Welcome to the MBIA Inc. Second Quarter 2019 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, Maria. Welcome to MBIA's conference call for our second quarter 2019 financial results.

After the market closed yesterday, we issued and posted several items on our websites, including our financial results press release, 10-Q, quarterly operating supplements 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 portfolios. Regarding today's call, please note that anything said on the call is qualified by the information provided in our company's 10-Ks, and 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-Q as well as our financial results press release and other quarterly operating supplement.

A recorded replay of today's call will become available approximately two hours after the end of the call, and the information for accessing it was included in yesterday's financial results press release. 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 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 some introductory comments, 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 second quarter net loss was primarily caused by additions to our loss and loss adjustment expenses. Most of those expenses were attributed to the PREPA and Puerto Rico general obligation bonds insured by National.

The PREPA restructuring support agreement has gone to the support of about 72% of bondholders at last reporting. We are not part of 72%, we continue to evaluate our options.

For other Puerto Rico credits, Judge Swain has ordered a 120-day stay of litigation activity and a mediation of about $25 billion of Puerto Rico debt, including the general obligation in HK bonds we ensure.

The turmoil and legal proceedings surrounding the successor to former Governor Rossello have caused additional uncertainty and will likely further delay the restructuring process.

National's insured exposure to Puerto Rico credits, excluding the restructure COFINA exposure was $2.6 billion of gross part including CAB accreted interest at June 30, 2019 to July 1, 2019 National's paid total insurance claims on Puerto Rico debt of $1.1 billion.

Since the COFINA debt restructuring is implemented last quarter, we have continued to undertake measures to further reduce our COFINA exposure.

As of July 31, 2019 our insured COFINA accreted par and debt service exposures were $553 million and $1.9 billion respectively, which are less than half of $1.2 billion of accreted par and $4.2 billion of debt service that were outstanding at year-end 2018.

The other credits of our insurance portfolios continue to perform consistent with our expectations. National's insured portfolio has further reduced to $54.5 billion gross par outstanding at June 30, 2019. Its leverage ratio gross participatory capital is 22 to 1, down from 23 to 1 at year-end 2018.

During the second quarter, National spent $49.6 million to purchase $5.4 million shares of MBIA stock, at an average price of $9.12 per share. We continue to believe that repurchasing our shares at attractive prices is an effective way to increase long-term value for our shareholders.

As of June 30, we had approximately $148 million remaining under our existing share repurchase authorizations. After the end of the quarter, we also issued a notice to call at par $150 million or about 57% of the $265 million of our 2022 MBIA Inc. debentures outstanding.

Regarding MBIA Insurance Corp., the trial towards RMBS put back litigation against Credit Suisse concluded last week, and we expect the ruling after post trial briefs are submitted. Now Anthony will cover the financial results and provide an update on the holding company's liquidity position..

Unencumbered cash and liquid assets held by MBIA Inc totaled $407 million. Approximately $550 million of assets at market value were pledged to the GICs and the interest rate swaps supporting the GIC operation.

There were also $61 million of cumulative contributions remaining in the tax escrow account, which represents National's 2018 and year-to-date 2019 tax payments.

Turning to the insurance company statutory results, National reported a statutory net loss of $100 million for the second quarter of 2019, compared to a statutory net loss of $31 million for the prior year's comparable quarter. And favorable result is primarily due to higher quarter-over-quarter loss and LAE related to Puerto Rico exposure.

In July 2019, National paid $328 million in Puerto Rico related insurance claims on a gross basis. Inception to-date, gross claim payments through July 2019 for Puerto Rico exposures totaled $1.1 billion.

As of June 30, 2019, National's total fixed income investment portfolio, including cash-and-cash equivalents had a book adjusted carrying value of $3.2 billion. Statutory capital was $2.4 billion and claims paying resources totaled $3.8 billion. Gross par outstanding reduced by $1.7 billion during the quarter and now stands at $54.5 billion.

