Mbia Inc Q3 FY2024 Earnings Call

Welcome to the MBIA Inc. Third 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 MBIA. Please go ahead, sir.

Thank you, Ashley. Welcome to MBIA's conference call for our third quarter 2024 financial results. After the market closed yesterday, we issued and posted several items on our websites, 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 companies' 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-Qs 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. 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 MBIA 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 statements. 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 Schachinger 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. For our third quarter 2024 financial results, our revenues and expenses both improved compared with last year's third quarter, which yielded a lower net loss than last year's third quarter. Revenues were higher largely due to lower losses related to variable interest entities associated with MBIA Insurance Corp. and expenses were lower largely due to lower loss and loss adjustment expense associated with National PREPA exposure. Regarding PREPA, mediation has been extended through January 31 of next year. In the meanwhile, the parties and mediation are waiting for the decision from the First Circuit Court of Appeals as to whether they will rehear arguments regarding their ruling earlier this year that determined PREPA bondholders' rights included a lien on PREPA's net revenues. Given the uncertainty associated with the possible outcomes for National's PREPA bankruptcy claim in excess of $800 million, we expect that substantially reduced uncertainty regarding the PREPA outcome will likely be needed before we can restart the process to sell the company. 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 $2.5 billion from year-end 2023 and to about $26 billion at the end of the third quarter of this year. National's leverage ratio of gross par to statutory capital was 26:1 at the end of the third quarter of 2024. As of September 30, 2024, National had total claims paying resources of $1.6 billion and statutory capital and surplus of $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 third quarter 2024 GAAP and non-GAAP results and then provide an overview of our statutory results. The company reported a consolidated GAAP net loss of $56 million or negative $1.18 per share for the third quarter of 2024, compared to a consolidated GAAP net loss of $185 million or negative $3.94 per share for the third quarter of 2023. The lower GAAP net loss this quarter was largely driven by two items. First is lower loss in LAE at National. In the third quarter of 2023, higher loss in LAE was primarily the result of updating our range of recoveries for PREPA under the then-amended PSA. In the current quarter, loss in LAE was primarily driven by accretion of our reserves and recoveries. And the second item is lower losses related to consolidated VIEs at MBIA Insurance Corp. In the third quarter of 2023, VIE losses primarily related to the early redemption of VIE liabilities insured by MBIA Insurance Corp. and the deconsolidation of a VIE with no comparable activity in the current quarter. The company's adjusted net loss, a non-GAAP measure, was $174,000 or essentially $0.00 per share for the third quarter of 2024, compared with an adjusted net loss of $138 million or negative $2.92 per share for the third quarter of 2023. The favorable change was primarily due to the lower loss in LAE at National in the current quarter related to PREPA. During the first nine months of this year, MBIA Inc.'s book value per share decreased $6.63 to negative $39.19 per share as of September 30, 2024, versus negative $32.56 per share as of December 31, 2023. This decrease was primarily due to our $396 million consolidated net loss for the 2024 year-to-date period. Included in MBIA Inc.'s book value as of September 30, 2024, is a negative $48.80 per share of MBIA Insurance Corp. book value versus 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 holding company, MBIA Inc., had total assets of approximately $646 million as of September 30, 2024. Within this total are the following material assets. Unencumbered cash and liquid assets held by MBIA Inc. totaled $326 million, compared with $411 million as of December 31, 2023. The decrease was largely due to spending approximately $78 million in the first and second quarters of 2024 on retiring GFL euro-denominated medium-term note liabilities and purchasing MBIA Inc. senior notes before their maturities. As noted in prior quarters, both the medium-term notes and senior notes were purchased at prices accretive to equity. In addition to the unencumbered cash and liquid assets, the corporate segment's assets included approximately $211 million of assets at market value pledged to guaranteed investment agreement contract holders, which fully collateralize those contracts. Now turning to the insurance companies' statutory results. National reported statutory net income of $19 million for the third quarter of 2024, compared to a statutory net loss of $133 million for the third quarter of 2023. The favorable variance was primarily driven by the lower loss in LAE related to its PREPA exposure. National statutory capital as of September 30, 2024, was $1 billion, down $117 million compared with December 31, 2023, largely due to its statutory net loss for the 2024 year-to-date period of $123 million. Claims paying resources were $1.6 billion, down $95 million from December 31, 2023. As of September 30, 2024, National had gross par outstanding of $26 billion, which is down about $2.5 billion from year-end 2023. This decrease was largely due to regular amortization of National's insured portfolio. Now I'll turn to MBIA Insurance Corp. MBIA Insurance Corp. reported statutory net income of $2 million for the third quarter of 2024, compared to a statutory net loss of $14 million for the third quarter of 2023. A small loss in LAE benefit this quarter helped drive net income. An increase in loss reserves on RMBS and ABS CDO exposures primarily drove the net loss in the third quarter of 2023. As of September 30, 2024, the statutory capital of MBIA Insurance Corp. was $87 million, down from $152 million at year-end 2023, primarily due to its net loss for the 2024 year-to-date period of $68 million. Claims paying resources totaled $358 million at September 30, 2024, compared to $504 million at year-end 2023. MBIA Insurance Corp.'s insured gross par outstanding was $2.5 billion as of September 30, 2024, down about 13% from year-end 2023. The decrease in claims paying resources and gross par outstanding was partially driven by our proactive de-risking of exposures for which we held reserves and were paying claims. And now we will turn the call over to the operator to begin the question-and-answer session.

