MBIA Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2025

Key Takeaways

  • Positive Sentiment: Our second quarter GAAP net loss was $56 million (-$1.12 per share) versus $254 million (-$5.34) in 2Q24, driven by lower LAE and investment/VIE losses.
  • Negative Sentiment: Resolution of PREPA exposure exceeding $800 million remains uncertain, delaying strategic actions like a sale and value realization.
  • Positive Sentiment: We transferred $374 million of fully paid PREPA claims into custodial receipts, enhancing their marketability and flexibility for monetization.
  • Negative Sentiment: MBIA Inc’s book value per share fell to a negative $43.14 from negative $40.99 at year-end, underscoring capital pressure.
  • Positive Sentiment: National’s insured portfolio gross par declined by ~$1.1 billion to $24 billion, with a 26:1 leverage ratio, $914 million of statutory capital and $1.5 billion of claims-paying resources.
AI Generated. May Contain Errors.
Earnings Conference Call
MBIA Q2 2025
00:00 / 00:00

There are 9 speakers on the call.

Operator

Welcome to the MBIA Inc. Second Quarter twenty twenty five Financial Results Conference Call. I would now like to turn the call over to Greg Diamond, Managing Director of Investor and Media Relations of MBIA.

Operator

Please go ahead, sir.

Speaker 1

Thank you, Erica. Yes, welcome to MBIA's conference call. 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 companies' 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. Definitions and reconciliations of the non GAAP terms included remarks in today are also included in our 10 ks and 10 Qs as well as our financial results report and our quarterly operating supplement. A recorded replay of today's call will become available on the MBIA website approximately two hours after the end of the call. Now here is 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 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 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 second quarter twenty twenty five financial results had a lower net loss than the comparable period for 2024. Compared to 02/2024, our second quarter two thousand twenty five financial results benefited from lower losses in LAE and lower investment and VIE losses at MBIA Insurance Corp.

Speaker 2

Our priority continues to be resolving National's PREPA exposure, where the timing of that resolution remains uncertain. Currently, the title three court is addressing the administrative expense claims. Given the uncertainty associated with the possible outcomes for National's PREPA bankruptcy claim, which is in excess of $800,000,000 we continue to believe that the process to sell the company and to maximize shareholder value will likely require substantially reducing the uncertainty regarding PREPA. 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 $1,100,000,000 from year end 2024 to about $24,000,000,000 at 06/30/2025.

Speaker 2

National's leverage ratio of gross par to statutory capital was 26 to one at the end of the second quarter. As of 06/30/2025, National had total claims paying resources of $1,500,000,000 and statutory capital and surplus in excess of $900,000,000 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 second quarter twenty twenty five GAAP and non GAAP results and then provide an overview of our statutory results. The company reported a consolidated GAAP net loss of $56,000,000 or a negative 1.12 per share for the 2025 compared with a consolidated GAAP net loss of $254,000,000 or a negative $5.34 per share for the 2024. The lower GAAP net loss this quarter was mostly driven by lower losses in LAE at National, primarily on its PREPA exposure. National's loss in LAE for the 2025 was $6,000,000 compared with $141,000,000 for the 2024.

Speaker 3

The larger losses in LAE for the 2024 related to National's exit from the then proposed PREPA plan of adjustment, prompting us to revise our loss scenarios to reflect a range of negotiated and litigated outcomes. Also contributing to lower GAAP net losses this quarter, but to a lesser extent, were lower net losses on financial instruments relating to the revaluation of MBIA Insurance Corp's equity interest in a Zohar related portfolio company received in connection with claims paid on the Zohar CDOs and lower losses at MBIA Insurance Corp related to insured variable interest entities or VIEs. Higher VIE losses in the 2024 primarily related to the deconsolidation of a VIE as part of our strategy to derisk MBIA Insurance Corp's insured portfolio with no comparable activity in the 2025. The company's adjusted net loss, a non GAAP measure, was $8,000,000 or a negative 17¢ per share for the 2025 compared with an adjusted net loss of $138,000,000 or a negative $2.9 per share for the 2024. The favorable change was primarily due to the lower losses in LAE at National.

