MBIA Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 7 speakers on the call.

Operator

Welcome to the MBIA Inc. 2nd Quarter 2023 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.

Speaker 1

Thank you, Ashley, and welcome, everybody. 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 updates 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 ks, 10 Q and other SEC filings as our company's definitive disclosures are incorporated in those documents. We urge investors to read our 10 ks and 10 Qs as they contain our most current for closing remarks.

Speaker 1

Those documents also contain information that may 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 ks and 10 Qs as well as our financial results report and our quarterly operating supplement. The recorded replay of today's call will become available approximately for the Q1 of 2019. Now for our Safe Harbor disclosure statement. Our remarks on today's conference call may contain forward looking statements.

Speaker 1

Important factors such as general market conditions and the competitive environment who 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 ks and 10 Qs, 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 for 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.

Speaker 1

Now, here is Bill Fallon.

Speaker 2

Thanks, Greg. Good morning, everyone. Thank you for being with us today. Our principal focus remains on achieving a final resolution of our last material exposure to the Commonwealth of Puerto Rico, the Puerto Rico Electric Power Authority or PREPA. While we await the filing of PREPA's 3rd plan of adjustment, we continue our efforts to deliver shareholder value in other areas, including by reducing expenses, monitoring the runoff of our insurance portfolios and repurchasing shares.

Speaker 2

After the MBI Inc. Board of Directors approved the $100,000,000 share repurchase authorization in May, National and MBI Inc. Have purchased a combined 3,000,000 shares of MBI common stock at an average price of $8.08 per share, which has reduced MBIA's outstanding share count to 51,900,000 as of July 26, 2023. $76,000,000 remains outstanding from the May authorization. Regarding our 2nd quarter financial results, While National had a modest net loss for the quarter, for the 1st 6 months of 2023, it maintained positive net income on a GAAP basis who had a modest loss on a statutory basis.

Speaker 2

The results demonstrate the stability of National's financial results absent significant adjustments to its losses and loss adjustment expenses. As noted earlier, we remain hopeful that PREPA will resolve Sooner rather than later. Following the insurance claims payments made by National on July 1 this year, Its remaining exposure to prep at $610,000,000 of gross par insured. The remainder of the insured credits and National's portfolio have continued to perform consistent with our expectations. National's insured portfolio has continued to run off as its outstanding gross par declined by approximately $1,200,000,000 from year end 2022 to $30,500,000,000 at June 30, 2023.

Speaker 2

National leverage ratio of gross part of statutory capital at the As of June 30, 2023, National had total claims paying resources of $2,400,000,000 and statutory capital and surplus of $1,900,000,000 In May, our Chairman, Charlie Reinhart retired from the Board after 14 years and Ate as Chairman. I greatly appreciate Charlie's contribution and leadership over those many years. Steve Gilbert, who has been on our Board since 2011 was elected as the new Chairman. Now Anthony will provide additional comments about our financial results. Thanks,

Speaker 3

Bill, and good morning. I will begin with a review of our Q2 2023 GAAP and non GAAP results. The company reported a consolidated GAAP net loss of $74,000,000 or negative 1.46 dollars per share for the Q2 of 2023 compared to a consolidated GAAP net loss of $36,000,000 or negative $0.72 per share for the Q2 ended June 30, 2022. The higher GAAP net loss this quarter Largely driven by losses on VIEs at MBIA Corp. Due to the derisking activity resulting in the deconsolidation of 2 legacy ABS CDOs, where the majority of losses were reclassified from other comprehensive income and therefore had no effect on total equity.

Speaker 3

Higher interest expense primarily attributed to MBIA Corp's surplus notes and loss in LAE expense this quarter at MBIA Corp versus a loss in LAE benefit in Q2 2022. The increase in operating expenses for the quarter was largely due to an increase In value in the company's non qualified deferred compensation plan liability with a corresponding offset in the asset value of the plan, which is reflected in net gains on Financial Instruments and net investment income. Offsetting these negative variances were lower loss in LAE at National, for the Q1 of 2019. The company's adjusted net loss, a non GAAP measure, was $22,000,000 or a negative $0.45 per diluted share for the Q2 of 2023, compared with an adjusted net loss of $47,000,000 or a negative $0.93 per diluted share for the Q2 of 2022. The favorable change was due primarily to the lower loss in LAE at National.

Speaker 3

MBIA Inc. Book value per share decreased to a negative $19.21 per share as of June 30, 2023 versus a negative $16.07 per share as of December 31, 2022, primarily due to net loss for the year and Q2 2023 share repurchases, partially offset by decreased unrealized losses on investments recorded to other comprehensive income, driven by tighter credit spreads and lower interest rates. Included in book value as of June 30, 2023 is a negative $41.88 per share book value of MBIA Corp. I will now spend a few minutes on the corporate segment balance sheet and our insurance company's statutory results. The corporate segment, which primarily includes the activity of the holding company MBIA Inc, had total assets of approximately $611,000,000 as of June 30, 2023.

