Welcome to the MBIA Inc. Second Quarter 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 MBIA. Please go ahead, sir.

Thank you, Ashley, and welcome, everybody. After the market closed yesterday, we issued and posted several items on our website, including our financial results, 10-Q, quarterly operating supplement and statutory financial statements for both MBIA Insurance Corporation and National Public Finance Guarantee Corporation. We also posted updates to the listings of our insurance company’s 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 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 disclosures 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 approximately 2 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 posted yesterday on the MBIA website. Now for 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-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 is Bill Fallon.

Thanks, Greg. Good morning, everyone. Thank you for being with us today. Our principal focus remains on achieving a final resolution of our last material exposure to the Commonwealth of Puerto Rico, the Puerto Rico Electric Power Authority or PREPA. While we await the filing of PREPA’s third plan of adjustment, we continue our efforts to deliver shareholder value in other areas, including by reducing expenses, monitoring the run-off of our insurance portfolios and repurchasing shares. After the MBIA Inc. Board of Directors approved $100 million share repurchase authorization in May, National and MBIA Inc. have purchased a combined 3 million shares of MBIA common stock at an average price of $8.08 per share, which has reduced MBIA’s outstanding share count to 51.9 million as of July 26, 2023. $76 million remained outstanding from the May authorization. Regarding our second quarter financial results, while National had a modest net loss for the quarter, for the first six months of 2023, it maintained positive net income on a GAAP basis and had a modest loss on a statutory basis. The results demonstrate the stability of National’s financial results absent significant adjustments to its losses and loss adjustment expenses. As noted earlier, we remain hopeful that PREPA will resolve sooner rather than later. Following the insurance claims payments made by National on July 1st of this year, its remaining exposure to PREPA is $610 million of gross par insured. The remainder of the insured credits in National’s portfolio have continued to perform consistent with our expectations. National’s insured portfolio has continued to run-off as its outstanding gross par declined by approximately $1.2 billion from year-end 2022 to $30.5 billion at June 30, 2023. National’s leverage ratio of gross par to statutory capital at the end of the second quarter remained unchanged from year-end 2022 at 16:1. As of June 30, 2023, National had total claims paying resources of $2.4 billion and statutory capital in surplus of $1.9 billion. In May, our Chairman, Charlie Rinehart, retired from the Board after 14 years and eight as Chairman. I greatly appreciate Charlie’s contribution and leadership over those many years. Steve Gilbert, who has been on our Board since 2011 was elected as the new Chairman. Now Anthony will provide additional comments about our financial results.

Thanks, Bill, and good morning. I will begin with a review of our second quarter 2023 GAAP and non-GAAP results. The company reported a consolidated GAAP net loss of $74 million or a negative $1.46 per share for the second quarter of 2023, compared to a consolidated GAAP net loss of $36 million or negative $0.72 per share for the second quarter ended June 30, 2022. The higher GAAP net loss this quarter was largely driven by losses on VIEs at MBIA Corp. due to the derisking activity resulting in the deconsolidation of two legacy ABS CDOs where the majority of losses were reclassified from other comprehensive income, and therefore, had no effect on total equity. Higher interest expense was primarily attributed to MBIA Corp.’s surplus notes and loss in LAE expense this quarter at MBIA Corp. versus a loss in LAE benefit in Q2 2022. The increase in operating expenses for the quarter was largely due to an increase in value in the company’s non-qualified deferred compensation plan liability, with a corresponding offset in the asset value of the plan, which is reflected in net gains on financial instruments and net investment income. Offsetting these negative variances were lower loss in LAE at National, higher investment income, and lower net realized investment losses. The company’s adjusted net loss, a non-GAAP measure was $22 million or a negative $0.45 per diluted share for the second quarter of 2023, compared with an adjusted net loss of $47 million or a negative $0.93 per diluted share for the second quarter of 2022. The favorable change was due primarily to the lower loss in LAE at National. MBIA Inc.’s book value per share decreased to a negative $19.21 per share as of June 30, 2023 versus a negative $16.07 per share as of December 31, 2022, primarily due to a net loss for the year and second quarter 2023 share repurchases, partially offset by decreased unrealized losses on investments recorded to other comprehensive income, driven by tighter credit spreads and lower interest rates. Included in book value as of June 30, 2023, is a negative $41.88 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 $611 million as of June 30, 2023. Within this total are the following material items. Unencumbered cash and liquid assets held by MBIA Inc. totaled approximately $197 million as of June 30, 2023, compared with $230 million as of December 31, 2022, due to the repurchase of $10 million of 2024 maturity GFL, MTNs at a discount and debt service and operating expenses. The corporate segment’s assets also included approximately $306 million of assets at market value pledged to the GICs 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 $11 million for the quarter ended June 30, 2023 versus a statutory net loss of $44 million for the quarter ended June 30, 2022. The favorable comparison was primarily due to lower loss in LAE and higher investment income. Statutory capital decreased by $10 million from year-end 2022 and was $1.9 billion as of June 30, 2023, primarily due to National’s purchase of MBIA Inc. shares during the second quarter. Claims paying resources were $2.4 billion. From inception through June 30, 2023, gross claims paid on insured Puerto Rico exposure totaled approximately $2.9 billion, and in July, National paid additional gross claims of $119 million on the PREPA bonds at insurers. Turning to MBIA Insurance Corp., its statutory net loss was $128,000 for the second quarter of 2023, compared to a statutory net loss of $6.3 million for the second quarter of 2022. The favorable comparison was primarily due to lower loss in LAE expense in Q2 2023. As of June 30, 2023, the statutory capital of MBIA Insurance Corp. was $148 million, down from $169 million at the end of 2022, primarily due to its year-to-date net loss. Claims paying resources totaled $561 million versus $669 million at year-end 2022, 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 reduced by approximately $130 million during the quarter and was $3.2 billion as of June 30, 2023.

