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spk05: Welcome to the NBIA Inc. Second Quarter 2022 Financial Results Conference Call. I would like to turn the call over to Greg Diamond, Managing Director of Investor and Media Relations at NBIA. Please go ahead, sir.
spk04: Thank you, Brendan. Welcome to NBIA's Conference Call for our Second Quarter 2022 Financial Results. After the market closed yesterday, we issued several items on our websites, including our financial results, 10Q, Quarterly Operating Supplement, and Stat Story Financial Statements, 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-K, 10-Q, and other SEC drawings, as our company's definitive disclosures are incorporated in those documents. We urge investors to read our 10-K and 10-Qs as they contain our most current disclosures of 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-K 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 in approximately two hours to the end of the call, and the information for accessing it is included in last week's precedent and in the financial results report posted yesterday on the NBIA website. Now here is our 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-Qs, which are available on our website at MVIA.com. The company cautions not to place due 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.
spk03: Thanks, Greg. Good morning, everyone. Thanks for being with us today. Since our last conference call, the bond restructuring arrangements for the Puerto Rico Highways and Transportation Authority, or HTA, have advanced largely as planned. In July, National received about half of its overall expected recovery on its HTA exposure, while the other half will be paid upon the effective date of HTA's plan of adjustment. The confirmation hearing for that plan is scheduled for August 17th, and subject to its approval, the effective date could be soon after that. National's last significant remaining Puerto Rico exposure is PREPA. Last week, at the mediator's request, the Title III Court approved extending the mediation deadline to August 15th for the party to agree to develop a confirmable plan of adjustment for PREPA, which is being managed by the Puerto Rico Oversight Board. National's exposure to PREPA after its July claims payment is approximately $710 million of gross power. This year's developments regarding the resolution of National's Puerto Rico exposure have reduced the uncertainty of potential outcomes and also improved the transparency regarding National's financial condition. Such progress better affords us the opportunity to pursue our strategic objectives which may include a potential sale of the company and or special distributions from National. Given this progress, we do not believe that it is necessary to fully resolve National's remaining prep exposure to pursue these strategic alternatives. Turning to National's other insured credits, the insured portfolio has continued to perform consistent with our expectations. National's insured portfolio has continued the runoff as its outstanding gross par declined by $1.9 billion from year-end 2021 to $34.6 billion at June 30, 2022. Also, National's leverage ratio of gross par to statutory capital declined to 17 to 1 at the end of the second quarter, down from 18 to 1 at year-end 2022. As of June 30, 2022, nationalized total claims paying resources of $3 billion, with cash and investments totaling $2.3 billion, and salvage on paid claims of $496 million, as per statutory financial reporting. Now, Anthony will provide additional comments about our financial results.
spk01: Thanks, Bill, and good morning. I will begin with a review of our second quarter 2022 GAAP and non-GAAP results. The company reported a consolidated gap net loss of $36 million, or a negative $0.72 per share, for the second quarter of 2022, compared to a consolidated gap net loss of $61 million, or a negative $1.23 per share, for the second quarter ended June 30, 2021. The lower net loss this quarter was driven by mark-to-market gains on our interest rate swaps associated with the legacy ALM business, higher interest, gains on our consolidated VIEs at MBIA Insurance Corp. due to the purchase of MBIA Corp. insured debt, and higher investment income. These items were somewhat offset by investment-related losses at National due to mark-to-mark losses resulting from higher interest rates, realized losses due to the sale of new Puerto Rico GO bonds, and an impairment on its remaining Puerto Rico G.O. bonds to reflect the anticipated sale of those bonds at current market prices. As of June 30th, National sold approximately 50% of its G.O. bonds. Subject to quarter end, National sold its remaining G.O. bonds, in addition to selling approximately 45% of its Puerto Rico G.O.