MBIA Inc.

Press star zero. Welcome to the NBIA Inc. fourth quarter and full year 2023 financial results conference call. I would now like to turn the call over to Greg Diamond, Managing Director of Investor and Media Relations at NBIA. Please go ahead, sir.

Thank you, Brittany. Welcome to NBIA's conference call for our full year and fourth quarter 2023 financial results. After the market closed yesterday, we issued and posted several items on our websites, including our financial results, 10 , quarterly operating supplement, and statutory financial statements for both MBIA Insurance Corporation and National Public Finance Guarantee Corporation. Regarding today's call, please note that anything said on the call is qualified by the information provided in the company's 10 and other SEC filings, as our company's definitive disclosures are incorporated in those documents. We urge investors to read our 10-K as it contains our most current disclosures about the company and its financial and operating results. The 10-K also contains 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 as well as our financial results report and our quarterly operating supplement. The recorded replay of today's call will become available approximately two hours after the end of the call, and the information for accessing it is included in last week's press announcement and in the financial results report posted yesterday on the NBIA website. Now I'll read 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, which is available on our website at NBIA.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 is Bill Fallon.

Thanks, Greg. Good morning, everyone. Thanks for being with us today. In December, we obtained the approval from the New York Department of Financial Services for National to pay an extraordinary dividend of $550 million from its excess capital. that enabled MBI, Inc. to pay an extraordinary dividend of $8 per share to our shareholders that qualified as a return of capital. We also retained about $235 million of national dividends at the holding company to enhance MBI, Inc.' 's liquidity and financial flexibility. At this time, our primary objectives are to resolve our remaining Puerto Rico exposure and then restart the process to sell the company. Regarding PREPA, National's remaining exposure to PREPA was $610 million of gross par insured at year end 2023. Title III Court begins the confirmation hearing for PREPA's plan of adjustment on Monday, March 4th. 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 $3.3 billion from year end 2022 to $28.4 billion at the end of 2023. National's leverage ratio of gross part of statutory capital at the end of the year was 25 to 1. At the end of the fourth quarter, National had total claims paying resources of $1.7 billion and statutory capital and surplus of $1.1 billion. Now, Anthony will provide additional comments about our financial results.

Thanks, Bill, and good morning. I will begin with a review of our fourth quarter and year end 2023 GAAP and non-GAAP results. The company reported a consolidated GAAP net loss of $138 million, or a negative $2.94 per share, for the fourth quarter of 2023. compared to a consolidated GAAP net loss of $52 million, or a negative $1.05 per share for the fourth quarter ended December 31st, 2022. The higher GAAP net loss this quarter was largely driven by loss in LAE expense at MBIA Corp. on its first lien RMBS insured credits related primarily to lower risk-free rates and lower revenues driven by realized losses from sales of investments associated with funding dividends at national and the termination of swaps in the legacy ALM business at the holding company. The company's adjusted net loss and non-GAAP measure was $8 million or a negative 16 cents per diluted share for the fourth quarter of 2023 compared with adjusted net income of $15 million or 30 cents per diluted share for the fourth quarter of 2022. The unfavorable change was due primarily to lower premium revenues and nominal loss in LAE expense at national versus a benefit in the prior comparable quarter. For the 12 months ended December 31st, 2023, the company reported a consolidated gap net loss of $491 million, or a negative $10.18 per share, compared to a consolidated gap net loss of $195 million. or a negative $3.92 per share for the 12 months ended December 31st, 2022. The higher GAAP net loss in 2023 was largely driven by an increase in loss in LAE expense at MBIA Corp compared to loss in LAE benefits in the prior year driven by an increase in risk-free rates during 2022 and at national related to Puerto Rico credits lower revenues driven by VIE activity at MBIA Corp, which was partially equity neutral, net losses on investments, and higher interest expense related to MBIA Corp surplus notes. The company's non-GAAP adjusted net loss was $169 million, or negative $3.49 per diluted share for the fiscal year 2023, compared with an adjusted net loss of $145 million or a negative $2.90 per diluted share for fiscal year 2022. The unfavorable change was due primarily to higher loss in LAE expense at national. MBIA Inc's book value per share decreased to a negative $32.56 per share as of December 31st, 2023, versus a negative $16.07 per share as of December 31st, 2022, primarily due to the net loss for the year and the $8 per share shareholder distribution in the fourth quarter of 2023. Included in book value as of December 31st, 2023 is a negative $44.91 per share book value of MBIA Corp. I will now spend 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 $755 million as of December 31st, 2023. Within this total are the following material items. Unencumbered cash and liquid assets held by MBIA Inc. totaled approximately $411 million compared with $230 million as of December 31st, 2022. The increase was due primarily to approximately $235 million of retained net cash inflows related to the as of right and special dividend proceeds from national in Q4, 2023. The corporate segments assets also included approximately two hundred and forty one million dollars of assets at market value pledged to the all swaps supporting the legacy operation were terminated in two thousand twenty three and two thousand twenty four. Turning to the insurance company's statutory results. National reported a statutory net loss of $9 million for the quarter ended December 31, 2023, versus statutory net income of $40 million for the quarter ended December 31, 2022. The unfavorable comparison was primarily due to higher net realized investment losses, higher loss in LAE, and lower premiums. National reported statutory net loss of $142 million for the year ended December 31, 2023, versus statutory net income of $75 million for the year ended December 31st, 2022. The unfavorable comparison was primarily due to higher loss in LAE, net realized investment losses, and lower premiums. Statutory capital decreased by $807 million from year end 2022 and was $1.1 billion as of 12-31-2023, primarily due to the dividend payments in the fourth quarter and the full year net loss. Claims paying resources were $1.7 billion versus $2.4 billion at 12-31-2022. Turning to MBIA Insurance Corp, its statutory net income was $6 million for the fourth quarter of 2023 compared to statutory net income of $16 million for the fourth quarter of 2022. The unfavorable comparison was primarily due to a lower loss in LAE benefit in Q4-2023 and lower premium earnings. For the year ended 12-31-2023, CORP's statutory net loss was $28 million, compared to statutory net income of $46 million for the year ended 12-31-2022. The unfavorable comparison was primarily due to loss in LAE expense in 2023 on first lien RMBS and salvage write downs. As of December 31st, 2023, the statutory capital of MBIA Insurance Corp was $152 million, down from $169 million at year end 2022, primarily due to its year-to-date net loss. Claims paying resources totaled $504 million versus $669 million at year end 2022. The decrease was due in part to a reduction in gross loss reserves associated with several deal liquidations and the year-to-date net loss. MBIA Corp's insured gross par outstanding was $2.9 billion as of December 31, 2023.

