MBIA Inc.

Welcome to the NBIA Inc. first quarter 2024 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, Ashley. Welcome to NBIA's conference call for our first quarter 2024 financial results. After the market closed yesterday, we issued and posted several items on our website, including our financial results, our 10Q, quarterly operating supplement, and statutory financial statements for both MBIA Insurance Corporation and the National Public Finance Guarantee Corporation. We also posted updates to the listings of our insurance company's insured 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 filings, 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 disclosure about 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 on the NBIA website approximately two hours after the end of the call. 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 statement. Risk factors are detailed in our 10-K 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. For our call today, Bill Fallon and Joe Sachinger We'll 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. Last month, we said goodbye to Anthony McKiernan, our CFO, who helped us navigate through some very difficult times and was instrumental on many projects that have been critical to NBIA. Anthony will be missed, and we wish him the very best in his future endeavors. Our first quarter 2024 results were relatively straightforward and relatively unchanged versus a year ago. Our new CFO, Joe Schackinger, will have more to say about these results shortly. In the meantime, our primary objectives continue to be focused on the resolution of our remaining Puerto Rico exposure and then restarting the process to sell the company. Regarding PREPA, National's remaining exposure to PREPA was $610 million of gross power insured at the end of the first quarter. The Title III Court held the confirmation hearing for PREPA's plan of adjustment in March of this year, and we await a ruling on that hearing, as well as rulings to be issued by the First Circuit Court regarding appeals being sought by bondholders opposing the current PREPA restructuring plan. 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 $600 million from year end 2023 to $27.8 billion at the end of the first quarter of this year. National's leverage ratio of gross part of statutory capital remained unchanged from year end 2023 at 25 to 1. At the end of the first quarter, National had total claims-paying resources of $1.7 billion and statutory capital and surplus of $1.1 billion. Now Joe will provide additional comments about our financial results.

Thank you, Bill, and good morning all. I will begin with a review of our first quarter 2024 GAAP and non-GAAP results and then provide an overview of our statutory results. The company reported a consolidated gap net loss of $86 million or a negative $1.84 per share for the first quarter of 2024 compared to a consolidated gap net loss of $93 million or a negative $1.86 per share for the first quarter of 2023. The lower gap net loss this quarter was largely driven by lower losses from our discontinued operations. Our net loss from continuing operations of $87 million was slightly higher in the first quarter of 2024 compared with the net loss of $83 million in the same period in 2023, primarily as a result of higher loss in LAE at national, which largely related to pushing out the timing of the effective date of the PREPA plan to restructure its debt, and higher losses on variable interest entities at MBI Insurance Corp, most of which were reclassified from other comprehensive income and therefore neutral to total equity. These losses largely relate to purchases of VIE debt executed as part of a plan termination of MBI Insurance Corp's last material insured ABS CDO transaction. These unfavorable variances were partly offset by foreign exchange gains on our Euro medium-term note liabilities in our corporate segment this quarter compared to mark-to-market losses on interest rate swaps and foreign exchange losses on Euro medium-term notes in our corporate segment in the first quarter of last year. As a reminder, in the fourth quarter of 2023 and the first quarter of 2024, we terminated all of the swaps that were part of our holding company A&M business. The company's adjusted net loss, a non-GAAP measure, was $24 million, or a negative 52 cents per share, for the first quarter of 2024, compared with an adjusted net loss of $1 million or negative 3 cents per share for the first quarter of 2023. The unfavorable change was primarily due to higher loss in LAE at national in the current quarter. NBI Inc.' 's book value per share decreased $1.24 to a negative $33.80 per share as of March 31, 2024 versus a negative $32.56 per share as of December 31, 2023, primarily due to the net loss for the quarter. Included in NBI Inc.' 's book value as of March 31, 2024 is a negative $45.44 per share of NBI Insurance Corps' book value versus a negative $44.91 per share as of December 31, 2023. I will now spend a few minutes on our corporate segment balance sheet. The corporate segment, which primarily comprises the activities of the Holden Company, NBIA Inc., had total assets of approximately $710 million as of March 31, 2024. Within this total are the following material assets. Unencumbered cash and liquid assets held by MBIA Inc. totaled $376 million compared with $411 million as of December 31, 2023. The decrease was largely due to spending approximately $36 million on retiring GFL Euro-denominated medium-term note liabilities before their maturities. These purchases were executed at prices accretive to equity and will reduce euro exchange rate volatility within our results going forward. I'll also note that subsequent to March 31st, we spent an additional $26 million to retire GFL's remaining near-term Euro-denominated medium-term note liabilities at a price accretive to equity. In addition to the unencumbered cash and liquid assets I mentioned, the corporate segments assets included approximately $230 million of assets at market value pledged to guaranteed investment contract holders. Turning to the insurance company's statutory results, National reported a statutory net loss of $11 million for the first quarter of 2024 compared to statutory net income of $11 million for the first quarter of 2023. The unfavorable variance was primarily driven by higher loss in LEE largely related to the estimated extension of the PREPA debt restructuring and, to a lesser extent, lower net investment income. Net investment income in 2024 reflects lower invested assets due to the as-of-right and special dividends paid by National to MBIA, Inc. in the fourth quarter of 2023, which totaled almost $650 million. National statutory capital decreased by $18 million, largely due to its net loss for the quarter, and consistent with the year in 2023, was approximately $1.1 billion as of March 31, 2024. Claims paying resources were $1.7 billion, also consistent with year-end 2023. As of March 31, 2024, National had gross par outstanding of $27.8 billion, which is down about $600 million from year-end 2023. Now we'll turn to MBI Insurance Corp. MBI Insurance Corp reported a statutory net loss of $35 million for the first quarter of 2024, compared to a statutory net loss of $20 million for the first quarter of 2023. Net losses in both periods were driven by loss in LAE on primarily ZOHAR-related salvage. As of March 31, 2024, The statutory capital of MBI Insurance Corp was $119 million, down from $152 million at year-end 2023, primarily due to the net loss for the current quarter. Claims paying resources totaled $468 million at March 31, 2024, compared to $504 million at year-end 2023. MBI Insurance Corp's insured gross par outstanding was $2.7 billion as of March 31, 2024, down about 5% from year end 2023. And now, we will turn the call over to the operator to begin the question and answer session.

