MBIA Inc (MBI) 2021 Q2 法說會逐字稿

Welcome to the MBIA Inc. Second Quarter 2021 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, sir.

Thank you, Tamika. Welcome to MBIA's conference call for our second quarter 2021 financial results. After the market closed yesterday, we issued and posted several items on our websites, including our financial results, 10-Q, quarterly operating supplement and statutory financial statements for both MBIA Insurance Corporation and National Public Finance Guarantee Corporation.

We also posted update to the listings of our insurance company's 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 10-Qs and other SEC filings as our company's definitive disclosures are incorporated in those documents. We urge investors to read our 10-K and 10-Q as they contain our most current disclosures about the company and its financial and operating results. Those documents also contain information that will not be addressed on today's call.

The definitions and reconciliations of the non-GAAP terms included in our remarks today are also included in our 10-K and 10-Q as well as our financial results report and our quarterly operating supplement. Recorded replay for today's call will become available approximately 2 hours after the end of the call, and the information for accessing it was included in last week's press announcement and in the financial results report that we posted on MBIA's website yesterday.

Now I'll read the 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, Bill Fallon and Anthony McKiernan will provide introductory comments, and then a question-and-answer session will follow. Now here's Bill Fallon.

Thanks, Greg. Good morning, everyone. Thank you for being with us today. Earlier this year, we announced that National signed on as a party to the Puerto Rico GO/PBA and HTA agreements. The schedule to incorporate those agreements into confirmed plans of reorganization has remained on track. Last week, Judge Swain approved the disclosure statement for the GO plan. The GO plan is expected to be confirmed in November of this year, and the HTA plan is expected to be filed by January 31, 2022.

In addition, Ambac and FGIC recently joined the GO and HTA agreements. This brings the HTA creditor support level above 67%, which is the threshold for conformability of the HTA plan under PROMESA and an important precondition to receiving some of the HTA planned distributions on the GO plan effective date expected early 2022. And although there are schedules in place to consummate these agreements, there can be no assurance of this or that they will become effective on the currently expected timelines.

Once these debt restructuring plans are confirmed and effective, we will be better positioned to implement our longer-term strategic plans for the company. National also has made important progress in its litigation against certain underwriters of some of its insured Puerto Rico debt. In June of this year, the Commonwealth Court denied the defendant's motion to dismiss the case and the discovery process has begun. Defendants have filed an appeal of the motion to dismiss ruling.

Turning to other credits in National's insured portfolio. Most of these credits have continued to perform consistent with our expectations. The outstanding gross par of National's insured portfolio has further reduced, declining to $39.5 billion at June 30, 2021, down $2.3 billion from year-end 2020. At June 30, 2021, National's leverage ratio of gross par to statutory capital was 20:1.

Now Anthony will provide additional comments about our second quarter financial results.

Thanks, Bill, and good morning. I will begin with a review of our second quarter 2021 GAAP and non-GAAP results. The company reported a consolidated GAAP net loss of $61 million or negative $1.23 per share for the second quarter of 2021 compared to a consolidated GAAP net loss of $106 million or a negative $1.69 per share for the quarter ended June 30, 2020. The lower net loss this quarter was driven by lower loss and loss adjustment expense at National and MBIA Corp. and a gain on the buyback of GFL medium-term notes at a discount in the Corporate segment.

These items were partially offset by net mark-to-market losses on financial instruments in 2021 related to our interest rate swaps associated with the GIC business due to lower interest rates in 2021 compared with net gains in 2020. There were lower gains on sales of securities at National and lower VIE income. Loss and LAE incurred at National this quarter was negative $42 million due primarily to the decrease in risk-free rates used to discount our Puerto Rico assumed losses and recoveries. There were no material assumption changes in our credit loss scenarios.

Loss and LAE incurred this quarter at MBIA Corp. of $51 million was lower than last year's second quarter of $64 million, with this quarter's losses driven by a reduction in estimated recoveries on claims paid on the Zohar CLOs and lower discount rates impacting the insured first-lien RMBS book. The company's adjusted net income, a non-GAAP measure, was $37 million or $0.76 per diluted share for the second quarter of 2021 compared with an adjusted net loss of $72 million or a negative $1.15 per diluted share for the second quarter of 2020.

The favorable change was primarily due to the loss and LAE benefit at National in the second quarter of 2021 versus expense in the second quarter of 2020. Book value per share decreased to negative $0.66 per share as of June 30, 2021, compared to $2.55 per share as of December 31, 2020, primarily due to the year-to-date net loss of $167 million. The negative GAAP book value of MBIA Corp. of $33.51 per share, which includes over $1 billion of accrued but unpaid interest on its surplus notes, has and will materially contribute to the decline in consolidated book value of the company.

Management believes that MBIA Corp. does not have significant economic impact on MBIA Inc.'s shareholder value, which is why it is one of the book value adjustments implemented by management. I will now spend a few minutes on the Corporate segment balance sheet and the insurance companies. The Corporate segment, which primarily includes the activity of the holding company, MBIA Inc., had total assets of approximately $850 million as of June 30, 2021.

Within this total are the following material items: unencumbered cash and liquid assets held by MBIA Inc. totaled $238 million as of June 30, 2021, decreasing from $294 million as of December 31, 2020. In the second quarter, the holding company bought back EUR 53 million of GFL MTNs due December 3, 2024, at approximately 78% of par. U.S. dollar proceeds utilized were approximately $50 million. We will continue to evaluate debt buyback opportunities. The holding company has no material principal payments coming due on the Inc. debt or GFL notes for the remainder of 2021. There were approximately $445 million of assets at market value pledged to the GICs and the interest rate swaps supporting the legacy GIC operation.

As of June 30, 2021, there were $1.5 million of tax deposits in the tax escrow account, and we expect the tax escrow releases will not be a meaningful contributor to holding company liquidity in the future. Turning to the insurance company's statutory results. National reported statutory net income of $23 million for the quarter ended June 30, 2021, versus a statutory net loss of $35 million for the quarter ended June 30, 2020.

The favorable result was due to lower loss and LAE and Puerto Rico exposures, partially offset by higher prior year gains on asset sales at National, lower premiums earned and investment income, and a current tax benefit in the second quarter of 2020 that included an additional benefit related to the CARES Act.

National's gross claims payments on its insured Puerto Rico credits are as follows: during the first half of 2021, National paid $51 million of gross claims. In July, National paid $226 million of gross claims, and inception-to-date gross claims paid on insured Puerto Rico exposure totaled $1.8 billion. As of June 30, 2021, National's total fixed income investment portfolio, including cash and cash equivalents, had a book adjusted carrying value of $2 billion. Statutory capital was approximately $2 billion and claims-paying resources totaled $3.1 billion. Insured gross par outstanding reduced by almost $1 billion during the quarter and was $39.5 billion as of June 30, 2021.

Turning to MBIA Insurance Corp. Its statutory net loss was $37 million for the second quarter of 2021 compared to a statutory net loss of $23 million for the second quarter of 2020. The second quarter 2021 loss and LAE was attributable to lower negative incurred losses in the insured second-lien RMBS book, partially offset by lower losses on projected recoveries related to the Zohar CLO claim payments in the second quarter of 2021 compared to the second quarter of 2020.

As of June 30, 2021, the statutory capital of MBIA Insurance Corp. was $160 million. MBIA Corp. received non-disapproval from the New York Department of Financial Services for $125 million of contingency reserve release into its statutory surplus during the quarter. Claims-paying resources totaled $786 million. MBIA Corp.'s insured gross par outstanding reduced by almost $1 billion during the quarter and was $6.3 billion as of June 30, 2021.

MBIA Corp.'s largest remaining legacy remediation and projected recoveries are related to the Zohar CLOs. And now we will turn the call over to the operator to begin the question-and-answer session.

(Operator Instructions)

Your first question is from the line of Tom McJoynt with KBW.

So the parent company repurchased those medium-term notes at 78% of par. Can you add any other details on the optionality or capacity or appetite to buy back or settle any other liabilities there to the extent they are available below par?