Certainly. (Operator instructions.) We will take our first question from Tommy McJoynt with KBW. Please go ahead.

Hey, good morning, guys. Thanks for taking my question. So with $1 billion of capital at National, how much of that do you consider excess? And are you seeking approval to release any of that capital? It was around this time last year that National got approval for the substantial capital release?

Yes. Tommy, thank you for the question. Given that we don't focus on ratings anymore, we don't necessarily do a calculation in terms of what the excess capital is the way perhaps other companies do. But what we do focus on, as you referred to, is trying to get extraordinary dividends when it's appropriate, which we did last year at this time. Now we do have the annual as-of-right dividend that will be paid before the end of the year. But I think at this point, given the extraordinary dividend last year, we want to make sure that there's further progress on Puerto Rico before we engage in any discussions with the department.

Okay, got it. And if I look at the disclosures, National paid a gross claim on July 1 of $122 million on PREPA. And it looks like the National insurance loss recoverable increased by $57 million. So that looks like that equates to you guys assuming a 47% recovery on that claim paid. Is that the right math to think about? Or are there any other inputs that I need to consider?

Yes. Well, we don't comment exactly on what the number is, but the approach that you're taking is very logical and reasonable.

Okay. Thank you.

Thank you. We will take our next question from Jordan Hymowitz with Philadelphia Financial. Please go ahead.

Hey guys. Can you hear me okay?

We can hear you fine, Jordan.

Great. Thank you. You commented that you're not looking to reengage the process of selling the company, which you've tried a couple of times, until Puerto Rico has greater clarity. I guess my question is why? I mean there's different ranges of Puerto Rican outcomes that can be evaluated in different back-end payments depending on resolutions. I mean there's a huge—there's obviously, as competitor A continues to go up in price, there's more value to their stock, you're losing value there. Why not engage now with some sort of structure that if the resolution is more favorable, there's a greater back-end payment? I mean it just seems like you've got a very valuable franchise; the market has competitors either private or some—the one that's public has the capital. Why not engage now?

The approach you described is one that we have considered and is a real possibility. The reality is the feedback that we've received to date suggests that it would not be beneficial for our shareholders, but that doesn't mean that things don't change at any point in time. So it is always a possibility in terms of the approach you described.

Okay. I mean it's tough to know once you get to the negotiation room what will happen, but it does seem because it's most likely to be a tough deal, the ratios are unbelievably powerful and you should have some leverage with what the outcome is. And since the governor of Puerto Rico was elected who wants to resolve a lot of things, it's more likely that something could come to fruition and then it'd be a win-win for everybody.

Jordan, we agree. We think the sooner this can all be resolved the better it will be for our shareholders. And so that's what we're focused on as well.

Okay. Thanks for at least considering it. And thank you for taking my questions.

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

Thank you. Bill, sort of a follow-up on the last comment that was made with the election of Trump, given recent events at Madison Square Garden with the comedian, and the presence not widely appreciated by the general public, but certainly by politicians. Given the presence within the Puerto Rican government of significant Republican positions, and given what happened, it seems to me that Trump might want to get this situation resolved. They held a lot more sway than others. But I'm curious if you see a path where Trump might dismiss the oversight board and let you get this resolved with the Puerto Rican government and the adversary parties to get the Puerto Rican people in a position where they can get back to financing things and getting things done. I think this is a great message that might be heard favorably by Trump as a very positive move for the Puerto Rican people. I'm curious what is your reaction and whether you see that avenue or not?

