MBIA Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 6 speakers on the call.

Operator

Welcome to the NBIA Inc. 2nd Quarter 2024 Financial Results Conference Call. I would now like to turn the conference over to Greg Diamond, Managing Director of Investor and Media Relations at MBIA. Please go ahead, sir.

Speaker 1

Thank you, Ashley. As noted, this is MBIA's conference call for our Q2 2024 financial results. After the market closed yesterday, we issued and posted several items on our website, 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.

Speaker 1

We urge investors to read our 10 ks and 10 Qs as they contain our most current disclosures about the company and its financial and operating results. 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. Recorded replay of today's call will become available on the MBIA website approximately 2 hours after the end of the call. Now for our Safe Harbor disclosure statement.

Speaker 1

Our remarks on today's conference call may contain forward looking statements. Important factors such as general market conditions and a 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 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 or update any forward looking statement if it later becomes aware that such statement is no longer accurate.

Speaker 1

For our call today, Bill Fallon and Joe Schackinger will provide introductory comments and then a question and answer session will follow. Now, here is Bill Fallon.

Speaker 2

Thanks, Greg. Good morning, everyone. Thank you for being with us today. Our 2nd quarter 2024 net loss was largely due to National's net loss for the quarter. A significant increase in our PREPA loss reserve was the primary reason for National's net loss.

Speaker 2

While the 1st Circuit Court of Appeals decision was good for bondholders, the Oversight Board's reaction to the decision has increased uncertainty regarding a timely resolution for PREPA and its creditors. We believe a consensual resolution is in the best interest of PREPA, PREPA's creditors and the people of Puerto Rico. However, this will only occur if the Oversight Board changes its approach and fulfills its responsibilities under PROMESA. PREPA has the ability to repay its creditors. The Oversight Board does not have the willingness to pay.

Speaker 2

This must change. Given the range of possible outcomes associated with National's $836,000,000 PREPA bankruptcy claim, We continue to believe that it is necessary to substantially resolve PREPA before we can restart the process to sell the company. Regarding the balance of National's insured portfolio, those credits have continued to perform generally consistent with our expectations. The gross par amount outstanding for National's insured portfolio has declined by approximately $1,400,000,000 from year end 2023 to $27,000,000,000 at the end of the Q2 of this year. National's leverage ratio of gross part of statutory capital was 28:one at the end of the Q2 of 2024.

Speaker 2

As of June 30, 2024, National had total claims paying resources of $1,600,000,000 and statutory capital and surplus of approximately $1,000,000,000 Now Joe will provide additional comments about our financial results.

Speaker 3

Thank you, Bill, and good morning, all. I will begin with a review of our Q2 2024 GAAP and non GAAP results and then provide an overview of our statutory results. The company reported a consolidated GAAP net loss of $254,000,000 or a negative $5.34 per share for the Q2 of 2024 compared to a consolidated GAAP net loss of $74,000,000 or a negative $1.46 per share for the Q2 of 2023. The higher GAAP net loss this quarter was largely driven by 2 items. First is higher loss in Elliott National, which largely related to revising our loss scenarios for our PREPA exposure.

Speaker 3

Our loss scenarios now contemplate a range of negotiated and litigated outcomes that reflect a greater degree of uncertainty around the ultimate resolution of PREPA's debt. And the second item is higher losses on financial instruments carried at fair value, which largely related to the revaluation of an equity interest received by MBI Insurance Corp in a Zohar related portfolio company in connection with claims paid on the Zohar CDOs. In addition to these items, lower net investment income was mostly offset by lower VIE losses and lower operating expenses this quarter versus the Q2 of 2023. The company's adjusted net loss, a non GAAP measure, was $138,000,000 or a negative $2.90 per share for the Q2 of 2024, compared with an adjusted net loss of $22,000,000 or negative $0.45 per share for the Q2 of 2023. The unfavorable change was primarily due to higher loss in LAE at National in the current quarter related to PREPA.