-related contingent value instruments, or CVIs. Loss in LAE expense at National was almost entirely due to downward estimated price adjustments on its Puerto Rico HTA-added CVIs, which were received after the end of the second quarter. National sold approximately 5% of the HTA CVI in July at prices consistent with its June 30th estimates. National intends on repaying all $550 million of its gross insured PAR of HTA exposure in August, upon confirmation. Assuming HTA's final resolution occurs in the third quarter, HTA and CB values will be collected through National's investment portfolio performance going forward under GAAP accounting, and will be the sole remaining material Puerto Rico credit to gap insurance loss reserving and recoveries. The company's adjusted net loss, a non-gap measure, was $47 million, or a negative 93 cents per diluted share, for the second quarter of 2022, compared with adjusted net income of $37 million, or 76 cents per diluted share, for the second quarter of 2021. The unfavorable change was due primarily to the higher loss in LAE at national due to changes in the estimated value of Puerto Rico TA CVIs in the second quarter of 2022. MBIA Inc.' 's value per share decreased to a negative $13.63 per share as of June 30th, 2022 versus a negative $5.73 per share as of December 31st, 2021. primarily due to unrealized losses on invested recorded comprehensive income driven by higher interest rates and wider credit spreads, as well as the $100 million year-to-date net loss. MBIA Corp's book value was negative $36.48 per share, with over $1.2 million of accrued but unpaid interest on its surplus notes. I will now give you 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 $665 million as of June 30, 2022. Within this total are the following material items. Unencumbered cash and liquid assets held by MBIA Inc., totaled approximately $188 million as of June 30, 2022, compared with $239 million as of December 31, 2021. During the quarter, we purchased $30 million face value of GFL MTNs due in 2024 and 2025 at attractive discounts. The holding company also paid approximately $50 million of scheduled principal payments on Euro-denominated MTNs during the quarter. There are no additional principal payments due for the rest of the year. The corporate segment that's also approximately $390 million of assets at market value pledged to the GIC and the interest rate swaps supporting the legacy GIC operation. Turning to the insurance company's statutory results, National reported a statutory net loss of $44 million for the quarter ended June 30th, 2022 versus statutory net income of $23 million for the quarter ended June 30th, 2001. The unfavorable comparison was primarily due to loss in LAE in Q2 2020 on the values of Puerto Rico and HTA recoveries versus a loss in LAE in Q2 2021. National's gross claim payments to insured Puerto Rico credits are as follows. From inception to 6-30-2022, gross claims paid on insured Puerto Rico exposure totaled approximately $2.2 billion. In July, National made claims payments, primarily for PREPA, of $142 million. TURNING TO MBIA INSURANCE CORP, ITS STATUTORY NET LOSS WAS $6.3 MILLION FOR THE SECOND QUARTER OF 2022 COMPARED TO A STATUTORY NET LOSS OF $37.5 MILLION FOR THE SECOND QUARTER OF 2021. THE FAVORABLE COMPARISON WAS PRIMARILY DUE TO LOWER LOSS AND LAE EXPENSE. As of June 30th, 2002, the statutory cap on MBIA Corp was $118 million, and claims-paying resources totaled $711 million. Decreases from year-end 2021 due primarily to the year-to-date net loss of $1 million. MBIA Corp's insured gross par outstanding reduced by approximately $300 million during the quarter, and was $4.2 billion as of June 30th, 2022, and 55% of that exposure is non-U.S. public finance credits. With the Zohar CLO's exit from Chapter 11 bankruptcy on August 2nd, MBIA Corp. will retain interest in asset trust, the goal of monetizing its remaining interest in several legacy portfolio companies over time, and in a litigation trust, which will pursue legal remedies in part to recover its credit losses. And now we will turn the call over to the operator to begin the question and answer session.
spk05: If you have a question at this time, please press the star 1 on your telephone keypad. If you wish to remove yourself from the queue, please press the bound key. We ask that when poising your question, you pick up your handset to allow optimal sound quality. And we will pause for just a moment to allow questions to queue. And once again, that is star and one, if you would like to ask a question. And we will take our first question from John Stanley with Stanley Capital. Your line is open.