Thank you. We will take our first question from Tommy McJoynt with KBW. Go ahead.

Hey. Good morning, guys. Thanks for taking my questions. I can’t remember if you mentioned this on the prepared remarks, but what is National’s statutory capacity for buybacks as of June 30?

As of June 30th, National had about $50 million of capacity left to purchase shares.

Okay. Got it. And then, forgive me just because it’s somewhat complicated to think about, but to the extent that National is monetized by a sale to a third-party, what happens to the shares that National has repurchased. Do those suddenly become outstanding again and effectively indirectly owned by that third-party since they are no longer part of the consolidated entity?

Are you talking about if National is sold or MBIA Inc. is sold?

If just National, just the subsidiary is sold.

Most likely the structure of the transaction would be that those shares would end up being retired, you would have to get DFS approval. But most likely, they would be sent to the holding company and retired.

Got it. Okay. That does make sense. And then last question, was National’s provision that you attributed to PREPA driven by the extension of the process as a time value of money function, or was it based on any lower expected recoveries?

Tommy, on that, I think it was a combination of things. The delay is one piece of it. Just looking at, as there is the delay, the lack of subscription from other parties at this point and looking at court rulings and just potential risk to confirmability and levels, we just took all that into account this quarter and made some adjustments to what our view of our compensation and claims are.

Okay. Got it. Thank you.

Thank you. We will take the next question from Paul Saunders with Hutch Capital. Please go ahead.

Good morning, everyone. Thank you for taking my question. I have a brief inquiry regarding PREPA. A lot has transpired since your last report, and I would like your insights on the current situation for National. I understand that National has reached a settlement, and I am interested in your opinion on whether you expect this to remain in the latest plan. Could you elaborate on how you perceive this planned process unfolding? It's a bit difficult to grasp from the documents and filings.

Yeah. Paul, you actually just gave a pretty good description of the state of play. I am not sure that I can add much to it. They were supposed to file a plan a few weeks back. They have had two extensions. The current deadline is tomorrow. I don’t know if there will be another extension or whether they will file something. Other than that, you mentioned we have a PSA that’s been in place for quite a while at this point that details our agreement with PREPA and the oversight board. So we are very focused on it as we mentioned in our comments. We will see what happens over the next short period of time with regard to a plan. And other than that, I don’t know if there’s a whole lot more that we can say that you don’t already know.

I’m not sure if you can discuss it, but are other bondholders asking you to renegotiate the PSA you have? What is your confidence level that it will ultimately be included in the confirmed plan?

Our view is we have a legal contract, which is the PSA and our sense was a few weeks ago when we were just about to file, that PSA would be a part of the plan of adjustment that would be filed and our view is that will continue to be the case. But other than that, I know there’s lots of speculation out there, but I don’t know what’s going to transpire.

Sounds good. Thanks. Thanks for the comments.

We will take our next question from John Staley with Staley Capital Advisors. Please go ahead.