Sure. We've said that our liquidity window, as we call it now really looks to 2025. So to the degree we find opportunities primarily within that zone that are attractive to us, we will seriously explore those. Outside of [2025], probably less attractive at this point, but we continue to look at every opportunity. But within that 2025 time frame is the target.

Okay. Okay. That makes sense. And then switching over to the Puerto Rico side. You touched on the GO and HTA. Can you give a quick summary of where we stand in terms of the support levels and in terms of timeline for the PREPA restructuring plan?

Yes. As you know, Tom, PREPA, there's agreement in place. The attention really has been on the GO and HTA deals for the first half of this year. So we would expect there'll be more attention with regard to moving the PREPA deal forward. But at this point in time, that's really been the summary view of what's happened this year.

Okay. Makes sense. And then last one. So with the CVI, the contingent value instrument, is expected to be a big part of the recovery here. Will you have to make mark-to-market estimates of that CVI value in anticipation of its issuance to the extent it's included in the restructuring deal? Or is it more so that you have to wait until the restructuring deal is actually finalized in the courts and the CVIs are actually issued before you would book any mark-to-market as a recovery?

Yes. At this point, we don't have the CVI. So what you're seeing is that play out through the loss reserving process. Right? So we go through the scenarios still in terms of setting reserves. But since we don't have the CVI, right, there's nothing we account for other than the loss reserves. And Anthony, I don't know if you want to add anything at this point.

No. I think that right now, in our loss reserves, as Bill said, we're looking forward at the proposed compensation and exchanges related to the Puerto Rico transactions. We're making certain assumptions at that point related to all the compensation, including the CVI. But at this point, until things are more formalized and until those securities are issued, that's really where you see any analysis of that and any movement.

Okay. And so I guess, would you expect that over kind of the course of the year until we get to these timelines in November and January, the majority of any marks or adjustments to the loss and loss recovery would just be driven by discount rates and risk periods rather than changing assumptions?

Yes. As long as we continue to be on schedule, and there are no material changes to the actual underlying agreements, your assumption would be correct. We would expect that changes would be far more driven by discount rate movements as we move closer to completion.

(Operator Instructions)

Your next question is from the line of John Staley with Staley Capital Advisers.

Bill, I have 2 questions. At some point in time, through the early stages and even later stages of the Puerto Rican discussions, you were not -- MBIA was not totally consistent with their objectives with Assured Guaranty -- with AGO. [Only different than] in showing different sections of the bonds -- types of bonds. Are you guys still on that way? Or are you all consistent now that you're both on the same page in terms of the restructuring and the compensation related to it and everything else related to it? That's my first question.

Yes, John. Again, thanks for the question. At -- somewhat I think the answer is yes, right? We're now part of the same agreements. So in that sense, I think we're aligned and consistent, as you say.

Good. And secondly, the market is beginning to validate your strategy for capital allocation, where you bought back so much stock. Recognizing there were a lot of other issues today related to liquidity, but would you still look at your stock as a buyback as attractively adding to intrinsic value at these levels, if you were able to buy it back?

Yes. With regard to that, as you know, right, the big part with the last part of your question, which is if we could buy it back. And as you know, we have done almost all of it through National. We've never said what the exact dollar amount is. We sort of let our actions speak for itself.

So at this point, we don't have the ability through National. It's possible that could change in the future. It's possible at some point there'd be enough liquidity at the holding company that we could repurchase shares there. And so that's how we'll address that situation. But to your point, we, I think have been very consistent over time where we have repurchased shares, indicating that we do think it is enhancing long-term shareholder value.

I'm glad to see the market beginning to agree with you.

Thank you, John.

At this time, I am showing no further questions. I would like to turn the floor back over to management for any additional or closing remarks.

Thank you, Tamika, and thanks to those of you listening to the call. Please contact us directly if you have any additional questions. We also recommend that you visit our website at mbia.com for additional information about our company. Thank you for your interest in MBIA. Good day and goodbye.

Thank you, ladies and gentlemen. This does conclude today's second quarter 2021 financial results conference call. You may now disconnect.