Speaker 3

MBIA Inc. Book value per share decreased $2.15 to a negative $43.14 per share as of 06/30/2025 from a negative $40.99 per share as of 12/31/2024. This decrease was primarily due to our $118,000,000 consolidated net loss for the first six months of 2025, partially offset by a decrease in unrealized losses on investments recorded in accumulated other comprehensive income. Included in MBIA Inc. Book value as of 06/30/2025 is MBIA Insurance Corp's negative book value of $51.49 per share, which decreased from a negative $49.48 per share as of 12/31/2024.

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 $677,000,000 as of 06/30/2025. Within this total are the following material assets. Unencumbered cash and liquid assets held by MBIA Inc. Totaled $355,000,000, which was down from $380,000,000 as of 12/31/2024, primarily due to interest payments on the corporate segment's debt.

Speaker 3

In addition to the unencumbered cash and liquid assets, the corporate segment's assets included approximately $214,000,000 of assets at market value pledged to guaranteed investment agreement contract holders, which fully collateralized those contracts. Now I'll turn to the insurance company statutory results. National reported statutory net income of $6,000,000 for the 2025 compared with the statutory net loss of $131,000,000 for the 2024. The positive variance primarily reflects lower losses in LAE related to National's PREPA exposure. National statutory capital as of 06/30/2025 was $914,000,000, up $2,000,000 compared with 12/31/2024.

Speaker 3

The increase in statutory capital was driven by year to date net income of $11,000,000 which was mostly offset by an increase in unrealized losses on investments. Claims paying resources were $1,500,000,000 and continue to be consistent with 12/31/2024. Now I'll turn to MBIA Insurance Corp. MBIA Insurance Corp reported statutory net income of $4,000,000 for the 2025 compared with a statutory net loss of $35,000,000 for the 2024. The favorable variance was primarily due to lower losses in LAE.

Speaker 3

A small losses in LAE benefit in the current quarter was primarily driven by favorable adjustments to recoveries of paid claims associated with the Zohar CDOs, while $34,000,000 of losses in LAE in the 2024 was primarily driven by unfavorable adjustments to our Zohar related recoveries. As of 06/30/2025, the statutory capital of MBIA Insurance Corp was $92,000,000 which was $4,000,000 higher than year end 2024. Claims paying resources totaled $346,000,000 at 06/30/2025 compared with $356,000,000 at 12/31/2024. MBIA Insurance Corp's insured gross par outstanding was $2,200,000,000 as of 06/30/2025, down from $2,300,000,000 at year end 2024. And now we will turn the call over to the operator to begin the question and answer session.

Operator

Thank We'll take our first question from Tommy Joint with KBW. Please go ahead.

Speaker 4

Good morning, guys. Thanks for for taking our questions. The the 10 q a a about National transferring, certain PREPA bankruptcy claims to a custodian. So a few questions around that. You know, first, can we interpret this action, as a signal that you guys are are marketing, selling those claims to to potential buyers?

Speaker 4

And secondly, is there a, you know, potential liquid buyer pool, for those claims? And then, secondly, it looks like you only transferred certain claims of the Preppa side. I guess, what made you decide between which ones to transfer and which ones not to transfer? Thanks.

Speaker 2

Yes. Tommy, what took place is $374,000,000 of claims were transferred to custodian. In return, they transferred to us what we refer to as custodial receipts. We are we feel very good about the litigation with regard to PREPA. As you know, it's been ongoing, and is the focus and a priority for us.

Speaker 2

What happens as we have different bonds where we pay the full debt service, those then become claims versus unpaid bonds. So it's not a question that we pick and choose. Right? Those have been completely paid off bonds. And, essentially, by doing this, they are more marketable and that they become effectively securities versus, you know, claims.

