MBIA Inc.

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 two 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 slash 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 31st, 2022. In addition, AMAC and FIDGIC recently joined the GEO and HTA agreements. This brings the HTA creditor support level above 67%, which is the threshold for confirmability of the HTA plan under PROMESA. and an important precondition to receiving some of the HTA plan distributions on the GEO plan effective date expected early 2022. 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 in better position 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 Nationals' insured portfolio, most of these credits have continued to perform consistent with our expectations. The outstanding gross par of Nationals' insured portfolio has further reduced, declining $39.5 billion at June 30, 2021, down $2.3 billion from year-end 2020. At June 30, 2021, Nationals' leverage ratio of gross par of statutory capital was 20 to 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 gap and non-gap results. The company reported a consolidated gap net loss of $61 million, or a negative $1.23 per share, for the second quarter of 2021, compared to a consolidated gap net loss of $106 million, or a negative $1.69 per share, for the quarter ended June 30th, 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 gig 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 in 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 in 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 in 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 66 cents per share as of June 30th, 2021, compared to $2.55 per share as of December 31st, 2020, primarily due to the year-to-date net loss of $167 million. The negative gap 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 €53 million of GFL MPNs 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 30th, 2021 versus a statutory net loss of $35 million for the quarter ended June 30th, 2020. The favorable result was due to lower loss in LAE on 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 total $1.8 billion. As of June 30th, 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 30th, 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 in 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.