And now we will turn the call over to the operator to begin the question and answer session.

Thank you.

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, press star 2. We ask that when poising your question, you pick up your handset to allow optimal sound quality. And we will take our first question from Tommy McJoy with KBW. Your line is now open.

Hey, good morning. Thanks for taking my questions. I wanted to ask about capital at National. Obviously, well done on getting the approval for the large special dividend out of National. When you think about the amount of capital that's still at National relative to its exposure, how much excess capital do you think is still in that entity? And really just asking, just as we think of a scenario where, you know, in case a sale of the company scenario doesn't come to fruition, you know, soon, over time, the plan, I assume, would be to continue releasing capital from National. So it'd be helpful to think about, you know, how much excess is still there after the December maneuver. Is there a way to like quantify the capital ratio such as surplus to par exposure that you could point to or will we just have to wait for the exposure to continue to run off before more excess is freed up? Again, just any help with quantifying this topic would be helpful.

Yeah, Tommy, I think you've hit on probably the two primary things. I think given the size of the portfolio and the runoff and other than the PREPA exposure, what we think of as a very clean portfolio, The two things to look for going forward is the continued runoff of the portfolio, which obviously we report every quarter, and then the resolution of PREPA. And I think as you see those two things continue to happen going forward, you can then start to make some determination with regard to how much capital could come out. Obviously, at the end of the day, New York State Department of Financial Services is the final arbiter of how much capital comes out of our company.

Okay, got it. And with the liquidity that you now have at the holding company level, this naturally does give you some options for the first time, which is certainly a good thing. Looking at the right side of the holding company balance sheet, can you remind us which of those liabilities are available to repurchase in the open market? Which ones are redeemable right now? And just what is your overall urgency to pay down some of those liabilities at the holding company?

Good morning, Tommy. It's Anthony. I think to your point, we are in a good position where we've got additional flexibility because of the inflows from the dividend. So when we look at the kind of liquidity window that I talk about, we're now looking with the cash on hand and assuming as of right dividends and normal income, Over the next few years, we're looking at kind of the 2030 timeframe at this point, as far as looking out with the current ability of the holding company, we'll look at opportunities to repurchase debt specifically. There's no callable debt left at this point, but opportunistically, we'll look at our and holding company debentures. During the first quarter, we actually did repurchase our 2024 MTNs at a discount. So, we'll continue to look for opportunities that make sense to us economically. But, you know, as far as ability to repurchase, the Inc. debentures and the MTNs, we can repurchase. The GICs, there's not as much flexibility there. for us to actually enforce any kind of terminations on those exposures. So we're really focused on the MTNs and the holding company debt.

Okay. Did a number of the MTNs trade at a discount? Like, is there any ability to kind of accelerate some of those repurchases? You mentioned the first quarter one at a discount. I guess, what would prevent you from getting more aggressive with repurchasing a number of MTNs if they're available at discounts? I'm not sure if they are.