Certainly. If you have a question at this time, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, press star 2. We ask that when posing your questions, you please pick up your handset to allow optimal sound quality. We'll take our first question from Tommy McJoynt with KBW. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions. You repurchased some medium-term notes during the quarter and post-quarter end. Can you talk about your current liquidity profile at the holding company? in your appetite and ability to continue repurchasing some of those liabilities? And should all those transactions be accretive?

Yeah, Tommy, as I think you know, after we did the dividend at the end of last year, the amount that went up to the holding company, depending on how you look at it, the dividend was $550 million. We sent about $400 million out to the actual shareholders. So our liquidity to the holding company is stronger than it's been in quite a while. And so as we've indicated on the last call, we continue to look for opportunities, whether it be buying debt, buying stock, in terms of how to use that liquidity. So we do have opportunities to do that. It really is a matter of balancing all those trade-offs and looking for good opportunities, whether they be near-term debt, some of the longer maturities, and it really just has to do with what the price is and therefore what the interest rates are at any point in time. So we'll continue to look at that. And we do believe that they are value adding to our shareholders when we do them.

Thanks. Actually, just one follow-up here. Between the investment agreements, the medium-term notes, and the unsecured notes on the holding company balance sheet, are all of those able to be repurchased or redeemed in the open market, or do some of those have to wait until maturity?

Yeah, this is Joe Sackinger. Good morning. The investment agreements do have to wait for maturity. There are really no provisions to call those earlier. However, as we've done in the past, we are able to purchase the medium-term notes and the ink unsecured debt. And as Bill explained, we'll look to be opportunistic about getting those back at prices accretive to equity.

And once again, as a reminder, that's star one for your questions. We'll take our next question from John Staley with Staley Capital Advisors. Please go ahead.

Thank you. Bill, I'm curious. What do you think is contributing to the lack of an issuance of an opinion, particularly from Judge Swain? It just seems very puzzling to me that this thing has been around for so long. I can't imagine what the hell is new. What are your comments on when this thing finally gets resolved?

Yeah, good morning, John. As you know, I guess there's two things that we focused on, or we are focusing on. One was the hearing at the First Circuit. That took place January 29th, I believe, is when the hearing took place. So we're now more than three months past that. There is a view that Judge Swain is waiting for the First Circuit to issue their opinion before she issues the confirmation. Unfortunately, we have some experience over the years. It's just very difficult to predict when these opinions will be issued. Just like you, we're very focused on it. It could come any day, but I suppose we've been saying that now for over three months. I can't tell you when it's going to happen. But you're focused on the right thing, which I think is the first circuit, and then Judge Swain. Okay.

And at what level do you become more active in buying stock back?

As you know, we've done a lot of it out of national. Right now, national doesn't have capacity, but as I just mentioned in response to the earlier caller, we continue to look at it at the holding company. And, you know, we'll continue to look at where the stock is trading, what the best use of that cash is, and what's best for our shareholders.

So any buying would be done at the holding company level, and you have capacity to do that?

We do. We have authorization, and we have liquidity to do that.

Okay. All right. Thank you.

And again, that is star and one for your questions. We will pause another moment to allow any further questions to queue. And there appears to be no further questions at this time. I'll turn the call back over to the management for closing remarks.

Thank you, Ashley. And thanks to those of you listening to our call today. Please contact us directly if you have any additional questions. We also recommend that you visit our website at NBIA.com for additional information about the company. Thank you for your interest in NBIA. Good day and goodbye.

Thank you, ladies and gentlemen. This does conclude today's NBIA first quarter 2024 financial results conference call. You may now disconnect your line and have a wonderful day.