Speaker 2

So that's what you saw reported. That's in our 10 q. With regard to how many buyers there are for this, we believe there are some, as you know, in the past, we sold actually about a third of our PREPA claims going back a few years ago. So there are other interested parties. Whether or not we sell them remains to be seen, but we thought that by doing this, it does make them more marketable.

Speaker 2

There are certain investment funds that are more likely to be able to hold them because they are now securities. They have their own QSIP number, and things like that.

Speaker 4

Okay. Got it. Thanks for for clarifying that. And then secondly, looking to some of the recent headlines, the the oversight board in Puerto Rico saw five of its, seven members, you know, get terminated by by the president. As we think about just, like, logistically, you know, how this impacts the, the restructuring and the negotiations between bondholders and the oversight board and and other stakeholders, how do you guys view that that headline?

Speaker 4

Is it a positive? Does it delay the process? Just what what are your

Speaker 2

There are lots of questions that all the interested parties have given the news that you just referenced that is the dismissal of five of the board members. Hard to tell exactly what happens. I think in the coming days, we'll know a whole lot more starting with how long does it take to replace those board members, who are the new board members, what approach do they take. Given the challenges that we've had with PREPA and desire, we believe, of all the creditors to reach a, consensual deal, we would hope that this will turn out to be a positive. Again, until those questions that I just mentioned are answered and the approach that the newly reconstituted board takes, it would really be just speculation on our part in terms of of what happens.

Speaker 2

But as you know, when you go back through the history of PROMESA, you know, which is now, jeez, you know, we're we're nine years into it. There were four large credits that we had that were put into title three. Three of those have been resolved in a consensual way. It looked as though there was low probability right now that we would reach a consensual deal in during the deal in the near term. But perhaps this, you know, news will lead to an increased probability for a settlement, even along a faster timeline, but we just don't know at this point.

Speaker 4

Okay. Got it. And then just last one, looking also at the the disclosures in the in the queue, there's a note that the oversight board informed the court that it was intending to modify National's settlement in the forthcoming amended plan. Could you give me some some background or some details on on what that's referring to?

Speaker 2

Tommy, which which disclosure are referring to?

Speaker 4

In the queue, the the business developments around PREPA. It reads that following the appeal decision, the oversight board informed the court, national, and other parties that intended to modify national settlement in a forthcoming amended plan.

Speaker 2

Yeah. I think you're referring to the one that that's it's in the current queue, but it's a dated it took place a while back. So I I don't think there's any new information that we're sharing on that one. That that's with regard to the agreement that we had, which they wanted to modify, which has then resulted in us. We think they breached the agreement.

Speaker 2

We right. The the agreement effectively became terminated.

Speaker 4

Okay. Thanks.

Operator

Thank you. And we'll go next to the line of Carlos Fardo, Private Investor. Please go ahead.

Speaker 5

Hi. This is Carlos calling from London. Hi. Thank you very much again for your time back in February. Thank you again for the thank you also for the move to to sell the claims or to pass the claims to the to the custodian.

Speaker 5

I think that I agree that it is it it increases the marketability. So, I mean, thank you thank you for that. I think it is in line with what what I suggested in in February, and I really appreciate the move. In terms of the repurchase capacity, we still have the €71,000,000 repurchase of the capacity. And my suggestion, and this is only a suggestion, is that if the share prices would at any point, hopefully not, fall again to lower levels to the ones that we have now, that you would consider, and I tell you, only consider using this repurchase capacity as this at the moment, we could buy we could repurchase approximately 20% of the shares outstanding.

Speaker 5

So if we were back to lower levels, you know, please just just consider consider the possibility of using it.

Speaker 2

I know that you can

Speaker 5

use the example. Mhmm.

Speaker 2

Yeah. No. Thank you. We agree with you. We look at potential repurchase of the stock, constantly.

Speaker 2

And, you are correct. We have authorization remaining, and it is something that we are always looking at and and trading that off with liquidity issues at the holding company and capacity at National through repurchase based on statutory requirements. So we agree with It's something that we will continue to look at.