Well, again, we'll, you know, the prices have fluctuated, especially since the dividend and the view of the holding company. So we'll continue to look for, when we look at the investment profile of Inc. versus, you know, repurchasing the debt, we'll look at, you know, what's a better yielding transaction. And, you know, we'll certainly be open to executing on that basis. We're still looking more in the 2028 and in timeframe. We'd have to look, you know, at say the 2030 and beyond timeframe a little bit more carefully, but there's definitely some opportunities.

Got it. Thank you.

Thank you.

We'll take our next question from Ethan Meister, who is a present investor. Your line is now open.

All right, thanks for taking the call. I just wanted to run through the kind of the current state of play of PREPA as we head into the confirmation hearing. So against the $610 million of PAR exposure, under the current agreement, and assuming it's not changed at the confirmation, you'll get about $599 million in cash plus the $20 million expense fee plus $237 million in notional of CVIs. Is that right?

Yes, that sounds right.

Okay. And then, so I was just kind of surprised. It didn't look like the loss adjustment expenses kind of reflected. It seems like there were some pretty positive developments in Q4. Are you just kind of waiting for confirmation and a potential appeal?

Yeah, I think at this point, Ethan, yes. you you in a sense just answered the question there are a lot of things happening there's the appeal which you referenced which happened about a month ago as we said confirmation starts next week that's about a two to two and a half week process we believe uh there are some people have indicated depending on how judge swayne rules the confirmation could then be appealed so i think we'll have a whole lot more information over the next couple of months with regard to prep the timing and the resolution of it.

Okay. And I think, is it fair to say that there's some upside if the plan goes ahead as projected now?

Yeah. So, as you know, the way we do this, there are different scenarios that we have to go through for the reserving process. Obviously, one would be what the agreement says. Then there are other ones that you have to put forth as well. And I think, you know, if everything plays out the way you're suggesting, I think there is the potential for some upside.

Okay. And then my second question is just on the NOLs. So there's a billion-two of NOLs that are fully reserved, right?

There's a billion-two DTA that's been – it's not on the balance sheet at this point, but that's correct. It's 1.2 billion DTA.

Okay. And $474 million of that is at National, right? That's their standalone NOL?

National has a $474 million standalone NOL.

Okay. And is there any opportunity to kind of realize any of that value as you're going through the transaction review process?

The answer is yes. It is something that is looked at. Each prospective buyer will come to their own determination as to how much of that they think they could use going forward.

Okay, great. Thank you.

Thank you. And once again, that is star and one if you would like to ask a question. We'll take our next question from John Stanley with Stanley Capital Advisors. Your line is now open.

Okay. Stanley did not become Stanley. Bill, it's obvious that the markets It doesn't fully appreciate all the complexities within NBIA. I must confess it's the first time I've ever had a company valued at seven and a quarter or seven and a half, wherever it was trading, and it pays an $8 return to capital dividend. Now it's trading at less than cash per share of about, you know, it's a pretty crude value. calculation, you've got eight bucks a share of cash. The stock's trading, I don't know where it'll be after all these announcements, but it was around seven. I'm rather certain you're going to have trouble buying stock because of all of the tremendous dynamics of the information flow into you guys, not only on the court, but other aspects of this. But where is the company in terms of its ability to continue to buy. I mean, you haven't bought any since I think it was the third quarter of 23. Can you be in the market at all? And my other question is, isn't it a fair assumption that this residual MBIA entity should be worth more than cash per share?

John, it's Anthony. On your first question as far as share repurchases, You know, we've done a lot of share repurchases over the last few years out of National. At this point, National has no capacity to buy back shares given the amount of shares that it owns and where the shares are trading today versus its surplus and requirements calculations under New York insurance law. So, any share repurchases at this point would be out of the holding company. And we just need, just as the earlier questioner brought up, we need to look at that in the context of what's really the best uses of the holding company liquidity to maximize the value of the company for a strategic alternative. So, you know, at any given time, we're looking at, does it make sense to buy back debt? You know, are we looking at share repurchases? Where would we buy? So, we'll continue to look at that. We do have a share repurchase authorization. that remains outstanding. But again, we've got to balance that against the other opportunities that we're having as we continue to simplify the company and position it for our strategic alternatives.

