MBIA Q2 Earnings Call Highlights

Key Points

• MBIA’s second-quarter loss narrowed: GAAP net loss improved to $46 million, or $0.91 per share, from $56 million a year earlier, while adjusted net loss decreased to $7 million.
• PREPA remains the central issue: National’s outstanding PREPA exposure fell by $35 million to $390 million, but bondholders representing about 90% of claims rejected Puerto Rico’s roughly $3 billion settlement proposal. Litigation and negotiations remain unresolved.
• Capital and strategic flexibility improved, though challenges remain: National’s leverage declined to 21-to-1 and statutory capital rose to about $968 million. MBIA also had $337 million in unencumbered cash and liquid assets, $71 million remaining under its buyback authorization, and continues to evaluate potential strategic transactions.

MBIA NYSE: MBI reported a narrower second-quarter net loss as lower expenses tied to its Puerto Rico Electric Power Authority, or PREPA, exposure and favorable foreign-exchange movements helped results. Management said its principal priority remains resolving National Public Finance Guarantee Corp.’s remaining PREPA exposure, while litigation and negotiations surrounding the utility’s restructuring continue.

The company posted a consolidated GAAP net loss of $46 million, or $0.91 per share, for the second quarter of 2026, compared with a $56 million loss, or $1.12 per share, a year earlier. Adjusted net loss, a non-GAAP measure, improved to $7 million, or $0.14 per share, from $8 million, or $0.17 per share, in the prior-year period.

Chief Financial Officer Joe Schachinger said the smaller GAAP loss reflected a reversal of legal expenses within a consolidated variable-interest entity related to Zohar CDO recoveries at MBIA Insurance Corp., as well as foreign-exchange gains. The currency gains were associated with the revaluation of euro-denominated medium-term-note liabilities in the corporate segment, compared with foreign-exchange losses in the second quarter of 2025.

PREPA Exposure Declines, but Settlement Remains Unresolved

National’s outstanding PREPA exposure declined by $35 million during the quarter to $390 million of gross par value, following insurance-policy claims paid on PREPA bonds that matured July 1, CEO Bill Fallon said.

The payment included $30 million that has been transferred to a custody account, for which National holds custodial receipts, and $5 million associated with a secondary policy. Fallon said the company could sell up to $35 million of those receipts if it receives what it considers an appropriate price or offer.

Fallon also said PREPA debt-service payments are expected to decline substantially, with $20 million of payments in 2027 and another $20 million in 2028.

Meanwhile, the Financial Oversight and Management Board for Puerto Rico increased its settlement proposal to PREPA bondholders to about $3 billion from $1.6 billion. Fallon characterized the increase as positive from the board’s perspective but said bondholders representing roughly 90% of claims rejected the proposal as inadequate.

In response to an analyst question, Fallon said the proposal appeared to equate to roughly 30 cents to 40 cents on the dollar of par value, depending on valuation assumptions. He noted that recent market indications for PREPA bonds were about 75 cents on the dollar, though he cautioned that the market was not especially deep or liquid.

“Hard to say where we go from here in terms of how much time,” Fallon said, citing ongoing uncertainty over the composition of the oversight board and several continuing legal proceedings.

The director of the White House Personnel Office has asked the First Circuit Court of Appeals to remand litigation concerning injunctive relief awarded to three oversight board members who were fired by President Trump. Separately, Judge Laura Taylor Swain lifted a self-imposed stay in litigation involving PREPA bondholders’ counterclaim concerning the calculation of net revenues; that case is now in discovery. An administrative-claim appeal is fully briefed and scheduled for oral argument in Boston on Sept. 15.

National Capital and Portfolio Metrics

National’s insured portfolio continued to perform generally in line with management’s expectations, Fallon said. Gross par outstanding declined by approximately $1.5 billion from year-end 2025 to about $20.8 billion as of June 30.

• National’s gross-par-to-statutory-capital leverage ratio improved to 21-to-1 from 24-to-1 at year-end 2025.
• Claims-paying resources were $1.4 billion as of June 30, unchanged from year-end.
• Statutory capital and surplus totaled about $970 million.
• Second-quarter statutory net income was $10 million, compared with $6 million a year earlier.

Schachinger said National’s favorable statutory earnings comparison was driven by higher earned premiums resulting from refundings of insured credits, along with lower loss and loss-adjustment expenses and operating expenses. National’s statutory capital rose $31 million from year-end to $968 million, primarily reflecting first-half statutory earnings and unrealized investment gains.

When asked whether capital above a roughly 2% capital ratio could potentially be distributed to the holding company as National’s insured portfolio runs off, Fallon said a more detailed, credit-by-credit evaluation would be required. While investors may use broad financial metrics, he said the declining portfolio requires a “very tailored analysis” of potential dividends or distributions.

Holding Company Liquidity and MBIA Insurance Corp.

MBIA’s corporate segment, which primarily includes the holding company, held approximately $635 million in total assets as of June 30. Unencumbered cash and liquid assets totaled $337 million, down from $357 million at Dec. 31, primarily because of debt-service payments and operating expenses, net of investment income.

Schachinger said management remains focused on meeting obligations and preserving financial flexibility. Corporate assets also included about $183 million of market-value assets pledged to guaranteed investment agreement contract holders, fully collateralizing the principal amounts of those contracts, and $66 million of assets at MBIA Services to support operating obligations.

MBIA Insurance Corp. reported statutory net income of $27 million in the second quarter, up from $4 million a year earlier. The improvement was primarily attributed to a larger loss and loss-adjustment-expense benefit tied to the company’s ongoing reassessment of recoveries of paid claims and other amounts owed in connection with Zohar CDOs.

MBIA Insurance Corp.’s statutory capital rose $27 million from year-end to $106 million, while claims-paying resources increased $25 million to $342 million. Its insured gross par outstanding was just under $1.8 billion, down about 12% from year-end because of regular portfolio amortization.

MBIA’s book value per share was negative $45.58 as of June 30, a decrease of $1.31 from year-end 2025. Schachinger said the decline primarily reflected the company’s consolidated net loss of $86 million for the first six months of 2026. MBIA Insurance Corp.’s book value represented negative $54.26 per share of that total.

Buyback Authorization and Potential Strategic Transactions

During the question-and-answer session, Fallon confirmed that MBIA had $71 million remaining under its share-repurchase authorization. He did not discuss whether or when the company would deploy the authorization.

Fallon also said the company continues to consider potential strategic transactions, though it has made no specific decision regarding a sale process. He said the likelihood of a transaction increases as MBIA reduces its PREPA exposure, but potential acquirers may value the unresolved situation differently.

If MBIA decided to initiate a formal sale process similar to one it announced several years ago, Fallon said the company would likely disclose it. He added that the company also could be approached by interested parties or contact potential acquirers directly if management determined doing so would benefit shareholders.

About MBIA (NYSE:MBI)

MBIA Inc is a financial guarantee insurance company specializing in credit enhancement and risk mitigation solutions for public finance and structured finance transactions. The company provides guaranty insurance for municipal bonds, asset-backed securities and other credit-sensitive obligations, protecting investors against the risk of payment default. Through its core insurance subsidiary, MBIA Insurance Corp., the firm offers financial guarantees, reinsurance support and customized credit solutions designed to improve the marketability and pricing of debt instruments.

Founded in 1973 as the Municipal Bond Insurance Association, MBIA built its reputation by insuring U.S.

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