Bill, thank you for the update. Puerto Rico is clearly a key issue. I am interested in your previous comments about the sensitivity to the buyback price, particularly since you mentioned reinstating a $100 million program based on market value. Beyond book value, there is an intrinsic value that you understand through your industry insights and the process you undertook with Barclays. What spread incentivizes you compared to those who are selling? You have 3 million shares coming in, which is significant, especially considering the trading volume and that those who sold at over $8 a share received a good price. It’s important to look past the complex accounting figures; there’s an intrinsic value that drives you to utilize your capital for buying back stock at over $8. What is that spread? At what point do you decide, for example, that you won’t continue buying? I’m curious about what influences your decision-making. While I understand that the mechanics of buybacks are complicated, I would like to know what determines how much you are willing to pay compared to what you believe adds value for remaining shareholders, particularly in light of the operational expenses from a company not issuing new insurance and working to recover from previous Puerto Rico exposure.

Yeah. Good morning, John. In some ways, I think, implicitly, you have cited a lot of things that we look at. So as we have said in the past, there’s lots of factors that go in…

Correct.

...when we buy, and you are absolutely correct, put aside all the accounting numbers, there is some intrinsic value that all shareholders probably think about with regard to their buying and selling of all stocks, and in this case, our stock. We do a similar analysis and as you can imagine, that’s a fairly dynamic process. So at any point in time, there’s lots of variables that are moving around. As we mentioned in the release and in the prepared remarks, we bought it just over $8 a share, obviously, we thought that was a good price. One of the challenges is that because of regulations, we are limited in how many shares we can buy, for example, on any given day, right? It has to do with the average trading volume over the previous four weeks. But to your point, we bought between 5% and 6% of the outstanding shares since we last talked. Again, we thought it was a good opportunity for the longer-term shareholders of the company, and again, it’s all the factors you mentioned it is. What we think, for example, we might get in the sale. It’s what we think the financial situation is at National at any point in time, interest rates come into play, how much liquidity we have at national and you did see that we bought some shares at Inc. since the last earnings call and so we have to be sort of judicious in how we use that liquidity and at what price we buy shares. So there may be at times where people think, wow, we should have bought even more shares. It could be that we are just trying to conserve. In this case, we had the $100 million authorization but we also look beyond that to what long-term liquidity might look at. So I think it’s all the things that you have mentioned. We don’t actually state at any point in time what we think the spread is versus sort of an estimated range of intrinsic value, but you can be assured if we are buying shares, we think it’s good for our long-term shareholders.

Great. Thanks, Bill. I bought some with your by the way.

Good to hear.

And we will take a follow-up from Paul Saunders with Hutch Capital. Please go ahead.

Thanks for taking another one of my questions. Just following up on John’s question on the share buyback. I mean, I guess, it’s not often that I see companies with debt trading at $0.30, $0.40 on the dollar and double-digit yields, buying back stock as opposed to the discounted debt. So, could you guys talk at all about how you view sort of what’s the better use of capital in terms of stock versus bonds? I know you tackle the shorter dated bonds, but I am thinking more the ones once you are getting to the 11%, 12% yields with longer maturities. How do you guys think about the value of those versus the value of repurchasing shares?

Yeah. Paul, I will let Anthony get into the details of the bond repurchases, but I am not sure we have bonds that are trading at $0.30 on the dollar.

Paul, addressing the mechanical aspect of your question, the structure of the holding company allows us to assess our short-term liquidity and determine how we can meet our obligations under normal operating conditions, which I define as the standard income at Inc. combined with the annual dividend from National. In evaluating this liquidity profile, we focus on the short-term debts, which we have reviewed this quarter and were able to benefit from a favorable discount. Our emphasis remains on meeting the near- to medium-term obligations of the holding company. Generally speaking, I don’t believe the debt is trading quite as low as you’ve suggested, and pursuing significantly longer maturities at this time may not be the wisest decision for the holding company.

Okay. Got it. Yeah. To be clear, the discounted bonds I am talking about are the GFLs, not the holdco debt, but I view them sort of holdco obligations as well.

Okay. Thank you.

And there appears to be no further questions at this time. I will turn the call back over to Greg Diamond for closing remarks.

Thanks, again, Ashley, and thanks to those of you 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 on the company. Thank you for your interest in MBIA. Good day and good-bye.

Thank you, ladies and gentlemen. This does conclude today’s MBIA second quarter 2023 financial results conference call. You may now disconnect.