Speaker 3

Within this total are the following material items. Unencumbered cash and liquid assets held by MBIA Inc. And Debt Service and Operating Expenses. The Corporate segment's assets also included approximately $306,000,000 of assets at market value pledged to the GICS and the interest rate swap supporting the legacy GICS operation. Turning to the insurance company's statutory results.

Speaker 3

National reported a statutory net loss of $11,000,000 for the quarter ended June 30, 2023 versus a statutory net loss of $44,000,000 for the quarter ended June 30, 2022. The favorable comparison was primarily due to lower loss in LAE and higher investment income. Statutory capital decreased by $10,000,000 from year end 2022 and was $1,900,000,000 as of sixthirtytwenty twenty three, primarily due to National's purchase of MBIA Inc. Shares during the Q2. Claims paying resources were $2,400,000,000 From inception through sixthirtytwenty twenty three, gross claims paid on insured Puerto Rico exposure totaled approximately $2,900,000,000 and in July, National paid additional gross claims of $119,000,000 on the PREPA bonds at Insurers.

Speaker 3

Turning to MBIA Insurance Corp. Its statutory net loss was $128,000 for the Q2 of 2023 compared to a statutory net loss of $6,300,000 for the Q2 of 2022. The favorable comparison was primarily due to lower loss in LAE expense in 2Q 2023. As of June 30, 2023, the statutory capital of MBIA Insurance Corp. Was to review our financial results.

Speaker 3

$148,000,000 down from $169,000,000 at the end of 2022, primarily due to its year to date net loss. Claims Pain Resources totaled $561,000,000 versus $669,000,000 at year end 2022, due in part to a reduction in gross loss reserves associated with several deal liquidations and the year to date net loss. MBIA Corp. Insured gross par outstanding reduced by approximately $130,000,000 during the quarter and was $3,200,000,000 as of June 30, 2023. And now, we will turn the call over to the operator to begin the question and answer session.

Speaker 4

Thank

Operator

you. We'll take our first Question from Tommy McJoynt with KBW. Please go ahead.

Speaker 4

Hey, good morning guys. Thanks for taking my questions. I can't remember if you mentioned this on the prepared remarks, but what is National's statutory capacity for buybacks as of June 30?

Speaker 3

As of June hey, good morning, Tommy. As of June 30, National had about $50,000,000 of capacity left to purchase shares.

Speaker 4

Okay. Got it. And then Forgive me just because it's somewhat complicated to think about. But to the extent that National is monetized by a sale to a third party, What happens to the shares that National has repurchased? Do those suddenly become outstanding again and effectively Indirectly owned by that 3rd party since they're no longer part of the consolidated entity.

Speaker 2

Are you talking about if National is sold or Renbai Inc. Is sold?

Speaker 4

It's just National, just the subsidiary is sold.

Speaker 2

Most likely The structure of the transaction would be that those shares would end up being retired. You'd have to get DFS But most likely they would be sent to the holding company and retired.

Speaker 4

Got it. Okay. Mechanically that does make sense. Okay. And then last question, was National's provision that you appear to attribute to PREPA, was that driven by just The extension of the process, really a time value of money function or was it based on any lower absolute expected recoveries?

Speaker 3

Tommy, on that, I think it was a combination of things. The delay is one piece of it. Just looking at as there is the delay, the lack of subscription from other parties at this point and looking at court rulings and just potential risk Firmability and levels, we just took all that into account this quarter and made some adjustments to what our view of our compensation and claims are.

Speaker 4

Okay, got it. Thank you.

Operator

Thank you. We'll take our next question from Paul Saunders with Hutch Capital.

Speaker 5

I just have a quick one on PREPA. Just A lot has happened since you guys last reported. I was just hoping to get your perspective on, I guess, the state of play for National. And so I know National has the settlement. I'm curious just your thoughts.

Speaker 5

Do you expect that? I know it seems like they're trying to Keep that in the latest plan and just can you just provide a little more color on how you see this plan process Going on, it's just a little hard to follow just in the papers and the filings.

Speaker 2

Yes. Paul, you actually just gave a pretty good description of the state of play. I'm not sure that I can add Much to it. They were supposed to file a plan a few weeks back. They've had 2 extensions.

Speaker 2

The current deadline Is tomorrow, I don't know if there'll be another extension or whether they will file something. Other than that, You mentioned we have a PSA that's been in place for quite a while at this point that details our agreement with PREPA and the Oversight Board. So we're very focused on it as we mentioned in our comments. We'll see what happens over the next short period of time with regard to a plan. And Other than that, I don't know there's a whole lot more that we can say that you don't already know.

Speaker 5

Well, I guess I'm not sure if you can discuss it, But are other bondholders or is anyone asking you guys to recut the PSA you have or what's I guess Can you give me any sense of your confidence level of that ultimately being in the plan that gets confirmed?

Speaker 2

Our view is we have a legal contract, which is the PSA. And Our sense was a few weeks ago when we thought about the file that PSA would be part of the plan of adjustment that would be filed. And our view is that will continue to be the case. But other than that, I know there's lots of speculation out there, but I don't know what's going

Operator

Diamond. We will take our next question from John Staley with Staley Capital Advisors. Please go ahead.