Speaker 5

Perfect. Thank you very much. If at any point, I feel that, you know, that that we have reached hopefully not, you know, a a a lower a level that is lower enough enough to justify the repurchase, I will, of course, drop you a line. But at the moment, I don't think that it is necessary, but just the idea of the repurchase has been a possibility helps us as shareholders a lot. Then the next question would be on the cooperation agreement with Azure and GoldenTree.

Speaker 5

Is it still the case that it will expire in December at the end of the year, but that GoldenTree and Azure Guarantee can spend it until the March?

Speaker 2

Yeah. I'm sorry.

Speaker 5

Perfect.

Speaker 2

Go ahead. Joe's gonna Joe's gonna take Carlos, I'm sorry. Could you repeat the question? It's just about the cooperation.

Speaker 5

The the cooperation agreement with the or the AdBulk Group with Azure, Guarantee, and GoldenTree. At the moment, our agreement will expire at the end of the year, but the GoldenTree and Azure can extend it until the March. Is is that still the case? Is my is my understanding correct? Yes.

Speaker 5

So if you go The termination

Speaker 2

agreement, Carlos. Yeah. We we look at that. The group looks at that. Mhmm.

Speaker 2

Given the news that the previous caller asked about with the reconstitution of the board, we will be gathering new information, we hope, very shortly. We hope that leads to, you know, real discussions and potentially a deal, but we'll continue to review that situation and how it relates to the co op agreement. But we feel that the co op agreement has been beneficial up until this point, but we'll continue to look at it.

Speaker 5

Perfect. My suggestion and, again, it is only a suggestion is that, you don't extend the the call until we have the the November call. So that would be and, again, you know, it's just a suggestion, a polite suggestion. So just, you know, because you're you you guys are in charge, but that that would be my suggestion.

Speaker 2

Okay. Thank you.

Speaker 5

Thank you. And then another the the final question is regarding the prep exposure. At the moment, outstanding exposure would be the total exposure would be in the as per the results would be $657,000,000. But I assume that we have made a significant payment back in on on the July 1. Is it possible to give an updated figure?

Speaker 3

Yeah. Carlos, we do report that in our operating supplement. As of June 30, the outstanding part was 504,000,000. And we didn't make and we didn't make a, $91,000,000 or $97,000,000 payment in on July 1.

Speaker 5

Okay. Perfect. That's that's fantastic. Thank you. So that's that's all.

Speaker 5

And thank you very much again for the for the move with the custodian. Really, really appreciate it.

Speaker 2

Thank you. Thank you.

Operator

Thank you. And we'll go next to the line of John Staley with Staley Capital Advisors. Please go ahead.

Speaker 6

Yes, sir. Thank you. Bill, when the comp administration removed five of the seven members of the Oversight Committee, I think of course, I think they're all political appointees. But did it include the chairman?

Speaker 2

Yes. The current chair of the Oversight Board was Arthur Gonzalez. He was one of the five people who was dismissed by the president.

Speaker 6

And he has has am I correct that he has historically he's a professor that has been, shall I say, challenging to deal with with his leadership?

Speaker 2

No. No. That you're referring to David Skill. He stepped down a while back. Arthur Gonzales is a retired bankruptcy judge.

Speaker 6

Oh, okay. Alright. So who were the two that were left, and why were they left?

Speaker 2

John, there there were no reasons given for that. We just know that the five were dismissed. The two of the who are left are Andrew Biggs and and John Nixon.

Speaker 6

And do you find that a positive or a negative? That there's there's there's two that stay.

Speaker 2

Listen. It it's hard for us to assess. We don't deal with, sort of each of the seven board members. We deal typically through their advisers. There's some contact occasionally with board members, but as you can imagine, given all the parties involved, that most of this is done, through lawyers, etcetera, and advisers.

Speaker 2

So, hard to know at the individual board member level exactly how they view different aspects of the restructuring.

