of the servicers has behaved under different circumstances.

It's been a very frustrating experience to have to wait this long to get access to all the files. But based on what we've seen in the court so far that we expect before it's over we will have access to each and every loan file in each and every securitization in order to be able to evaluate which loan should not have been in the securitizations in the first place based on the reps and warranties that the originators put into the transactions.

Jay, if I can just add something to that. There is extensive disclosure in our 10-Q about the process of assessing the value of these put back recoveries and Jay has just given you kind of a high-level thumbprint of it.

But there is -- there's a lot that's taken into account, including the files that we have reviewed, the probability that sampling will be used in determining ultimately the amount of liability, the potential associated with litigation that is to say both cost and delay and certainly the probability that we do not prevail; the probability that one or more of the seller servicers against whom we're pursuing put backs is unable to pay a judgment when it's finally rendered.

All of those factors come into play. So it is quite a complex calculation. I think if you looked at just the putback value of the files that we have reviewed already, it is about 80%, 85% of the amount that we've recorded in total.

Okay. So just one final quick question. Are you going to disclose who the counterparty was that you entered the agreement with?

No.

Sorry?

No. We don't disclose any of our negotiated settlements. And I don't mean to be abrupt, but in order to have a fruitful discussion with a large number of counterparties or mortgage issuers, we do sign very extensive confidentiality agreements. We agree that we will disclose what we have to disclose per our own view of what is material.

But the name of the counterparty and the amounts and the details of each negotiated settlement are going to be quite different. And what we have provided you here, which is what we believe are the material information you need to evaluate the impact of these types of settlements or commutations on our balance sheet and income statement.

I apologize. I mean, I'd love to be able to go into great length. I'd love to show you the document; I'd love to show you all of the details, but that is not the process we go through. We respect the confidentiality of our counterparties and our mortgage issuers. We want to engage in additional negotiations with them, and as part of that we have agreed in advance not to disclose the individual counterparties.

Okay. Was it one of the counterparties you're involved with litigation?

Next question.

David Farber, Mason Capital.

Hello?

David, go ahead and ask your question.

Can you hear me now?

Yes.

Sorry about that. Can you give us some more color on what drove the increase in the CMBS portfolio -- sorry, in the CMBS reserves? And to what extent do you think there is the potential to put back some of the CMBS claims that you might receive?

In terms of looking at the reserves, basically we follow the same procedure each quarter to evaluate both looking backwards and looking forwards based on the most recent three months information. Importantly, in the first six months of the year we picked up information on 2009 financials on the underlying mortgages. They were slightly worse than we had assumed in the first quarter across the portfolio. That drove an increase in our assumptions under our probabilistic outcome.

In terms of any putbacks on the CMBS area, we are looking at the overall transactions, each and every transaction, what was represented and how they are handled. We have not filed any litigation at this point in time, although we are engaged in a variety of different discussions, discussions with counterparties on these issues. It is not an area at this point in time that we have made a decision to pursue any litigation.

And just a follow-up. From a putback perspective, would you only start to pursue those claims once cash outflows came out of MBIA?

There's a very big difference between these transactions. Most of the transactions, more than two-thirds are synthetic and they're referenced to other transactions, they are not actual individual loans that are involved. So the actual concept of put backs, which is directly related to an actual loan that was put inside a cash security is not the same.

And so, any remediation activities in the CMBS area would be quite different. In terms of our timing on this, we will let you know if we end up deciding to pursue anything, but it's uncertain at this time if that's going to be a necessary step.

Okay, thanks a lot.

Thank you.

(Operator Instructions). Mike Thoyer, Stonehill Capital.

What kind of liquidity will the Channel Re deal generate when it's fully complete? And what's in the $22 billion of collateral that MBIA is bringing back on its balance sheet?

Good question, Mike. With respect to liquidity, MBIA Insurance Corp. will end up as the owner of all of the assets of Channel Re. What's happened so far is that we acquired the Company for $40 million, entered into a commutation of all the insurance coverage. In the commutation MBIA Insurance Corp. receives about $470 million and then there's another roughly $65 million that goes to National or to MBIA UK.

And then we expect to liquidate the Company, there is a legal process that we have to go through in Bermuda to liquidate the Firm. We expect to conclude it in the third quarter and at that time all the remaining assets of Channel Re will be distributed up to MBIA Corp. net of any expenses or liabilities that have to be paid from Channel Re's balance sheet at the time of liquidation.

With respect to the portfolio that's insured, Channel Re has pretty much reinsured every sector of business that MBIA wrote between 2004 and 2008. And what that means is that that portfolio is over weighted in structured finance exposure relative to MBIA's consolidated insured portfolio. So there is some more exposure to some of the troubled sectors of CMBS as well as ABS CDOs than you would see if you looked at the entire consolidated portfolio.

Having said that, at June 30 the reserves carried on Channel Re's books are less than the assets that the Company is going to receive at the liquidation -- in the commutation and then the ultimate liquidation of the Company. So from a statutory perspective, if you look at it from a June 30 pro forma, there would be an increase in statutory capital in MBIA Insurance Corp.

Okay. And just going back to the rep and warrant and the CDO settlements, can you at least comment on whether those two settlements were with the same counterparty? And then also on the rep and warrant settlements, can you be a little more specific on what kind of collateral that covered, was it closed end seconds or HELOCs or something else?

We're not going to provide any additional information, as I said earlier, on those settlements. But thank you for the question.

Okay, thank you very much.

This concludes the Q&A session. Greg, your closing remarks?

Thank you, Christie. I would like to note that we have not accepted calls today from parties that have taken legal action against the Company, otherwise we did except all other questions in the queue. Thanks to all of you who have joined us for today's call. Please contact me directly if you have any additional questions. I can be reached at 914-765-3190. We also recommend that you visit our website at www.MBIA.com for additional information. Thank you for your interest in MBIA. Good day and goodbye.

This concludes today's conference call. You may now disconnect.