MBIA Inc (MBI) 2014 Q4 法說會逐字稿

Welcome to the MBIA Inc. fourth-quarter and full-year 2014 financial results conference call. I would now like to turn the call over to Greg Diamond, Managing Director of Investor Relations at MBIA. Please go ahead.

Thank you, Christy. Welcome to MBIA's conference call for our fourth-quarter and full-year 2014 financial results. After the market closed yesterday, we posted several items on our websites, including our financial results, press release, our 2014 10-K, and quarterly operating supplements for both MBIA and National. We also posted the annual and audited statutory financial statements for MBIA Insurance Corporation and National Public Finance Guarantee Corporation. And updated information regarding each of their insurance portfolios.

Regarding today's call, please note that anything said on the call is qualified by the information provided in the Company's 10-K and other SEC filings, as our Company's definitive disclosures are incorporated in those documents. Please read our 10-K, as it contains our most current disclosures about the Company and its financial and operating results. The 10-K also contains information that may not be addressed on today's call.

Regarding the non-GAAP terms that will be included in our remarks today, the definitions and reconciliations to those terms may be found in the 2014 10-K, yesterday's financial results press release and our quarterly operating supplements. The recorded replay of today's call will become available approximately one hour after the end of the call, and the information for accessing it is included in yesterday's financial results press release.

Now for the Safe Harbor statement. Remarks on today's call may contain forward-looking statements. Important factors such as general, market conditions, and a competitive environment could cause our actual results to be materially different than those projected results referenced in our forward-looking statements. Risk factors are detailed in our 10-K, available on the website at MBIA.com. 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 that later becomes aware that such statement is no longer accurate.

For our call today, Jay Brown, Bill Fallon, and Chuck Chaplin will provide some brief introductory comments. Then a question-and-answer session will follow. Now here's Jay.

Thank you, Greg. I come to today's call with somewhat mixed reactions to our 2014 results. On a very positive note, I'm gratified that MBIA has had its first year of operating profitability since before the financial crisis and recession. And National Public Finance Guarantee wrote its first policies. Our holding company is more liquid than it's been in years. And that we've worked the legacy MBIA Insurance Corp portfolio down to $55 billion from its peak in 2007 of over $300 billion, while dramatically reducing its risk profile.

In addition, our operating cash flow was positive for the past three quarters, and adjusted book value increased in 2014. Our team here at MBIA has accomplished much in the past several years, and we clearly turned a key corner in 2014.

On the other hand, there were a handful of issues that leave me disappointed. Most significantly, National has not written as much new business as we had expected. We attribute that to several factors, some environmental, some industry-wide, and some associated with National itself.

In terms of the business environment, the current low interest rates narrow the marginal benefit of insurance pre-assures and increase demand for higher-yielding unwrapped securities. It seems likely that this will inhibit the sales of new bond insurance policies for some time, until rates increase and spreads widen. Looking at our industry, pricing has never been tighter, so many more transactions than we had expected are failing to meet our internal hurdle rate of return.

Finally, National's re-entry to the market is only about ten months old. We are still re-introducing ourselves to the thousands of issuers, bankers and financial advisors across the country. The first few policies and new muni bond insurer writes are always the hardest to win. And while our market acceptance is growing in the new-issue market, we're not where I want us to be yet.

On the existing portfolio side, National is doing extremely well. In current losses in 2014, we're within long-term expectations. We had some solid remediation results, most visibly in the case of Detroit. But we also had good outcomes in a number of other cases where municipal issuers went through difficult restructurings. In all cases, owners of National wrap bonds received every scheduled principal and interest payment. In the long run, we know this will help build increasing demand for our product.

The credit whose progress we and the market are currently monitoring most closely is of course, Puerto Rico. Although there is new news on the commonwealth almost daily, the outcome remains uncertain. We have taken reserves against our exposure. But at this point, there's little we can report as to the ultimate outcome. Bill will provide an update on the latest events. But I am comfortable that no matter how it plays out, all of National's insured bond holders will be well-protected.

We are very well-aware that our share price has not performed well, perhaps in some degree, due to the uncertainty around Puerto Rico. Because we have a robust liquidity position at our holding company, including a $228 million release from the tax escrow account in January, we have been able to repurchase some of our stock at prices we find attractive.

Since the Board authorized a new $200 million repurchase program in November, we've bought about 8 million of our shares for $67 million, reducing the float by around 4%. The share repurchases were prices well-below both book value and adjusted book value per share. So we believe they are accretive to shareholder value.

We are also working at reducing debt, and retired $50 million of guaranteed investment contracts and $10 million of holding company senior debt over the same time period. Our objective is to reduce our holding company debt to a capital ratio to the middle investment grade range in 2018.

We continue to aggressively reduce risk at MBIA Insurance Corp. It had an increase in statutory capital in 2014, and maintained adequate liquidity throughout the year, while gross par outstanding declined from $80 billion to $55 billion. We continue to believe that it will have adequate resources to meet all of its expected policy obligations.

However, we don't expect that the financial performance of MBIA Corp. will be able to provide meaningful returns to our shareholders. It has an accumulated earned surplus deficit of $1.8 billion, and $1.2 billion of securities outstanding, plus another $282 million in unpaid interest that's subordinate to policyholders, but superior to common equity. Given the high rate of interest on the surplus notes, we do not believe that MBIA Corp. will have sufficient assets to satisfy those requirements and still provide significant residual returns to shareholders.

So the economics of MBIA Corp. accrue to the benefit of the holders of its surplus notes. Our objective here remains to insure that MBIA Corp. pays all its claims and maximizes the amount it can repay to the surplus note holders.

Our Company has a substantial deferred tax asset associated with its historical net operating losses. We do not expect to be paying full cash taxes for several years into the future. Below the holding company level, we have a tax sharing agreement which governs the relationship between MBIA Inc., the taxpayer and its subsidiaries. Because of the size of the NOL and our desire to ensure that investors understand its terms, we have included our tax sharing agreement as an exhibit to the Form 10-K. It is also available via link in the Frequently Asked Questions section of our website, MBIA.com.

Finally, in 2014, we continued to reduce our expenses and organizational complexity. One very visible outcome of that was the sale of Cutwater Asset Management, which closed on January 2, 2015. The economics of the sale are positive, but not material to the overall Company. Cutwater will continue to manage our various investment portfolios, and we clearly wish them much success under their new ownership.

At this point, I'll turn it over to Bill.

Thanks, Jay and good morning, everyone. I'll begin by echoing Jay's earlier comment. None of us at National are satisfied with the level of new business we've written since achieving competitive ratings last spring. After more than six years on the sideline, we were eager to resume adding value to the municipal marketplace. And while we've made some progress, it clearly hasn't been as much as we'd hoped.

Jay covered some of the challenges we face as we've re-entered the market. What I'd like to focus on are some factors that make us optimistic that we'll be able to write a growing amount of new business in the future.

First, Tom Weyl, who we hired from Barclays, joined us on January 5. Tom, his team and I, have accelerated our marketing efforts and been out on the road meeting with bankers, financial advisors, issuers and investors in an effort to help them better understand National and its value proposition.

What we found is that while the people in some of the offices of large banks and big investment shops are well-aware of National and the value it brings, that isn't consistently the case in all of their offices or at the retail broker level, where the majority of insured muni bonds are sold. So we've been targeting regional offices around the country. It's a time-consuming process, but one that we see producing results.

That's a good segue to my second point, which is that we can see the momentum building. We've insured $369 million par amount of new business since re-entering the marketplace, beginning with our refinancing of the Detroit Water and Sewer debt. Bonds with our wrap on them have been trading comparably to those of our competitors, indicating that the market accepts the value of National's wrap and acknowledges its financial strength. The number of deals we've been shown has been steadily rising, which not only means that our marketing efforts are having an effect, but more importantly, it means that we have a greater opportunity to bid and win.

Third, while interest rates have remained stubbornly low, we believe that we are beginning to see an improving environment for our product. A favorable resolution of some high-profile bankruptcies, including Detroit and Stockton, where bond insurers have a meaningful impact on the ultimate outcome, has once again proven the value of bond insurance.

Because of our guarantee, National's insured bondholders never missed a payment. Insured penetration edged upward last year. And with the Fed seemingly poised to raise interest rates later this year, and infrastructure across the United States in urgent need of repair or replacement, we see no reason why insured penetration and our own production won't increase again in 2015.

Turning to National's insured portfolio, Puerto Rico was obviously at the forefront of everyone's mind. But as Jay mentioned, the outcome remains uncertain, and there isn't much we can say at this point. What I can say, is that we are party to the forbearance agreement among a group of creditors and PREPA. And we will continue to participate in productive discussions.

During the fourth quarter, the Puerto Rico legislature approved legislation that, among other things, increased the petroleum tax and made changes that should facilitate the refinancing of a significant portion of the HTA's debt. More recently, a federal judge declared that the Commonwealth Recovery Act, which could have ring-fenced the Commonwealth from its public corporations, was unconstitutional. The Commonwealth has appealed this decision.

At the same time, there's a proposal before the US Congress to approve changes in the bankruptcy code that would allow Puerto Rico's government to authorize certain government-owned corporations to file for protection under Chapter 9. So there are a lot of moving pieces, and at this time it's impossible to predict how things will play out. But we intend to be an active participant in the process, and we will fight to preserve bondholders' rights.

We believe that a solution to PREPA's situation can be achieved without either the invalidated Recovery Act or a Chapter 9 bankruptcy if all the parties continue to participate in meaningful discussions. In any event, and regardless of the outcome, National's insured bond holders can be certain that they will receive all of the principal and interest that's due to them on time and in full.

Looking elsewhere in our $222 billion insured portfolio, we don't see any distressed credits of the magnitude of Puerto Rico anywhere on the horizon. Although we continue to carefully watch, as municipalities across the country grapple with fiscal challenges, including unfunded pension liabilities.

2014 was a year of considerable success for us in remediating some back book exposures. Detroit and Stockton were probably the highest-profile examples. But successful refinancing of the Harris County-Houston Sports Authority and the San Joaquin toll road debt significantly reduced our exposures to these credits, and resulted in material upgrades to the remaining exposure.

In combination with the restoration of investment grade ratings on our Detroit Water and Sewer exposure, as well as about 20% amortization of the portfolio over the course of the year, a significant amount of National's capital was freed up under rating agency models. At year-end 2013, National had $400 million to $450 million of capital in excess of the AAA requirement under the S&P model. While S&P hasn't concluded its analysis of our financial position as of year-end 2014, we expect significant increase in excess capital, potentially increasing the excess to over $1 billion.

So what does that mean for our ratings? Well, at AA-plus stable, we already enjoy the highest call rating given to a bond insurer, so we think we're well-situated there. Despite our very strong and growing capitalization, at AA-minus stable, our S&P rating is a notch below those of our competitors. An upgrade to AA-flat is predicated on multiple measures, including being able to demonstrate an ability to write a meaningful amount of new business over the longer-term. Our goal remains to achieve the highest ratings available, placing us on a level playing field with our competitors.

Now I'll turn it over to Chuck, who will review our financial results.

Thanks, Bill, and good morning, everyone. Today, I'll first discuss our consolidated GAAP financial results. And then focus in on the results and financial position of the public finance and corporate segments, whose performance is reflected in our non-GAAP measures of operating income and adjusted book value. Then I'll talk about MBIA Corp. and the margin of safety it provides to policy-holders, and potential value available to the surplus note-holders, focusing on statutory financial reporting. Then we'll open the call for your questions.

So first let me touch on our consolidated GAAP results. Our net income on a GAAP basis was $569 million in 2014 compared to $250 million in 2013. The net changes in the fair value of insured derivatives drove both results, comprising majorities of pre-tax income in both periods. In 2014, releases of marks-to-market upon commutations and terminations of policies, was significantly larger than in 2013. In addition, consolidated operating expenses declined from $338 million in 2013 to $195 million in 2014.

In addition to our GAAP results, we report non-GAAP measures that we believe provide additional context for our operating performance. Beginning with this quarter, we're going to be reporting an operating income measure that is generally consistent with such measures used by others in the insurance industry, in lieu of the adjusted pre-tax income measure that we have used since 2009. It omits gains and losses and mark-to-market items that we don't believe reflect ongoing business operations. And as I noted, it contains only the results of the public finance and corporate segments, which we'll refer to as the combined results.

Operating income is not a completely new concept for us. We reported it prior to the financial crisis and recession. So we regard this change as just another sign of a return to more normal operations.

We'll continue to report adjusted book value as before, but it now also will omit the impact of MBIA Corp., except that the combined adjusted book value will reflect the contribution that MBIA Corp. has made to the holding company's tax position. Reconciliations of ABV and operating income to the relevant GAAP measures are included in our press release and our Form 10-K.

Now, turning to the results. The combined operating income for the Company in 2014 was $185 million, compared to an operating loss of $15 million in 2013. The biggest swing was in loss and loss adjustment expense, which improved by $115 million, followed by operating expenses, which were $99 million lower than last year. The effective tax rate in 2014 was only 5%, primarily because we released reserves for uncertain tax positions during the year.

For the fourth quarter, operating income was $22 million, compared to a loss of $383,000 in 2013's fourth quarter. While our operating income on a pre-tax basis was 9% lower than last year, the tax provision was substantially lower, swinging the result to a positive variance. Both periods were affected by tax items that we do not expect to recur. So on a go-forward basis, we expect that the tax provision on operating income will be close to the statutory rate, with the only difference being the tax exempt interest on the small muni portfolio that we maintain in National. And of course, as Jay has said, we do not expect to pay full cash taxes for some time.

Adjusted book value per share was $24.87 at year-end 2014, compared to $24.05 at year-end 2013. Operating income accounts for $0.96 of change. Non-operating items contributed another $0.81. The combination was largely offset by reductions in unearned premium, and reductions in the deferred tax asset. As National begins to write material new business, we would expect the decline in UPR should slow. The DTA decline, of course, reflects the fact that we did not pay any taxes to the IRS in 2014.

At the segment level, National contributed $56 million of operating income in the fourth quarter, compared to $60 million in the fourth quarter of 2013. For the full year, it had $221 million in operating income, compared to $151 million in 2013. Earned premiums declined compared to 2013, as has the par insured. Investment income was lower in 2014, as average assets and investment yields each declined modestly. But significantly lower loss and loss adjustment expense and lower operating expenses in 2014 more than offset the lower revenues.

National's capital adequacy was very strong at year-end 2014, as Bill has referenced, was very strong at year-end 2014. Statutory capital was $3.27 billion, compared to $3.26 billion at year-end 2013. And that is after paying a $220 million dividend to the holding company. And the investment portfolio at National continued to be high-quality and liquid.

Moving then to the corporate segment, which includes the MTNs and GICs issued by our previous asset liability product segment. It had an operating loss of $34 million in the fourth quarter of 2014 versus an operating loss of $60 million in the Q4 of 2013. In the quarter, virtually the entire change is due to a lower tax provision compared to the fourth quarter of 2013. For the full year, the segment had an operating loss of $35 million, compared to a loss of $165 million in 2013. Lower operating expenses, and, again, favorable tax items, contribute almost all of the positive variance.

At the holding company level, our capitalization and liquidity both improved. Jay referenced earlier our debt retirements from October until now. Over the full course of 2014, we reduced unsecured debt and MTNs by $122 million in 2014. And we're on track to reach our objective of middle investment grade debt-to-capital ratio levels by the end of 2018.

In addition, GICs were reduced by $153 million, and the debt of our conduits was reduced by $129 million in 2014. At year-end, liquid assets at MBIA Inc. were nearly $500 million after the receipt of the dividend from National in the fourth quarter. And as Jay has said, approximately $228 million was released from the tax escrow in January, further bolstering holding company liquidity.

New York State regulations limit dividends from National to the lesser of net investment income, or 10% of surplus. National's dividend capacity has been governed by its surplus position in the past. In 2014, investment income fell as higher yielding assets rolled off, so it is now the binding constraint. We're currently expecting a dividend in the fall of 2015 to be between $100 million and $120 million, based on the then-trailing 12 months of investment income. This means that excess capital within National will now build even faster than it has in the last couple of years assuming no change in the credit quality of the insured portfolio.

Now moving over to MBIA Corp., our reporting here now will be primarily based on our statutory accounts, which are available on our website as of last evening. They provide a clear view of the value that's available as a margin of safety for policyholders and an ultimate recovery for subordinate securities. MBIA Corp's financial position improved in 2014. $14 billion of exposure was commuted or terminated, and along with $11 billion of maturities or paydowns reduced par outstanding to $55 billion.

Our statutory capital grew from $825 million at year-end 2013 to $859 million at December 31, 2014. Although the statutory income statement shows a net loss for the year of $35 million, the contribution to the growth of statutory capital of its profitable UK subsidiary was approximately $70 million. Operating performance was much improved over 2013 when the net loss was $494 million.

The biggest driver of the favorable variance was that loss and loss adjustment expense was only $220 million compared to $640 million in 2013. Breaking that $222 million incurred loss down we had $112 million of losses on CDOs in 2014. Reserves declined for our ABS CDOs, but increased for CMBS pools and high-yield corporate CDO exposures. Aside from CDOs we added approximately $60 million to loss reserves on our second lien RMBS, and then $50 million for all other credit.

While the second lien portfolio provided a net cash recovery of $40 million in the year, the continued low interest rate environment stimulated prepayment activity that reduced our expectation of future excess spread, leading to the incurred loss. At year-end, we recognized about $550 million of excess spread value on the statutory balance sheet. Liquidity continued to be adequate to cover expected claims payments, with an acceptable margin for adverse experience. MBIA Corp., excluding its regulated subsidiaries, ended the year with $443 million of liquid assets and a lower expected future burn rate of expenses and claim payments.

So in conclusion, 2014 represents a critical turning point in our ongoing transformation. The volatility of MBIA Corp. continues to be reduced. National made significant strides toward regaining its position on the municipal finance landscape. At the holding company level, we continued right-sizing our debt, and began to add value through share repurchase. Our legal entity and segment structure has been streamlined, as have expenses. We believe that we've established a solid platform to deliver additional value in the future.

And so now we will open the call to your questions.

Thank you.

(Operator Instructions)

Your first question comes from Brett Gibson of JPMorgan.

Great, thank you. Good morning, Jay and Chuck. Two questions, which I'll ask up front. First, much has been discussed in the market about the Zohar transactions and the potential for that exposure to put the Company -- the Corp entity, that is -- into some sort of regulatory action. Can you update us on the risk that transaction poses to Corp, and the potential value, of course, that it would take away from surplus noteholders? And then further, why hasn't the Company commented more, given more disclosure around this exposure, what the drivers are and how investors should think about it? That's the first one.

The second question is I wanted to discuss Corp a little bit more. The Company recently changed the reporting structure to prioritize the corporate segment ahead of Corp, change the presentation of Adjusted Book Value, and characterize Corp as non-core, and took out operating income. Do these actions indicate something about the Company's long-term commitment to that entity? Thanks.

I'll handle the first question on Zohar. I think as the market is now aware, something that we've said would happen for the last several quarters is now beginning to occur, which is that the operator of the Zohar entities has now retained a banker, and has reached out to bondholders and ourselves to begin discussions of what is the right course of restructuring those transactions. We haven't provided a lot of detail on the actual underlying performance of the assets in the transactions because we're bound by the normal confidentiality agreements that exist between ourselves and the insured in this case.

We know that the first transaction will mature in November. We believe hiring an investment banker and beginning those discussions at this point in time is appropriate. And we're going to remain cautiously optimistic that all of that can be completed before November. That would consist of all of the comments we'll make on Zohar at this time. And I'll turn over the second part of your question to Chuck.

Sure. With respect to MBIA Corp, your question I think is, does the fact that we're changing the reporting mean anything with respect to the way that we'll manage the business on a go-forward basis.

Right.

And it doesn't. Our expectation continues to be, as I think Jay referenced in his comments, that we're responsible to maximize the margin of safety for the policyholders of MBIA Corp., as well as to maximize the recovery for the holders of the subordinate securities that are subordinate to policyholders but superior to common equity.

Our reporting, though, does recognize the fact that we believe that as things go well for MBIA Corp., we believe there will be recovery for the subordinate securities holders. But that it's unlikely that there's any recovery beyond that that goes to the shareholders of MBIA Corp., up at MBIA Inc., and ultimately to the public common stockholders.

Okay, thank you for the answers, gentlemen.

I think the other thing is, is the change at year-end reflects how we've been thinking about the Company for quite awhile. And certainly reflects how a number of analysts that follow the Company have been analyzing it, where they're basically -- have not for the past two or three years, attributed value to the common shareholders for our ownership of MBIA Corp. I think that the reporting that Chuck has introduced, beginning with year-end 2014, is consistent with that view of the Company. And we thought it was important that our basic reporting track pretty much with how the market was looking at the value of the common equity.

Thank you. Your next question comes from Geoffrey Dunn of Dowling and Partners.

Thank you, good morning. Jay, I just want to clarify the debt leverage comments. It sounds like basically you're aiming for 20%, 25%. Would that include the straight corporate debt plus the investment agreements and the medium-term notes?

No. The way that we're thinking about debt-to-capital ratio is we're taking our unsecured senior debt at the holding company, and adding to it the MTNs issued by the global funding subsidiary. Because those are the holding company obligations that are unsecured and need to be serviced out of ongoing cash flow from the operating subsidiaries.

The guaranteed investment contracts that we've issued, at this point -- and they have been since 2009 -- are all fully collateralized by cash and high-grade securities, treasuries and agencies. So we don't regard them as net debt, if you will, at this point. We're comparing the senior debt and MTN to the capital base debt, plus the equity of the Company. And again, excluding the equity of MBIA Insurance Corp. on a standalone basis.

But you're correct, Geoff, the target is 25% or lower.

Great. And then special dividends are a popular topic in this space these days. You're accumulating capital very quickly in US public finance. How do you approach those conversations? And is it one of those things where you can't really approach the conversation until Puerto Rico is resolved?

That's correct. That's certainly our intent, when Puerto Rico gets resolved, to then discuss our capital position with the regulator and any dividends that we might suggest.

All right, thanks.

Thank you. Your next question comes from Brian Charles with R.W. Pressprich.

Good morning. Thanks for taking my question. Unfortunately, I think we got cut off on the conference call. Maybe some listeners missed a few minutes there. So pardon me if I'm asking a question that you might have already addressed, but I had a couple of questions. First off, at MBIA Corp. -- I was trying to find some updated information on your BBB CMBS exposure. I wasn't able to find it in the 10-K, and I'm not sure if you've given that information elsewhere, or if you have any comment on how that has amortized down over the last full year, but particularly the fourth quarter?

We do have one transaction -- a BBB CMBS that we've wrapped, on which we have been making payments for over a year, since some time in 2013. At this point, there's about $300 million of par outstanding on that transaction. So it has amortized down, but we have been making payments on it.

Right, okay. That was at $322 million at the end of September, so that's amortized down to $300 million. Has that amortization been payments or maturities of exposure?

Payments by us, yes.

Okay. And the other pool that you had exposure to, has that been generating losses at all? I think you -- as of September, you (multiple speakers)

No, we only have one CMBS that's classified.

Okay, great, thanks. And secondly, I don't know if I've missed some of the comments on this, but you'd talked earlier about how you're characterizing the resolution of MBIA Corp., and how you were trying to maximize value to surplus notes holders. Did I miss anything in the second part of the call on how you see that unfolding over the next several years?

Nothing has really altered in terms of our approach. We have extremely long [channel] contingent liabilities at MBIA Corp. Some of the policies still stretch out 35, 40 years in the future. So the ultimate resolution of MBIA Corp. and its subsidiary, MBIA UK, will take quite a long time.

We continue, I think as we reflected in our comments, 2014 was a good year. We ended with slightly higher statutory capital. We maintained liquidity. And we saw through a combination of normal maturities, and then commutations and terminations, we reduced from $80 billion to $55 billion. By the end of this year, in 2015, MBIA Corp will actually have more outstanding policies in the public finance segment internationally than it will have in the structured settlement area. And that ratio of public finance to structured finance exposures will continue to increase as we go out over the next five, 10 years.

So it's becoming predominantly an international public finance Company, which we believe those results will be more stable and more predictable. When we get to a certain level, that's when we believe that the regulator will then start to consider surplus note payments on the accrued interest. I would note that, as we've said in the past, we have had discussions, we continue to be open to discussions if the current surplus note holders have a better idea of how to optimize value for the surplus note holders. Always in recognition that the first priority for MBIA Corp is to honor its policyholder obligations. And then secondarily, its surplus note obligations.

Okay, thank you.

Your next question comes from Jane Castle with Avenue Capital.

Good morning. Your comments did cut out when you were discussing the Corp entity. But my question was, was there any compensation to Corp during the year and the quarter for the DTA use?

Corp actually had a positive taxable income in one of the quarters of 2014. And it did not make any payments to the holding company for taxes. So while it would provide taxes on its income statement in that quarter, it doesn't actually pay anything to the holding company.

But what about the reverse? If the DTA is used by National or the holding company, has there ever been a payment to Corp for the generation of those NOLs or the DTA? Has cash ever flown?

No, there's been no payment.

Is there any expectation for payment in the future, or what -- is that disclosed in the exhibit that you filed?

It is. And we wanted to make sure that this is clear to everyone, so we provided the tax sharing agreement as an exhibit to the 10-K. And you could also find it if you go in the Frequently Asked Questions section of the website -- there's a hot link to it.

Okay, thanks.

Thank you. Your next question comes from Andrew Gadlin of Odeon Capital Group.

Good morning, thank you. On National, in relation to the new policies that were written, can you talk about pricing and profitability for these new policies?

Yes, it's Bill speaking. As we mentioned, the market, primarily driven by low interest rates and low spreads, is quite competitive. However, we do have capital models and pricing models. And what we're seeing is on those types of deals, that you're seeing low -- excuse me, high single-digit returns on those. We still think that longer-term pricing needs to improve to really increase the attractiveness. But we are finding acceptable returns on the pricing.

And are you doing -- is it by looking at different types of deals in your competitors? Or is it just getting comfortable with the current pricing level and the risk associated?

It really is the latter, getting comfortable with the current pricing. And again, relative to when we re-entered the market, what we thought might be the case -- it's turned out that pricing is just a little bit lower than that. But the deals are competitive in the sense there are multiple insurers bidding on most of the deals.

In Puerto Rico, this petroleum tax that's being passed and the proposal of refinancing some of the HTA debt has been controversial. Some folks like what it does in terms of cleaning up HTA's balance sheet, and others don't. Can you comment on how you view that situation?

Well, in Puerto Rico, I think there's two key things that we're looking for. One is a capital raise, which is what you're referring to here. Because of the increase in the petroleum tax, it should allow the Commonwealth, through HTA, and then actually through PREPA, is what you're seeing in the press -- that they would raise capital. Most of that, we believe, will go to support the general needs of the Commonwealth through the general development bank.

The second thing we're looking for is the operational restructuring of PREPA, which is going to take some time to become more visible, in terms of what suggestions and what recommendations they have. As you know, they've hired a chief restructuring officer. So those are really the two things that we're looking for to increase the stability of the Puerto Rico situation.

But, Andrew, just to be clear, we're very much in favor of the petroleum tax increase and the financing. The devil is in the details. We do have some suggestions about how that has been structured to make it more viable to the market and have more sustainability over the long-term. So we just don't do a refinancing and then find ourselves back in this situation in the near term.

Got it. Thank you very much.

(Operator Instructions)

Your next question comes from Seth Glasser of Decade Capital.

Hi, guys, good morning. I wanted to just ask another question regarding Zohar. With regard to the negotiation that's about to commence or that may have already commenced, what would your goals be? Would your goals basically be to try to support the process of a refinance or a restructuring of the deal by basically re-wrapping a restructured deal? Or are there ways within the language in your contract that you think a restructuring might actually be able to take you out of your exposure?

There's a lot of different ways this restructuring could proceed. It is incredibly early days. And I'll tell you now, because you'll be asking the question the next couple quarters -- there won't be a lot of discussion about what's happening until it actually occurs. So we're not going to offer any comments as to what is the possible outcome.

But the two you mentioned are certainly different courses that we could take, depending on what's best for MBIA Corp. and its other policyholders and its surplus note holders. We believe that there are viable answers here to minimize any losses to Corp, and that we're going to pursue those with a great deal of vigor here over the next several months.

And with regard to the timeframe, you said that you hope that it can be resolved by the November maturity. Do you think this is a process that will take a few months? Or is this going to become a much more difficult and drawn-out process that may include litigation, in your opinion?

It's premature to know how long it's going to take. We remain optimistic that it will be resolved by the November timeframe.

Okay, thanks, guys.

Thank you. Your next question comes from Randy Fabian of Tricadia.

Good morning. Can you guys discuss any fourth-quarter commutations you guys may have done at the MBIA Corp. subsidiaries particularly within the structured CMBS book?

There were only a very small amount of commutations in the fourth quarter, and nothing of significance in the CMBS account area.

Okay, thank you.

Thank you. At this time, there are no further questions. I will hand the floor back over to Management for any additional or closing remarks.

Thank you, Christy. And thanks to all of you who have joined us for today's call. Please contact me directly if you have any additional questions. We also recommend that you visit our website at MBIA.com for additional information on our Company. Thank you for your interest in MBIA. Good day and goodbye.

Thank you. This does conclude today's conference call. You may now disconnect.