John, again, thank you for your call and your interest. Given the events of this week with the election and everything you just described, we have been looking for a catalyst to help resolve this now for, as you know, many years. So if in fact the approach you describe would move us toward that end, we would be very much supportive of that approach. So I think it's going to take a little bit of time. Obviously, he was just elected this week. Same thing with the new governor of Puerto Rico. We have heard some early comments very much along the lines that you've been describing. My guess is over the next few weeks and into January when he actually takes office, we may get a better sense of whether this really is a catalyst to resolving this much quicker than perhaps the current path that we're on, which, again, we think would be very much appreciated and would be good for our shareholders.

And that governor you're talking about, isn't she a Republican?

The answer is yes; it's slightly different, but the short answer is yes.

Thank you. I think it's a very positive development in terms of getting this resolved. Keeping this with the oversight board, judges and lawyers is just nuts.

It has been a very long process. We agree with you.

All right, thank you.

Thank you. We will take our next question from Carlos Arto, Private Investor. Please go ahead.

Hi, good afternoon from London. Thanks again for the December dividend and also for the time this summer went through different options. I have a couple of questions regarding our cooperation agreement with GoldenTree, Cora and Azure. My understanding is that the cooperation agreement (COAP) was extended until March 2025; is that correct? Is that the current expiration date?

Yes, we are part of a cooperation agreement with the other bondholders that was extended into next year. That's correct.

Until March?

Correct.

Perfect. And could we walk away from that cooperation agreement before March 2025 if someone offered better terms? Or are we tied to the COAP?

Are you asking if we have the ability to walk away?

Yes. Are we able to walk away or are we obliged to stay in the COAP?

At this point, we've agreed to work together with the other bondholders who are part of that agreement. As with all these agreements, I suppose you could come up with a scenario where something were to change, but that is the approach that we're taking. We are in agreement with them and we're working with them.

And we cannot sell our exposure until March, then? I assume that we have to stick to the PREPA exposure until March or can we sell it to third parties?

We always have the right to sell our exposure. We sold a portion of our PREPA exposure years ago.

Yes, I remember. So there is nothing preventing us from finding a buyer for the exposure?

I believe that's correct, yes.

Okay. Perfect. And since our exposure is very strategically important to meet certain other thresholds, basically the COAP increases our bargaining power to 50% mark. If we are in, what are we getting in exchange from the COAP in return for our support? Are we just joining for free? Or do we get any kind of advantage from the COAP group in exchange for our support?

The benefit is we have the benefit of large numbers in terms of the dollar amount, or the portion of the debt that is held by that group.

I mean, just guessing that our percentage is very strategically important because of the balance of power between the current COAP—Corra, GoldenTree, Azure—and the group that is led by BlackRock. So, if this goes beyond March, I would take a different approach. That's my view on this.

Okay. We appreciate that. We'll take that into consideration.

Thank you. We will take our next question—oh, we do have a follow-up from Jordan Hymowitz with Philadelphia Financial. Please go ahead.

Hi, a follow-up to the gentleman's question right after about the new governor González. She put out a statement that she will begin looking for a second operator for LUMA so that we can resolve the issues with the electrical system. Would the introduction of a second operator for LUMA necessitate a resolution of PREPA? And does that mean she might involve herself more in doing this so we can get cheaper power to the island?

With regard to the first, it doesn't mean that PREPA has to be restructured in order for them to address operating issues, which is what LUMA effectively is. Your guess is as good as ours whether that statement indicates that she wants to get more involved in PREPA, not only in the operations of it but also in the restructuring issues.

Let me phrase the question in a different way. Does the lack of resolution of PREPA in any way impede the construction or improvement of new electrical power plants in Puerto Rico? Or is it just a financial issue?

We would suggest that they are tied together. There are certain things that can be done; obviously, they need to operate PREPA in the absence of a resolution. But I think it's a reasonable conclusion that resolving the restructuring or the bankruptcy would help facilitate the operational aspects of PREPA.

Not to mention, save a tremendous amount of money that's only being paid to lawyers and mediators instead of the working-class Puerto Ricans who could benefit from lower energy costs, but that's a different political comment.

I think everyone would agree with your statement, however.

Thank you. I appreciate you taking my question. I would love to have a follow-up call.

Thank you. And at this time, I'm showing no further questions. I'd like to turn the floor over to management for any additional or closing remarks.

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

Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time.