Speaker 3

MBIA Inc. Book value per share decreased $6.51 to a negative $39.07 per share as of June 30, 2024 versus a negative $32.56 per share as of December 31, 2023, primarily due to our $340,000,000 consolidated net loss for the 2024 year to date period. Included in MBIA Inc. Book value as of June 30, 2024 is a negative $47.89 per share of MBI Insurance Corp. Book value versus a negative $44.91 per share as of December 31, 2023.

Speaker 3

I will now spend a few minutes on our corporate segment balance sheet. The corporate segment, which primarily comprises the activities of the holding company, MBIA Inc, had total assets of approximately $657,000,000 as of June 30, 2024. Within this total are the following material assets: Unencumbered cash and liquid assets held by MBIA Inc. Totaled $315,000,000 compared with $411,000,000 as of December 31, 2023. The decrease was largely due to spending of which $26,000,000 was spent in the Q2 of 2024.

Speaker 3

In addition, MBIA Inc. Spent $16,000,000 in the current quarter to purchase its senior notes. Both the medium term notes and the senior notes were purchased at prices accretive to equity. In addition to the unencumbered cash and liquid assets I mentioned, the corporate segment's assets included approximately $232,000,000 of assets at market value pledged to guaranteed investment contract holders, which fully collateralized those contracts. Turning to the insurance company's statutory results, National reported a statutory net loss of $131,000,000 for the Q2 of 2024 compared to a statutory net loss of $11,000,000 for the Q2 of 2023.

Speaker 3

The unfavorable variance was primarily driven by higher loss in LAE related to revising our loss scenarios for the PREPA debt restructuring and to a lesser extent lower net investment income. As a reminder, net investment income in 2024 reflects lower invested assets due to the as of right and special dividends paid by National to MBIA Inc. In the Q4 of 2023, which totaled almost $650,000,000 National statutory capital as of June 30, 2024 was $969,000,000 down $148,000,000 compared with December 31, 2023, largely due to its net loss for the 2024 year to date period of $142,000,000 Claims paying resources were $1,600,000,000 down $51,000,000 from December 31, 2023. As of June 30, 2024, National had gross par outstanding of $27,000,000,000 which is down about $1,400,000,000 from year end 2023. This decrease was largely due to regular amortization of National's insured portfolio.

Speaker 3

Now I'll turn to MBI Insurance Corp. MBI Insurance Corp. Reported a statutory net loss of $35,000,000 for the Q2 of 2024 compared to a statutory net income of 0 for the Q2 of 2023. The net loss in the Q2 of this year was driven by loss in LAE on primarily Zohar related salvage. As of June 30, 2024, the statutory capital of MBI Insurance Corp was $85,000,000 down from $152,000,000 at year end 2023, primarily due to its net loss for the 2024 year to date period of $70,000,000 Claims paying resources totaled $355,000,000 at June 30, 2024, compared to $504,000,000 at year end 2023.

Speaker 3

MBI Insurance Corp. Insured gross par outstanding was $2,500,000,000 as of June 30, 2024, down about 12% from year end 2023. The decrease in claims paying resources and gross par outstanding was partially driven by our proactive derisking of exposures for which we held reserves and were paying claims. And now, we will turn the call over to the operator to begin the question and answer session.

Operator

And we'll take our first question from John Staley with Staley Capital Advisors. Please go ahead.

Speaker 4

Yes. Bill, this process I find probably not as frustrating as you, very frustrating. I don't understand how you have wrapped up and settled so many other Puerto Rican exposures. And yet PREFA stands there, being roadblocked by this oversight committee or by the government or by whatever the hell the issue is. What is the difference between the ability to have settled other exposures to Puerto Rico and yet prefaced things stands out there all by itself, unable to be resolved.

Speaker 4

And even a conditional agreement that was sitting up there before the 11th Circuit, I think you guys withdrew from even before the court ruled. I mean, there's something different about PREPA than the other guarantees you had that you wrapped up. And I'm just curious, as a layperson, how would you explain that difference?

Speaker 2

Yes. John, good morning. First of all, you're absolutely correct. There were 4 large credits that we had insured in Puerto Rico. And so just to fill in what you obviously know, 3 of the 4 have been resolved.

Speaker 2

That was the GEO, the COFINA and the highway, which were all sort of of similar size to PREPA. And it's interesting and it's probably too long to cover in this call, but there were many people who thought PREPA should have been the first of the credits resolved. And as you recall, there was actually an agreement in place prior to PROMESA, which was the law that Congress passed that went into effect approximately 8 years ago. And the initial oversight board chose not to approve that agreement. So we've now been at this in terms of this Board for the continuation of this Board for 7 years, but there was probably almost 2 years prior to that where the creditors had agreed to forbear.

Speaker 2

And so it's been a very long process. And as I said, many people thought it should have been the first of the large credits to be restructured. And here we are, and it's going to be the last one. I suppose there's lots of opinions as to why this one's been difficult. I won't bore you with all the things that we've heard during this period of time.

Speaker 2

The situation, however, is here we sit. There was a 1st Circuit decision a couple of months ago that was favorable to bondholders. As you know, Judge Swain has requested mediation. We're about halfway through that 60 day period, and we'll see what the results of the mediation are. But trust me, I'm like you, I'm sure there's a lot of frustrated parties to this whole situation.

Speaker 4

But there's really no substantive difference in terms of the terms of the guarantee. I mean, I assume you have within your guarantee tremendous rights against revenue, etcetera. What is the oversight board hanging their hat on? What is their issue? It wouldn't allow the independent parties to resolve the damn thing.

Speaker 4

I mean, these guys are nothing but appointed politicians and lawyers and that guy who's a dean of a school or some damn thing. They're not even they're nothing but guys who are sucking off the public debt. So, I mean, I don't get it. What is it that they're contending, we can't let you settle this, yet you settle 3 other ones? I mean, it makes no sense to me.

Speaker 2

John, I think you've just articulated what many of the creditors have expressed in different ways over several years. So, it looks as though this one is going to have to be strongly influenced by the courts, right, decisions that are either made by Judge Swain or by the First Circuit on appeal. That's where many of these decisions have ended up. And it looks as though that may be what finally forces a resolution of this situation. We believe it, there's a good opportunity to make it consensual, but it may be one that has to go through the court system, for even further clarification.

Speaker 2

And that court process is yet another 60 days? That's just the mediation that was requested. What happens after that is very hard to predict at this point.

Speaker 4

Are you still at odds with some people who own the bonds like Invesco and Golden something or other from hedge funds? Is that still part of the issue?

Speaker 2

No. We're very much aligned now with the majority of the bondholders. So, the people no, we're all there's a large group of us that are all aligned in terms of trying to resolve this with the Board. So, it's literally this appointed Oversight Board that's keeping this thing from being wrapped up? It's probably a little bit more complicated than that, but they're staking out their position in what their offer is to bondholders and bondholders have a different view.

Speaker 2

And as Judge Swain indicated, she would like to hope that there could be some compromise and a resolution that would end this in her court. But we'll have to wait and see whether that's possible.

Speaker 4

Okay. Thank you very much.

Speaker 2

Thank you.

Operator

Thank We will take our next question from Mike Meister, Private Investor. Please go ahead.

Speaker 5

Hi, thanks for taking my call. Just a couple of questions. One is, is there still about $70,000,000 remaining under the repurchase authorization?

Speaker 2

Yes. Okay. And do you

Speaker 5

have any intention to begin to buy back stock?

Speaker 2

As we've said before, Ethan, we continue to look at lots of things, including the liquidity, the holding company, the different obligations of the holding company. As Joe indicated, we did actually buy back some debt in the Q2. We'll look at what the future liquidity will be of the holding company. And at any point in time, if we think the best choice that we have is to use that to buy back stock, then we will do that as we've done in the past.

Speaker 5

Okay. I wanted to check, so the operating expenses came down a little bit in Q2, but it's still $15,000,000 So that's basically a $60,000,000 run rate. I mean, that seems fairly high for I mean, at this point, absent PREPA and possibly LCORLA, Alexandria, there's really no problem credits, right, within NASHVILLE?

Speaker 2

I think that's a reasonable description of the situation.

Speaker 5

So, can we expect those operating expenses to come down?

Speaker 2

The answer is we have for a while been focused on reducing operating expenses. I think if you go back, the trend is down. We would like to continue to reduce operating expenses. Keep in mind, we also have corp, which when you look at those operating expenses, right, is part of the situation as well as well as the runoff of the old asset liability management business at the holding company. So we are very focused on continuing to get those expenses down.

Speaker 2

There are already some things we've committed to, which we think over the next year or so, we'll continue to bring those down.

Speaker 5

Okay. And then just in terms of the PREPA, I mean, so it looks like you've got PREPA down mark in the mid-40s?

Speaker 2

I'm sorry, is that a question?

Speaker 5

Yes. I mean, is that I mean, so basically, that's kind of our bogey for wherever a settlement or a resolution comes out?

Speaker 2

Yes. We've never actually communicated exactly what level of recovery the preferred reserves reflect.

Speaker 5

Okay. But I mean, at National, I don't think there are significant reserves other than PREPA, right?

Speaker 2

It would be fair given our portfolio, to conclude that PREPA is the significant portion of our reserves.

Speaker 5

Okay. Okay. And then just finally is, can you just provide some idea what's going on in LTOR Alexandria?

Speaker 2

Yes. Well, there's not a whole lot I can say at this point, right? You'll see it. It's listed as one of our classified credits, Right? It's office space.

Speaker 2

I think everyone's know what has happened with office space in and around most major cities. This one is in the D. C. Area. We have been focused on it for quite a while.

Speaker 2

And we think there is a plan in place that will result in a resolution to this that will not have any material impact on the company at this point.

Speaker 4

Okay.

Speaker 5

And then finally, I just wanted to see, there's a lot of activity in the credit synthetic risk transfer market. Is that something where you've explored? I wonder if there's an opportunity with the national portfolio to look at transferring a portion of that to the synthetic risk transfer market?

Speaker 2

Without commenting on any specific thing, we are obviously well aware of the synthetic market. There are lots of things that we look at with regard to the national portfolio at any point in time. So if there was ever something that we thought would be beneficial to our shareholders, we would pursue it.

Speaker 5

Okay. All right. Thank you. Thank you.

Operator

Thank you. For any additional or closing remarks.

Speaker 1

Thank you, Ashley, and thanks to those of you listening to our 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 2024 Financial Results Conference Call. You may now disconnect your line and have a wonderful day.

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Key Takeaways

  • MBIA reported a consolidated GAAP net loss of $254 million (–$5.34 per share) in Q2 2024, driven mainly by higher PREPA loss reserves and fair-value revaluation losses on certain financial instruments.
  • National’s PREPA exposure reserve was substantially increased after the Oversight Board’s reaction to the 1st Circuit ruling, prolonging uncertainty and making a court-mediated resolution under PROMESA necessary.
  • National’s insured portfolio remains broadly on track, with gross par outstanding down by about $1.4 billion to $27 billion, a leverage ratio of 28:1, and claims-paying resources of $1.6 billion as of June 30, 2024.
  • MBIA Inc.’s holding company held total assets of $657 million (including $315 million in unencumbered cash) and repurchased $16 million of senior notes in Q2, with share buybacks to be considered based on future liquidity needs.
  • MBI Insurance Corp.’s statutory capital fell to $85 million (from $152 million) and claims-paying resources to $355 million, reflecting Q2 losses on Zohar-related salvage and proactive de-risking of exposures.
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Earnings Conference Call
MBIA Q2 2024
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