spk00: Bill, this is John Staley. The comments you just made are almost identical to the comments you made after the last conference call that NBIA's remaining obligations settlements with Puerto Rico were in such a position that you could begin negotiations and take steps to resolving the final liquidation of the company. I am very puzzled by the lack of any more specific information. Back when MBIA was a huge short, somebody referred to it as a melting iceberg. I mean, you're done. You're not writing any new business. Your litigation is pretty well-defined. I'm just puzzled why this isn't getting resolved more aggressively. And if it isn't, why you're not buying stock, which even though it's at 12 and change, I don't know where it'll be today. And you bought it pretty much up to nine and a half or so in the past. On a risk adjusted basis, if the book values are anywhere near accurate, it's a better value to buy today than it was before. So I think, The only people left in this business of owning your stock is 17% plus in management and people like myself that have been in this thing forever and are looking for the final strategy, the final liquidation of this company since it writes no new business. I'm very frustrated with the lack of more clarity and actual specific action on what the devil is going to happen here to realize the embedded value, which seems to be, I mean, it's like a huge bond fund right now. So rates went up, so it came down a bit. What was in the 30s of book value appears to be now like 25, 26, if you take out the NBIA insurance. I'm just a little bit frustrated with the lack of clarity of what the hell are you going to do.
spk03: Just a couple of things in response because you covered a lot of territory there. First of all, just one thing with regard to share repurchases, and as you know, we have been strong proponents of repurchasing shares and did a substantial amount of share repurchases. The complication we have now is that national, which is where we purchase the shares, has no more capacity to repurchase MBI shares. So that's the complication there, and that's why we've not repurchased shares. As you described it, irrespective of everything with regard to the different metrics that people look at, it's just that we don't have national. With regard to the broader, we are in agreement with your sentiment. We have been moving along. We think, as you know, Puerto Rico has been a big issue that is substantially resolved. We started with four large exposures. We're completely resolved, and even the salary we received or the consideration in the restructuring exchange has been sold. It's always a little bit hard to predict the timing in Puerto Rico, but as we did our prepared remarks, HTA, the hearing in a couple of weeks, and HTA over pretty much this year has gone according to schedule, so we feel pretty good in terms of that one sticking pretty close to the schedule. which would mean that 34 large credits have been resolved. With PREPA, we actually, over the last year or so, have sold about 35% of the exposure. So, we're now going to a relatively small amount. As we've indicated, we don't need to resolve PREPA, and we have been doing the work to pursue these strategic alternatives. Now, as you can appreciate, there are certain things that we cannot say when we get into issues such as discussions with DFS, potential sale of the company, and companies might be interested in that. So I recognize perhaps you and others would like to know more. It will be probably when we have something important to announce or when we feel it's important in the process to things public that we will do so. So hopefully that addresses some of your concerns.
spk00: I just hope we get it done. I'm sure you do too. I mean, there's a lot of overhead being spent here that could be translated into shareholder value if we can just get this wrapped up. We agree with you. Thank you.
spk05: And once again, that is start and end if you would like to ask a question. We'll take our next question from Paul Saunders with Hutch Capital. Your line is open.
spk02: Hey, guys. Thanks for taking my call. Just a quick one for me on MBIA Corp. I just had a quick question on your salvage reserves. I see those were up by about $78 million and not much of a change there in the gross reserves. So it looks like You just increased the value of your existing salvage. Can you just add a little more color on that? I think that's just ZOHAR left. So is that just an increase in the expected value of the ZOHAR recoveries?
spk01: All right, Paul. You're talking about on the statutory salvage?
spk02: Correct, yep.
spk01: So on statutory salvage, the – Existing salvage on Zohar and our RMBS has changed substantially. What has been added to salvage is we have been selectively repurchasing MBIA Corp. insured debt for remediation purposes. We're looking to de-risk the portfolio at MBIA Corp. So we received admitted practice from the New York Department of Financial Services, allowing us to buy back more debt insured paper for the purposes of remediation, be it commutation or what have you. So it's another tool we're using in order to de-risk MBIA Corp. The purposes of those securities are classified as salvage. That's the reason for the increase.
spk02: Got it. Okay. Thanks. That makes sense. Thanks, guys.
spk05: And once again, that is star and 1 if you would like to ask a question. We'll pause for just an additional moment to allow further questions to queue. At this time, I am showing no further questions. I'd like to turn the floor back over to management for any additional or closing remarks.
spk04: Thanks, Brittany, and thanks to those of you listening to the call today. Contact us if you have any 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.
spk05: Thank you, ladies and gentlemen. This does conclude today's second quarter 2022 financial results conference call. You may now disconnect.
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