And John, let me just add to that, which gets really, I guess, to the second part of your question. As we think about this going forward, I think what we've focused on over the last year or so as we set out to sell the company and then pause that process is there were a couple of things that really were the focus of prospective buyers and things that we had focused on as well. One was getting money out of National. The second was resolving our Puerto Rico credits. And at this point, that's just PREPA. I think with regard to the special dividend that came from National at the end of last year and then the distribution to shareholders, if you remember, that's the first time since the creation of National, approximately 15 years ago, that we've had any special dividends come out of national. So if there was a question whether or not you could get money out, the answer obviously is yes. And as one of the other callers asked earlier, we think the company is well positioned going forward as we resolve PREPA and the portfolio runs off to get additional money out of national, which I think is only beneficial for our shareholders. The second is the Puerto Rico situation, which again, over the next couple of months, as I indicated, I think we're going to learn a lot more about where that's going and the timing related to PREPA. So both those things we think are real positive as you think about the value of the company going forward.

Thank you.

Thank you.

And thanks again for the distribution. Made a lot of long-term shareholders pleased to see their basis, and in many cases, certainly in my case, way beyond their basis, returned.

Thank you for your support.

Thank you. We'll take our next question from Paul Saunders with Hutch Capital. Your line is now open.

Morning, guys. Thanks for taking my question. Morning. My first question is pretty similar to the first caller. Yeah, I would start by saying congrats on getting the special dividend out of National. That's That's impressive and great news. And so similar to the first questioner, just operating under the assumption that there is no sale and you look at your MTN and holdco liabilities, do you expect with kind of the lower investment base and as of right dividends from national that the cash flow can cover the debt if it comes due or Or would part of the assumption be to repaying that debt, would a special dividend be needed at some point in the future to make those payments?

So, good morning. This is Anthony. As I said earlier, you know, where we are now, accounting for potentially lower absolute as of right dividends just because of the lower investment base, obviously part of this depends on what, you know, yield possibilities are. Um, we think we're looking at 2030 under the current operating metrics, which again, it's just as of right dividends, cash on hand at the company and normal income at the, at the holding company. So it's always been contemplated. That there would be potentially additional special dividends going up, uh, to the holding company at some point. But obviously when you look at nationals profile and the time lead we now have, there's an ample amount of time, assuming there was no sale. of the company to fund future debt requirements. In addition, there are other things we could do. There are refinancings that we would potentially achieve, and National does hold a very large portion of the 2034 ink debt, so that gives us possibilities as far as restructuring and things of that nature if we wanted to do that. So we have several arrows in the quiver there, but again, as far as additional distributions, based on

know kind of a steady state assumption um we've got ample time for additional distributions and we're looking you know more toward 2030 at this point and then just on that yeah you certainly with the 400 million of liquidity unencumbered at the holdco it looks like you know you're more than covered on debt all the way through the 2028 so When you answered the question before when someone asked about repurchasing liabilities, you said that's really what you're focused on as opposed to beyond 2030. My question is just, considering you don't have enough liquidity to satisfy all of your debt, but you have more than enough, can you give me a little more color on I mean, obviously, just saying that somewhat changes the prices that people are willing to sell their debt. But there's a pretty steep yield curve, maybe because you guys have made those comments. So I guess I'm just wondering, like, if you're buying shorter-term debt at 7% versus the debt that's longer-term that's at 12%, how big of a yield differential do you need to where you would actually purchase the longer-term debt instead of the shorter-term debt.

Paul, it's Bill speaking. You focused on the right thing. We look at all the possibilities, and we don't put out information with regard to what the differential would need to be, to your point. There are certain things we just don't provide to the public, but we do look at all the maturities We make decisions with regard to what the differential is. We make decisions with regard to liquidity, the holding company that Anthony mentioned. So we're constantly looking at all those possibilities.

Okay. Sounds good. Thanks, guys. Congrats again. Thank you.

Thank you. We do have a follow-up from Ethan Meister, who is a private investor. Your line is open.

Hi. Thanks again. Just to clarify, by 2030, the portfolio at national will significantly run down, right? So wouldn't you anticipate the capital required there? I mean, it looks like it'll be somewhere in the low teens, billions by the end of 2030, right?

I think that's correct, yes.

Okay. And I just wanted to check on the share repurchase. Is that the $71 million remaining, is that all contemplated then to be at Inc. and didn't Because I think it previously said it was between national and Inc. And now you said there's no capacity at national, right?

You're correct. It can be used by either entity. Right now, as Anthony described, under the department regulations, we have no capacity at national. So right now it would only be at Inc. If for some reason the situation at national were to change in the future, the $71 million would still apply there as well.

Okay. And is that something that you are considering to restart the repurchase after you get through the quiet period here?

Again, we always look at what the opportunities are with our capital, whether it be debt, shares, or anything else we might need it for.

Okay. Great. Thank you.

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.

Thank you, Brittany. And thanks to All of you for listening to the 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 about the company. Thank you for your interest in MBIA. Good day and goodbye.

Thank you, ladies and gentlemen. This does conclude today's MBIA fourth quarter and full year 2023 financial results conference call. You may now disconnect your line and have a wonderful day.