Turning to MBIA Insurance Corp. Statutory net loss was $41 million for the second quarter of 2019, compared to statutory net income of $37 million for the second quarter of 2018. The unfavorable result was primarily due to higher loss in LAE related to its first lien RMBS credits.

As June 30, 2019, the statutory capital of MBIA Insurance Corp was $499 million. Claims paying resources totaled $1.3 billion. Cash in liquid assets in MBIA Corp totaled $135 million as of June 30, 2019. After quarter end, MBIA Corp completed the refinancing of the MZ Funding loan facility with a new maturity date of January 2022.

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

Thank you. At this time, the floor is now open for questions. [Operator Instructions] Our first question comes from the line of Bose George of KBW. .

First, just the provision you've had related to the PREPA RSA.

Was that based on the expectation that it's going to happen or once it gets approved is there room for further provisions related to that?.

With regard to PREPA the probability perhaps has been increasing over the course of this year. However, all of these things remain uncertain just given what we've seen with previous PREPA RSAs given the political situation in Puerto Rico et cetera. But we do believe that the probability associated with that has gone up from earlier in the year..

And in terms of the timing for that, can you remind us what the next steps are?.

It is a somewhat lengthy process. So there are several steps in the Title III process with Judge Swain, which likely will take us through this year and then you're in -- well into next year before would actually be executed..

Thanks.

And then if you just switching to the share repurchases from National, can you also just, go through the capacity there for share repurchases -- further repurchase activity?.

So our remaining repurchase authorization, which is what we're governed by at this point is $148 million, but from a regulatory capacity standpoint, we still got about $500 million of capacity based on the ratios that you need to hit..

Okay.

And that number there's no need to sort of check with the regulators, et cetera before that happened, that's something you guys can do on your own essentially?.

That is what the Insurance Law states obviously, we're in touch with the regulator with all material moves we make..

Okay, great. Thanks..

Our next question comes from line of Geoff Dunn of Dowling & Partners..

Thank you. Good morning. Just a couple of number of questions.

In National's liquidity, what was the $323 million benefit from investing activities?.

There was a number of portfolio sales over the quarter as we generated cash to pay the July claims and get ready for the as of right dividend in October..

Okay.

And then I should remember this and I don't, can you explain the differences between the GAAP incurred losses and stat incurred losses and specifically the delta between the 106 GAAP and the 169 stat this quarter?.

The primary difference is really the discount rate. The stat discount rate for National and -- there's two separate discount rates for them. National it's about 3.2%, for corporates it’s a little bit over 5%.

But you're discounting the claims and recoveries at the statutory rate and then for GAAP it's the risk free rate, which obviously is stat decreased for each of this last several quarters, so the discount rate is the biggest driver in the differences..

Okay, all right, thank you..

[Operator Instructions] And we have a question from the line of Giuliano Bologna of BTIG..

Good morning and thanks for taking my question. Looking at the call of the 2020, the partial call of the 2022 maturity, it looks like that would save you roughly 9.6 million a year or call it just under 30 million until maturity in interest expense.

Are there any other opportunities at holding company level to take out securities -- in advanced maturity to reduce interest costs?.

Well, the only callable debt of any size we have remaining of the rest of the 2022s. We focused -- our liquidity window in that range, as you know, for the last few years, we continue to focus on that now.

But we are still in contact with parties who offer securities, our securities back to us from time-to-time, and it's if something that we felt was, to your point, saved interest expense and made sense to us, we certainly would look at opportunities. .

And then flipping over to the tax escrow.

Did you mention or is there any disclosure around the amount of the escrow that's related to '18 versus the amount related to the first half of '19?.

The majority of the escrow was from '18. It's over 50% is from '18. And I believe $7 million is the payments to date in '19..

[Operator Instructions] There appears to be no further questions at this time. I'd like to turn the call back over to Greg Diamond for any additional or closing remarks..

Thank you, Maria. And thanks to those of you listening to the call. 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. Good bye. .

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect..