MBIA Inc (MBI) 2016 Q1 法說會逐字稿

Welcome to the MBIA Inc. first-quarter 2016 financial results conference call. I would now like to turn the call over to Greg Diamond, Managing Director of Investor and Media Relations at MBIA. Please go ahead.

Thank you, Crystal. Welcome to MBIA's conference call for our first quarter of 2016 financial results. After the market closed yesterday, we issued and posted several items on our websites, including our financial results press release, 10-Q, quarterly operating supplements, and statutory financial statements for MBIA Insurance Corporation and National Public Finance Guarantee Corporation. We also posted updates to the listings of our insurance portfolios.

Regarding today's call, please note that anything said on the call is qualified by the information provided in the Company's 10-K, 10-Q and other SEC filings, as our Company's definitive disclosures are incorporated in those documents. We urge investors to read our 10-K and our first-quarter 2016 10-Q, as they contain our most current disclosures about the Company and its financial and operating results. The 10-K and 10-Q also contain information that may not be addressed on today's call.

Regarding the non-GAAP terms included in our remarks today, the definitions and reconciliations of those items may be found in our 10-K and 10-Q, our financial results press release, and/or 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 was included in yesterday's financial results press release.

And now here is our Safe Harbor disclosure statement. Our remarks on today's conference call may contain forward-looking statements. Important factors, such as general market conditions and the competitive environment, could cause our actual results to differ materially from the projected results referenced in our forward-looking statements. Risk factors are detailed in our 10-K and 10-Q, which are available on our 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 if it later becomes aware that such statement is no longer accurate.

For our call today, Jay Brown, Bill Fallon and Anthony McKiernan will provide some brief introductory comments, then a question-and-answer session will follow. Now here is Jay.

Good morning. Thank you for joining us this morning.

It's only been about two months since our fourth-quarter conference call and, and for the most part, from our perspective, not too much has changed. While some key situations remain in flux and continue to be challenging, we remain confident with our circumstances and our opportunities to overcome these challenges and to deliver increased value to our shareholders over the coming quarters and beyond.

I will begin with a few comments about Puerto Rico, which Bill will address in greater detail shortly. As we noted in our letter to owners that was issued in late March, while concerns about Puerto Rico are no doubt weighing on the price of our common shares, we continue to believe that the market has overstated the likely long-term economic impact on both National and the MBIA holding company. There is no doubt that the lack of constructive resolutions has certainly worsened those concerns.

Approximately 95%, or $3.7 billion of principal without accretions or $4.2 billion with accretions, of our total Puerto Rico outstanding exposure is represented by just four credits. Bill will address those credits during his remarks, but suffice it to say that given the profile of those credits, we expect acceptable ultimate resolutions for each of those credits, with modest aggregate losses across all of the credits that would not be burdensome for us to satisfy from a financial perspective. That said, we will continue to pursue the best resolution that we see as appropriate under the circumstances as they develop.

Regarding share repurchases, we spent almost $400 million to repurchase 55 million shares during 2015 and the first quarter of 2016. Maintaining adequate liquidity at MBIA Inc. is among our highest priorities. Eventually, we will seek regulatory approval for a special dividend from National, when there is reduced uncertainty regarding the resolutions of our Puerto Rico exposures.

All of these share buybacks have been executed on an opportunistic basis with a very careful focus on MBIA Inc.'s current and its modeled stress liquidity position. The difference now is that we've essentially spent the $114 million dividend that we received in the fourth quarter of last year and the $105 million that was released from the tax escrow facility in January of this year. We continue to have adequate liquidity that satisfies both our expected and, more importantly, our modeled stress scenarios.

On a new business front, on which Bill will also elaborate, National had very favorable year-over-year production for the quarter and nearly surpassed its fourth-quarter 2015 production. Given that the first quarter of each year typically has the lowest issuance of municipal debt, our first-quarter activity demonstrates continued improvement. We clearly have a long way to go, but we have made some strong inroads. Please know that we will continue to be disciplined about both credit risk and pricing returns, and pricing returns remain particularly challenging in the current low interest rate environment.

Regarding our financial results, while our operating income per share declined from $0.18 per share in 1Q 2015 to $0.12 per share in first-quarter 2016, adjusted book value per share increased by another $2.05 since year end. Operating income per share declined primarily due to lower premiums earned, as both scheduled and refunded premium earnings declined, and the $15 million of unfavorable variance in our loss and loss expense. The 7% improvement in ABV since year end was primarily driven by our share repurchases. Anthony will have more detail on our financial results in a moment.

At MBIA Insurance Corp., we continue to work to maximize the margin of safety for its policy holders and to maximize the long-term returns for its surplus note holders.

MBIA Corp. continues to face uncertainty relating to the Zohar CDOs it has insured. We continue to believe that it is likely that we will eventually recover 100% of the $149 million, plus interest, that we paid last year on the Zohar I notes. As everyone is well aware, at March 31, there was $776 million of gross par outstanding on the Zohar II notes, which are scheduled to mature in January of next year.

We are working on ensuring that MBIA Corp. has sufficient liquidity to enable it to honor its insurance obligations when they come due. And we are working on a number of things in that regard. In addition, we are also working to reduce the outstanding principal amount of the Zohar II notes and/or a possible restructuring of the maturity of those notes. That said, given the various particulars, there's not much more that we can say beyond our prepared remarks regarding the Zohar situation.

Now Bill will provide an update on National's activities.

Thanks, Jay. Good morning, everyone. As Jay's noted, we continue to be pleased with National's progress. Regarding its new business production, we insured $158 million of par in the first quarter, which was equal to the amount we wrote in the fourth quarter of last year. Bearing in mind that the first quarter of each year is typically the lowest quarter for muni-bond issuance, insuring as much in the first quarter as we had in the prior fourth quarter is noteworthy.

From another perspective, the amount that we insured in the first quarter of this year was more than four times greater than the amount we insured in the first quarter of last year. The bond insurance industry penetration for the first quarter of 2016 was 5.9% of total municipal issuance, compared to 5.8% for the first quarter of 2015. Of the insurable market, that is new-issue municipal bonds with BBB through A ratings, the insured penetration was 14.1%, which was up from first-quarter 2015 penetration.

Due to the value added by insurance, we believe our industry will experience steady, positive growth over the coming years, and National is positioned to benefit from that growth. However, as Jay also noted, we remain committed to both our underwriting standards and our pricing return requirements. In the meanwhile, we are encouraged by the expanded use and recognition of National's bond insurance and we are improving our ability to capitalize on future opportunities when the business environment is more favorable for bond insurance. In the meantime, our value creation will largely come from capital management.

From a financial perspective, National reported $37 million of operating income for the quarter. It ended the quarter with $3.4 billion in statutory capital and $4.7 billion of claims paying resources. As National's insured portfolio continues to amortize, its capital and claims paying ratios continue to improve. During the first quarter of 2016, National's insured portfolio reduced by $11 billion of gross par, ending the quarter at $150 billion of gross par outstanding. National ended the quarter with a leverage ratio, gross-par-to-stat capital, of 44-to-1, down from 48-to-1 at year-end 2015.

We estimate that National has approximately $1.5 billion of excess capital, as we measure it again Standard and Poor's AAA capital standards. We manage our capital conservatively and we expect always to hold a cushion to the capital requirements relevant to our company. Achieving the highest possible ratings and optimizing our capital structure are among our highest priorities.

Now let's turn to our Puerto Rico credits. As Jay mentioned, 95% of the $3.9 billion of gross par on Puerto Rico debt insured by National consists of four credits. PREPA is the largest of those credits, with $1.4 billion in gross par outstanding. It's also the credit where we have made the most progress.

On our two HTA credits, we have $715 million of gross par outstanding at March 31. These credits have fully funded debt service reserve funds which are sufficient to cover our insured obligations for at least the next two payments in July of this year and January of next year. As such, we wouldn't expect to be called upon to pay claims on these credits any earlier than July, 2017, which gives us time to work on a favorable resolution.

Our second-largest Puerto Rico exposure is to their general obligation, or GO bonds, where we have $985 million of insured gross par outstanding at March 31. The GO debt has the highest priority for repayment under the Puerto Rico Constitution. Our $1 billion senior lien COFINA exposure, which is repaid from sales and use taxes collected on the island, has been collecting more than twice the amount needed to pay the future debt service on our insured bonds, which don't begin to mature until 2040. The secured nature of the COFINA credit has been confirmed by Puerto Rico officials.

We are also proactively monitoring and evaluating several other developments, or anticipated developments, related to Puerto Rico's debt obligations. While the moratorium law passed by Puerto Rico hasn't yet impacted our insured debt. We also didn't have any insurance on the May 1 debt obligations that Puerto Rico failed to satisfy. Legislation being developed by the US Congress remains uncertain, but we continue to actively monitor the situation.

In the meanwhile, we have $350 million of National insured Puerto Rico debt service, both principal and interest payments, that are due for payment on July 1. Almost half, or $173 million, is coming due on the GO bonds. Another $139 million is due on the PREPA bonds. As I said last quarter, we believe that we will see some additional clarity on Puerto Rico exposures over the course of 2016, and it will probably take several years and a resumption of economic growth before the situation in Puerto Rico normalizes. Outside of Puerto Rico, the balance of National's insured portfolio is performing within our expectations.

With that, I'll turn it over to Anthony for a review of our financial highlights.

Thanks, Bill, and good morning, everyone. Our primary metric of short-term performance, combined operating income, in the first quarter of 2016 was $16 million, or $0.12 per share, compared to $34 million, or $0.18 per share in the year-ago quarter. The decrease is primarily due to lower net premiums earned, as well as higher loss and loss adjustment expense.

The lower net premiums earned result from lower earnings from refunded exposures and the continuing run-off of National's back book. There was a $15 million unfavorable variance regarding loss-related expenses, expense of $9 million this quarter versus a benefit of $6 million in the Q1 2015, due primarily to loss reserves related to certain Puerto Rico credits. Our focus remains on ensuring adequate liquidity at the holding company and redeploying some of National's ample excess capital after there is reduced uncertainty regarding the outcomes for our Puerto Rico exposures.

On a GAAP basis, consolidated net loss was $78 million, $0.58 per diluted share for the first quarter of 2016, versus net income of $69 million, or $0.37 per diluted share for the first quarter of 2015.

I'd like to spend a minute on the activity that drove the quarterly loss. Similar to our operating earnings, the adverse comparison was due in part to lower premium earnings and the unfavorable loss expense. But for GAAP, it was driven by a much greater extent by fair-value effects.

The total impact of fair-value items for the quarter was approximately a negative $80 million, which was primarily due to three items: lower interest rates, which impacted our fixed-pace swaps related to the GIC obligations; foreign exchange unrealized losses associated with the MBIA GFL euro-denominated medium-term notes, as the dollar weakened against the euro; and mark-to-market losses on MBIA Corp.'s insured credit derivatives, as MBIA Corp.'s CDS spreads tightened this quarter, which increased our derivative liability.

These items typically generate quarter-to-quarter earnings volatility, depending upon market conditions, but they are not expected to play a meaningful role on the long-term economic results of our Company.

Turning to our balance sheet. Book value and adjusted book value per share both grew during the quarter, primarily reflecting the favorable effect of share repurchases. Book value per share increased from $24.61 to $26.42 per share, and ABV per share increased from $29.69 to $31.74 per share. Share count decreased from 152 million at year-end 2015 to 137 million at March 31, 2016. The average buyback price was $6.30 per share during the first quarter of 2016. We believe this represents substantial longer term value for our ongoing shareholders.

During our last call on March 1, we indicated that we fully used the $100 million share repurchase authorization the Board had approved during the fourth quarter of 2015. Most of those buybacks occurred in the first eight weeks of 2016. We also stated that the Board had approved a new $100 million share repurchase authorization during Q1 2016. As Jay noted, we will continue to repurchase shares on an opportunistic basis and subject to MBIA Inc.'s current and forecast liquidity position.

Now I would like to take a few moments to walk through highlights in the reporting segments. National's operating income was $37 million, compared to $56 million in 2015's Q1. The drivers of the reduced income were lower earned premiums, as there were lower refunded earned premiums and National's portfolio continues to decrease, as well as an unfavorable variance of loss and loss adjustment expenses. We added to our loss on LAE reserves for some of our Puerto Rico exposures, reflecting the uncertainty that exists in the ever-changing political and legislative environment.

The year-over-year variance in loss expense was $15 million, an expense of $9 million this year versus a benefit of $6 million last year. National's capital adequacy and liquidity positions continue to be strong. Bill has referenced our estimate of National's excess-capital level when compared to the S&P AAA standard at nearly $1.5 billion. The balance sheet is anchored by National's $4.5 billion investment portfolio, which is primarily comprised of highly rated marketable assets.

Moving briefly to the corporate segment, this segment had a first-quarter 2016 operating loss of $21 million versus $22 million for Q1 2015. Key metrics were essentially unchanged for this segment.

I'd now like to discuss MBIA Corp. and its statutory results. It had a statutory capital at the end of the first quarter of $844 million, compared to $885 million at the end of 2015. The decrease was primarily due to increased loss and LAE expense related to modest adjustments to several different items: RMBS; CMBS; international public finance; and the Zohar CDOs.

Voluntary prepayments in our second-lien RMBS portfolio remain elevated, which reduced our excess spread loss recoveries, and there was a small adverse change in assumptions related to loss severities in our one distressed CMBS exposure. We also made a small change in the loss severity assumption for one international public finance credit during the quarter.

MBIA Corp.'s liquid assets totaled $278 million at Q1 2016, versus $264 million at the end of the year.

At MBIA Corp., we are focused on ensuring that there are adequate resources to support claims payments to all of its policy holders. In that regard, we are working to accumulate the liquid resources necessary to satisfy the claims that might arise on the Zohar II transaction if there is no resolution, restructuring or paydown by its maturity date of January 20, 2017.

As part of those endeavors, we have engaged Barclays Capital to assist us in the sale of MBIA Corp.'s MBIA UK subsidiary. The sales process is underway and we are pleased by the number of parties that have expressed interest in the Company. We anticipate closing the transaction by year end.

While we have posted a loss reserve for Zohar, based upon statements the sponsor has made publicly and in court filings, we believe there is sufficient value in the assets backing the Zohar CDOs to ultimately pay off the Zohar notes and reimburse MBIA Corp. for any claims it pays. And therefore, we expect the issues for Corp. to be the magnitude of a January 20, 2017 claim payment and the timing for recoveries. Zohar II's insured par was $776 million at the end of the quarter. While there may be additional paydowns between now and maturity, it is not possible, at this point, to ascertain whether this is likely.

We were encouraged that Alvarez and Marsal was appointed collateral manager for all three Zohar CDOs, given their experience in complex restructuring. However, the new collateral manager has already filed litigation against Patriarch last month, alleging failure by Patriarch to provide the information it is required to provide to the new collateral manager.

As we have stated previously, while the outcome of this is relevant to MBIA Corp.'s ongoing policy holders and to its surplus note holders. Based on the separation of MBIA Corp. from MBIA Inc., we don't believe that there will be any material financial impact on the holding company.

As we move forward, we continue to work towards creating shareholder value through the strategic repurchasing of our shares in the near term, while strengthening National's market presence in the bond insurance market. We are also working to resolve our Puerto Rico exposures, which we believable will both have positive impacts on National's ratings and, subject to regulatory approval, provide the ability for National to pay special dividends to the holding company.

Now we're happy to take any of your questions.

(Operator Instructions)

Chas Tyson, KBW.

Hello, guys. Good morning. First question, I'm just trying to think about the accounting for potential July 1 defaults in Puerto Rico. First, does that get included in 2Q earnings, given it would be a little bit after the quarter? And second, it seems like you booked some recoveries on Puerto Rico already. And how do you feel about the recoverability of any potential losses that are paid out on July 1?

So from the standpoint of our accounting, what we've done is look at various scenarios for our Puerto Rico exposures, looked at scenarios where there may be claim payments and recoveries over time. And really the differentiation in our reserves from GAAP and stat is related to the discounting of those reserves. But we are looking at different possibilities on payments and recoveries.

Chas, it will be a whatever effects happen on July 1 and its implications on our models would be included as a 2Q event. We look at all information up until we file our Q, in terms of our second quarter 10-Q, to be able to determine what's the appropriate adjustments to any prior carried reserves.

So based on whatever actually happens on July 1, it is likely to have some effect, hopefully positive, but we won't know until we actually see what happens during the quarter. And it will affect, obviously, our estimates of any recoveries we would make on any payments we would make.

Okay. And then maybe stepping back from the accounting, but from a National perspective for any potential payments you make on July 1, how do you feel about the recoverability of those payments?

On the recoverability, Chas, as you know, in any of our reserving, we look at what payments might occur and then the recovery when we set reserves. So it depends credit by credit. But generally, where we see there may be some payments, we think the amount of recoveries would be quite high. But again, it will all depend on what else we learn on July 1. But generally speaking, we feel good about the long-term situation in terms of recovering.

Okay. And then I saw you put some language in the Q on the Supreme Court, the Recovery Act and a potential decision coming the next couple months. How should we think about the effect of a potential favorable decision for Puerto Rico on your exposures? At that point, does Puerto Rico essentially, by your read, have the right to restructure debt through the Recovery Act or are there incremental challenges that you can make to the law at that point?

With regards to the Supreme Court decision, which many people expect to occur perhaps next month, if the Supreme Court confirms the lower court then the Recovery Act doesn't exist. To your point, if it is favorable for Puerto Rico, in terms of the fact that they appeal to the Supreme Court.

The answer is it depends. There are several different scenarios that could play out from that point. The Supreme Court could send it back to the lower court. They could rule on narrow issues.

Realistically, it's unlikely that in the near term the Recovery Act, as it was put forth a year ago by Puerto Rico, has any material impact over negotiations and restructuring this year. And as you recall, the Recovery Act really dealt with the public corporations.

And when you look at that PREPA, there's been a restructuring agreement that was agreed to at the end of last year, beginning of this year, and while we don't have exposure to PRASA, which is the water company, generally people think that isn't one that would go into chapter 9, if chapter 9 or something similar, which is what was contemplated on the Recovery Act, was in effect. So I'm not sure that it's going to have a material change in anything that's being discussed right now.

Okay. Thank you very much, guys.

Andrew Gadlin, Odeon Capital.

Good morning. Thank you. I was wondering if we could review MBIA Inc., its cash balances. I see about $1.4 billion of cash and investments, $450 million of GIC's liabilities that are match funded, possibly a little premium, as much as 104%, and then a tax escrow amount of about $218 million. I know you focus in the operating supplement on liquidity, but net-net that looks about $700 million, $725 million. Is that about right?

You've talked about the debt obligations, but we look at, from the holding company standpoint, when we look at the cash flow and liquidity, for the end of the quarter, we've got about $375 million of liquidity at this point. The inflows that have come in recently are the as of right dividend from National, as well as a tax escrow release. You're talking about the obligations that the debt obligations?

No, I'm trying to focus on how much, beyond the really liquid assets, I think you define those as obligations, debt instruments or cash that come due in less than a year? I'm trying to focus on you also own some other debt instruments there that have longer maturities and aren't included in that $375 million liquidity figure. I'm trying to figure out how much of that is unrestricted? Meaning not in matched funded to the GICs account, not held in escrow for the tax escrow account.

We look at the $ 375 million as the free liquidity, at this point.

Okay. On National side, can you talk about the new business that was originated. Was it primary, secondary? What kind of deals were these? Were these GOs? Any color would be helpful.

Yes. In the first quarter this year, most of the business was primary. We've seen quite a bit of activity in the third and fourth quarter of last year that was secondary. Secondary was a little bit less of the mix for the first quarter. And they cut across different sectors.

But yes, you're seeing some GOs. We're seeing some MUDs down in Texas, with some utility, municipal utility districts, some redevelopment agencies out in California, some school districts. So it really is a smattering of different things at this point in time.

Okay. Great. A question on Puerto Rico. There's a general perception that GOs and COFINAs are going to be fighting over the same revenue pool, the sales and use tax. How do you see that conflict playing out? Or do you think that it won't really materialize?

We don't necessarily see it as one or the other fighting for the same resources. It will be interesting to see, given some of the statements that have been made by the governor. But as you know, they have been calling back money to support the GOs.

This administration has confirmed that they cannot touch the sales and use tax, as it supports COFINA. And so it really is the other revenues that they're calling back to support the GOs. They've not tried to do anything with the sales and use tax at this point time. So it's not clear to us that it's an either or between the two credits that you mentioned.

So Bill, understanding that you have no COFINA debt service due for 20-plus years, is it your expectation at this point that COFINA debt service would be paid this July and August?

Yes. Yes, they have sufficient money that's coming from the sales and use tax. In fact even right now, as I mentioned, it's more than two times what's needed to support current obligations, as well, in terms of the debt service on the COFINA.

Got it. Okay. And then again on Puerto Rico. There's an ad hoc group of GO bondholders that have presented a plan to extend maturities five years. Is that something that National would be interested in participating in?

And second question is, if Congress is able to pass a bill, from a different perspective, if Congress is able to pass a bill before July 1, is it your expectation that Puerto Rico would then make GO debt service on July 1?

Let me deal with the second one first. As you know, there is belief that tomorrow Chairman Bishop, under the Natural Resources Committee, will put forth the revised bill and that it could go to the committee next week for a vote. And I think his hope is that it could even be in front of the President before July 1. We'll wait and see if that happens. So I think we'll have more detail on what's in the proposed bill tomorrow, with regard to exactly how it goes forward.

With regard to your first question, or regard to the proposal that you referred to from an ad hoc group, we're obviously aware of the proposal. We don't comment on the ongoing negotiations in that level of detail. So we'll wait and see how this unfolds. There are several proposals, as you are aware, that have been floated, but we'll wait and see what the response is from the different parties, including the Commonwealth.

Okay. Great. Thank you very much.

Wayne Cooperman, Cobalt Capital.

Hello, guys. On PREPA, we've had an agreement in place for a while that's not being implemented, and I assume everybody's waiting for the Supreme Court. But you have rights to really force the issue there, I think. And you've held off on that. Could you talk about that a little bit and what might get you to be more aggressive and enforce the agreement?

And second, unrelated question would be the size of your UK business that you're currently marketing for sale.

On the first one, with regard to PREPA, you're correct, there's been some extensions. The biggest issue right now, as you are aware, is that the Commonwealth passed a law in Puerto Rico that allows the governor to declare a moratorium really on all debt service across all credits. That therefore applies to PREPA, as it was constructed.

There have been proposals around the amendments to carve out PREPA. But as of today, there has not been one that has been approved and signed by the governor. So that's creating the complication, the fact that under this moratorium act, he could not pay the debt service under PREPA.

That really is the focus. Again, there's been, I think, positive articles about an attempt to try to put forth an amendment, but we just don't have one at this point in time. In terms of what actions we may take, again that really falls under the details in negotiations, which we don't comment on at this point in time. On the other issue, I think Anthony will comment with regard to the size of our UK operation.

So Wayne, the size of the UK carried on our statutory balance sheet is at $375 million at this point. But that takes into account the discount due to statutory requirements as far as how much of the subsidiary can be the assets of the company. There's about a $90 million discount that we need to take, so that's how we have it valued.

And as far as book value, on GAAP book value?

That's additive.

It's $465 million, approximately, on GAAP book value.

Okay.

(Operator Instructions)

Brett Gibson, JPMorgan.

Great. Thank you. Guys, thanks for some of the new details on plans to build liquidity at Insurance Corp. I apologize, I may have misheard, but can you address, or did you address, how you might handle a mismatch in timing with respect to the possible Zohar II payment, when you might get proceeds from some these other transactions you're talking about?

We are working towards ensuring that we can bring the resources to bear prior to that payment. At this point, we are aiming to, for example, close the UK sale by year end. We are also working on other avenues, both within and outside the Zohar deals, in order to again ensure that we can meet that timeline.

To the degree that we are in a position where we're able to get an extension, for example, of the maturity, there are able things that can be potentially negotiated besides just the absolute claim payment on the 20th. So we have all those options on the table right now.

I think the key point to remember when you're looking at MBI Corp. in regards to the Zohar, it's our view it's a liquidity issue. It's not a solvency issue. There are numerous ways to solve short-term liquidity issues, which is why we're addressing them at this point in time, to make sure that we don't put the situation, take a liquidity situation and turn it into a solvency situation. That's our objective and we expect to get that accomplished before January of next year.

Okay. Thank you. And then can you comment on whether you have been able to monetize any of the Zohar assets at this point, with respect to Zohar I, potentially a recovery there?

We can't comment on that.

Okay. Fair enough. The last one from me is, understand that there are actions in place to address Zohar, but obviously there's a lot of concern in the market and you've raised a lot of concern in your regulatory filings about a possible rehabilitation. Can you address or talk about discussions you've had with the New York insurance regulator on the impact of Zohar to Corp and a possible need for rehabilitation?

And related, does what happens to Corp have a possible connection to any future special dividend you may or may not be able to take from National, given that it's the same regulator? Thank you.

First of all, we are in consistent communication with the regulator on our plans and everything we're doing on Zohar II. The lines of communications are certainly clear, at this point. And second, as far as any impact of a Corp rehabilitation, we believe it will have no impact on any of the other MBIA entities.

Thank you. Thank you, gentlemen.

Chas Tyson, KBW.

On MBI UK, similar type assets or other legacy financial guarantee assets have been sold in the marketplace for 60% to 70% of book value. Would that be a valuation level that would be acceptable to you to liquidate that?

No comment.

Okay. On PREPA, what's your evaluation of that entity's ability to make the July 1 payment? And if they're not able to make the July 1 payment, are you willing to inject additional liquidity beyond what you've agreed to into that public (Indiscernible) version?

I think it's difficult when you look out approximately two months, given the landscape in Puerto Rico is changing on a day-to-day basis, to accurately forecast what we were willing or not willing to do. When July 1 comes, we will look at the circumstances and make an appropriate long-term decision that we think is the bit interest of National and actually in the best interest of PREPA.

The biggest issue we have, and I think this is what's confusing to the marketplace of all Puerto Rico credits, is the lack of verifiable audited financial statements from any of the entities, the general government, the GDB, PREPA, PRASA, it really doesn't matter. It's very, very difficult to get reliable information upon which to make plans.

As you know, one of the key ingredients that's been included in the Congressional proposed bill is a financial control board. And a lot of people emphasize the control aspects of that. What is equally important, from our point of view, is to get reliable financial information.

Compared to other workouts we've had, one of the most frustrating parts of working with Puerto Rico is dealing with stale, outdated, and often totally inconsistent information, plus the belief on our part, and perhaps on others, that there is a reluctance on the part of Puerto Rico, as they're trying to lobby for a Congressional bill, to let their hands show, to show what actual financial resources they have at any point in time. And that's why it's always a mystery all the way up until the actual minute something is due whether they're going to pay or not.

And as you know, as you interpret the words, they often say they're not going to pay because they can't pay. It doesn't say they don't have the money. It doesn't say they don't have liquidity.

If you take and look at what's been going on, the last time we had an accurate, even reasonably accurate idea of what was happening with the finances was last year in the summer, before the governor started down this path of trying to convince the market that they couldn't meet their debt obligations. And that's the frustrating part.

So it's very difficult when you ask a specific question, can PREPA pay or would we finance it, we don't know. We don't know if they have $300 million, $400 million, $500 million in liquid assets at any point in time. So it's a difficult situation, to say the least.

Okay. Thank you very much.

I will now turn the floor over to Mr. Greg Diamond for any additional or closing remarks.

Thank you, Crystal. And thanks to those of you listening to our call. Please contact me directly if you have any additional questions. We also recommend that you visit our website, at www.mbia.com, for additional information on our Company. Thank you for your interest in MBIA. Good day and good-bye.

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