Speaker 6

But in order to get this restructuring completed, I gather that while they're they removed five of the seven, the oversight board's authority remains in place so that they'll have to put on an additional fiber force or whatever whatever the bylaws require for this this oversight board to continue to function and continue to exercise its so called oversight power to approve any deal that's done. We didn't get the the board's still there.

Speaker 2

You're you're you're correct, John. There are certain things that can continue, but there'll be certain things. For example, actually approving and confirming a plan, the board would need to have a quorum. Two people does not or two directors does not constitute a quorum. Under Promise, they need to have four.

Speaker 2

They need a certain number of positive votes. So they will need to add board members, which our understanding is that that is the intention. Just a question of of when that happens and who the people are. Okay.

Speaker 6

Alright. And are there any valuation guidelines on for instance, when you when you transfer the fully paid bonds. Has there been any transactions in those bonds that suggest what market levels are out there?

Speaker 2

Yeah. It's not a very, deeper liquid market. There are some trades that have been done. Again, it's very small, so nothing along the size along the lines of the size that we transferred into the custodian because I mentioned that's 374,000,000. The small trades that had been done, have been done at about 55¢ on the dollar.

Speaker 1

For the uninsured?

Speaker 2

Yes. Those are for uninsured bonds, as Greg reminds me of. But that's that's roughly but, again, those are small small transactions.

Speaker 6

Okay. Alright. Thank you very much.

Operator

Thank you. And we'll take our next question from Patrick Steadlehofer with Kahn Brothers. Please go ahead.

Speaker 7

Morning. That you've Good turned your morning. Now that you've turned your claims into easy to sell securities, would monetizing half your exposure like you did four or five years ago move along a sale process by lowering that uncertainty you talk about, and kind of narrow that a bid ask spread? Or would it at least help with a special dividend in the alternative?

Speaker 2

It clearly will reduce the uncertainty with regard to PREPA, which is, you know, is one of the things that we've cited, needs to happen for us to pursue a sale of the company. So, you know, if we were to sell 374,000,000 of our total exposure, which is a little bit in excess of 800,000,000, that clearly would be a big step in that direction. With regard to the second, little bit premature to start speculating what happens with regards to special dividends just given the remaining Puerto Rico exposure. But, again, all those things are possibilities, and the probability goes up as we take those types of actions that you're suggesting.

Speaker 7

Just a question is why did you, take the step to transfer to the custodian now as opposed to some of these other tranches had already matured a few years ago? So just, I guess, a question around the timing. Thank you.

Speaker 2

Yeah. I think nothing special about the timing. We've been looking at this. It takes a while to put the the program in place. We thought we'd gotten to a quantum of bond claims where it was meaningful and that by increasing the marketability of those, it might help facilitate sales if we found attractive prices to transact at.

Speaker 2

But as we've said, we've also sold them without putting them into a custodian, and creating custodial receipts where we have sold claims. But, again, we we thought it was a good thing to do. Nothing in particular about this time. There was no specific catalyst, to doing it right now.

Speaker 5

Great. Thank you.

Operator

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

Speaker 8

Good morning, Bill. Thanks for taking my question.

Speaker 2

Good morning.

Speaker 8

On those on the the the transferred claims that we're talking about to the custodian, you mentioned 374,000,000. Is that all of the claims? Or my understanding was you had about 300,000,000 previously, and now you just paid 92,000,000. So, you know, rough numbers, $39,400. Did you leave any behind?

Speaker 8

And if so, was there a reason for that?

Speaker 2

No. We didn't leave any behind. As I mentioned, you can't, transfer until you've paid off the full bond. Right? So when you you go back, we talk about our prep exposure, but it's made up of lots of different bonds that we insured.

Speaker 2

So even though you saw 91,000,000 getting paid, you know, it's possible that none of those were the last payment on a particular bond. So it's just a question of when you've made the last debt service payment and the bonds completely paid off that we can then transfer it and create a a new QSIP for it.