Speaker 6

Bill, thank you for the update. And obviously, Puerto Rico is the issue. But I'm very curious. You chatted before in our prior call about sensitivity to the buyback price. And you indicated that you reinstated $100,000,000 program based on the market value, etcetera.

Speaker 6

But forgetting book value, Obviously, there's an intrinsic value here. There's a value that you guys know from your insights And the industry and the process you went through with Barclays, what kind of spread motivates you versus the guys who were selling, you always had 3,000,000 shares come in, which is a pretty substantial amount given the trading volume The people who thought that $8 plus a share was a good price to sell at. There obviously is Forget all these fancy little accounting numbers. There's an intrinsic value here that motivates you to use your capital to buy the stock back at $8 plus. What is that spread?

Speaker 6

I mean, where are you in the market saying, we're not buying anymore? I'm just curious what drives the decision. I know the mechanics of buybacks are difficult, but what drives the real issue What you'll pay versus what you feel is creating value for the remaining shareholders In offsetting the shrinkage that's occurring just by operating the expenses on a company that's not doing anything in terms of new issuance of insurance, just battling to recover value from your prior Puerto Rico exposure.

Speaker 2

Yes. Good morning, John. In some ways, I think implicitly you've cited a lot of things that we look at. So as we've said in the past, there's lots of factors

Speaker 6

That go

Speaker 2

in when we buy it and you're absolutely correct. Put aside all the accounting numbers, there is some intrinsic value that all shareholders probably Think about with regard to their buying and selling of all stocks, but in this case, our stock, we do a similar analysis. And as you can imagine, that's a fairly dynamic process. So at any point in time, there's lots of variables that are moving around. As we mentioned in the release and in the prepared remarks, we bought it just over $8 a share.

Speaker 2

Obviously, we thought that was a good price. One of the challenges is that because of regulations, we're limited in how many shares we can buy, For example, on any given day, right, it has to do with the average trading volume over the previous 4 weeks. But to your point, we bought Between 5% 6% of the outstanding shares since we last talked. Again, we thought it was a good opportunity for the longer term shareholders of the company. And again, it's all the factors you mentioned.

Speaker 2

It's what we think, For example, we might get in a sale, it's what we think the financial situation is at National at any point in time, interest rates come into play, How much liquidity we have at National and you did see that we bought some shares at Inc. Since the last earnings call. And so we have to be sort of judicious in how we use that liquidity and at what price we buy shares. So there may be At times where people think, wow, we should have bought even more shares, it could be that we're just trying to conserve. In this case, we had the $100,000,000 authorization, But we also look beyond that to what long term liquidity might look at.

Speaker 2

So I think it's all the things that you've mentioned. We don't actually State at any point in time what we think the spread is versus sort of an estimated range of intrinsic value. But You can be assured if we're buying shares, we think it's good for our long term shareholders.

Speaker 6

Thank you. I bought some with you by the way. Good to hear. Thank you.

Operator

And we will take a follow-up from Paul Saunders with Hutch Capital. Please go ahead.

Speaker 5

Thanks for taking another one of my questions. Just following up on John's question on the share buybacks. I mean, I guess, it's not often that I see companies With debt trading at $0.30 $0.40 on the dollar and double digit yields, buying back stock as opposed to The discounted debt. So could you guys talk at all about how you view sort of what's the better use of capital in terms of Stock First Bonds, I know you tackle the shorter dated bonds, but I'm thinking more the ones once you're getting to the 11%, 12% yields with longer maturities. How do you guys think about the value of those versus the value of repurchasing shares?

Speaker 2

Yes, Paul. I'll let Anthony get into the details of the bond repurchases, but I'm not sure that there's we have bonds that are trading on $0.30 Trading at $0.30 on the dollar.

Speaker 3

Yes. Paul, maybe just going to the mechanical part of your question. The way the holding We look at near term liquidity and we look to see how far we can go and handle the obligations under a steady state operation, which I would define as normal income at Inc. Plus the as of right dividend from National every year. So when we look at that liquidity profile, We look at the nearer term to your point, we're looking at the nearer term debt, which we did this quarter, for example, which we were able to get at a good discount.

Speaker 3

But we are focused on the near to medium term obligations of the holding company. So just generally speaking, first of all, I don't think the debt is trading nearly That low that I've seen, but also just going out significantly further on the curve at this point is just probably not the most prudent thing for the holding company.

Speaker 5

Okay. Got it. Yes, to be clear, those discounted bonds I'm talking about are the GFLs, not the HoldCo debt, but I view them He knows sort of HoldCo obligations as well.

Speaker 6

Yes. Thanks guys. Okay. Thank you.

Operator

And there appears to be no further questions at this time. I will turn the call back over to Greg Diamond for closing remarks.

Speaker 1

Thanks again, Ashley, and thanks to

Speaker 6

those of you listening to

Speaker 1

the call today. Please contact us directly if you have any additional questions. We also recommend that you visit our website at mbia.com for additional information on the company. Thank you for your interest in MBIA. Good day and goodbye.

Operator

Thank you, ladies and gentlemen. This does conclude today's MBIA Second Quarter 2023 Financial Results Conference Call. You may now disconnect.

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