Speaker 8

Perfect. That makes perfect sense. And then last one, this is also pretty tiny, but it did look like National's salvage went went down a little bit. Loss reserves went up, you know, slightly. I'm assuming that's changing the recovery assumptions on PREPA.

Speaker 8

And and if so, I mean, I guess, is that right? And and if so, was there a reason that you thought sort of PREPA recoveries might be a little bit lower than as of last quarter?

Speaker 3

Yeah. So the the change you're seeing is a result of modifications to assumptions within our, purpose scenarios. Each quarter, we look at those assumptions, and we make, we may make modifications. This quarter, we did make a small modification, and which generated a a small, loss, which you're seeing reflected in the results.

Speaker 8

Okay. Can you, you know, obviously, it sounds like you don't really wanna provide any more color on that. Was was there something that happened that that that made you change that? And and I kind of while we're on that, is is that something, like, where, you know, the market obviously views the the the board decision by Trump as positive. You know, is that something you factor into your recovery assumptions that, you know, now may maybe market prices of prep of claims are moving higher or something?

Speaker 8

Would you factor that into the recovery assumptions for the the quarterly balance sheet?

Speaker 2

Yeah. So, Paul, with regard to sort of your earlier comment, in terms of the current reserve that was reflected in the second quarter results, just following up on Joe's comments, it it really had to do more with timing as opposed to the dollar or percentage recovery. And as you know, right, as we follow the the litigation, the the process every quarter, we look at it and we try to estimate how much longer it's going to take, and and no one has a precise answer. But I think the decline in salvage that you saw had to do with it taking longer than perhaps we expected three months earlier. Nothing more than that.

Speaker 2

There was no new information with regard to, what the oversight board was gonna offer, what the bondholders might accept, where there might be an agreement reached. With regard to your follow-up question regarding the events this week and what will be a newly constituted board in the the near future, we will take that into account when we do reserves for third quarter based on what we learned. So when the board is in place, does the board and its advisers have a new approach with regard to, you know, perhaps increasing the likelihood that a, consensual deal is reached versus litigating this and, you know, people put forth estimates how long it could take to litigate. So in that sense, absolutely, it will get factored in to the reserves if we think that has changed any assumptions in the scenarios that we use.

Speaker 8

That's great. And, sorry, one more for me, Bill, just while I have you, because you're you're being so open with us on these, and it's very helpful for me. But the the articles on that the board news are, you know, as I said, very positive. There's a view that Trump is is bondholder friendly. Could you being a little closer to the situation than me, do you agree with that?

Speaker 8

And, you know, do you have any sort of context, or have you heard him discuss Puerto Rico specifically or anything like that in terms of how his views might be different than the current oversight board, or or have you sort of heard any expectations on on, I guess, Trump's view of how he would would resolve the difference between the island and the oversight board and the bondholders?

Speaker 2

So with regard to the last part of your question, none of us here have heard anything from the president with regard to Puerto Rico. Right? Whether it be any public statements, which we're unaware of any or anything that we've heard through, you know, advisers or any of his cabinet or anything like that. With regard to sort of the early part of the question and what does this mean and how will be approached, the news seems to have been a positive as you mentioned. We obviously see all the same things.

Speaker 2

Given that we've been at this for quite a long time, it would be great if in fact, sort of the market reaction is correct, and this moves along faster than perhaps people anticipated even, you know, a week ago. Whether it's gonna be more friendly to bondholders, all those things, hopefully, we'll learn more in the very near future. So, you know, we like to be optimistic. But, again, what we know in terms of facts are that five board members have been dismissed, and that's all we know at this point.

Speaker 8

Sounds good. Thank you, Bill.

Speaker 2

Thank you.

Operator

At this time, I am showing no further questions. So I'd like to turn the floor back over to Greg Diamond. Please go ahead.

Speaker 1

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

Operator

We'd like to thank everybody for your participation. Please feel free to disconnect your line at any time.

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