Welcome to the MBIA Inc. First Quarter 2020 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 first quarter 2020 financial results.

After the market closed yesterday, we issued and posted several items on our websites, including our financial results, 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 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-Q as it contains 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 report and quarterly operating supplements.

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 last week's press announcement and in the financial results that we posted on the MBIA website yesterday. Now, for our safe harbor 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. 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 which will be followed by a question-and-answer session. Now, here's Bill Fallon..

the Commonwealth General Obligation bonds; the Puerto Rico Electric Power Authority or PREPA; and the Puerto Rico Highways & Transportation Authority, or HTA. At March 31, 2020 our exposure to general obligation bonds was about $655 million of gross par or about $815 million of total debt service.

Our PREPA exposure was $968 million of gross par or $1.3 billion of total debt service. And our HTA exposure was about $600 million of gross par or $1 billion of total debt service.

At this time, the 9019 motion seeking approval of the Title III Court or the PREPA Restructuring Support Agreement has been adjourned indefinitely due to the COVID-19 pandemic. The Oversight Board is scheduled to deliver a status report on PREPA on May 15.

There's also a plan of adjustment between the Oversight Board and a group of Commonwealth bondholders representing approximately 55% of the par amount. We and several other large bondholders do not support that proposed agreement and neither does the Commonwealth government. As yet, there are no specific agreements related to the HTA debt.

As I mentioned earlier, due to the COVID-19 pandemic, we have enhanced our review of a number of other credits in the insurance portfolios. Most of the credits in our insurance portfolios continue to perform consistent with our expectations. The outstanding gross par of the insured portfolios continued to reduce.

National's insured portfolio has further declined to $47 billion, down approximately $2 billion from year-end 2019. National's leverage ratio of gross par to statutory capital was 23:1. During the first quarter, National purchased 8.1 million MBIA's common shares at an average price of $7.99 per share.

Year-to-date through May 4, 2020, National purchased 12.5 million MBIA shares at an average price of $7.82 per share. As of May 4, 2020, MBIA had 67.7 million shares outstanding. On May 5, 2020, our Board of Directors approved a new share repurchase authorization for $100 million. Now Anthony will cover the financial results..

unencumbered cash and liquid assets held by MBIA Inc. totaled $314 million as of March 31, 2020 versus $375 million as of December 31, 2019. The decrease was primarily due to increases in collateralization requirements associated with the GIC business as a result of COVID-19 related market impacts on credit spreads and a decline in interest rates.

As of March 31, 2020, there were $28 million of tax deposits in the tax escrow account, which represented the remaining portion of National's 2018 tax payments. In February of 2020, due to a full year 2019 tax loss at National, MBIA Inc. returned $7 million of National's 2019 tax deposits and $26 million of National's 2018 tax share deposits.

As we stated last quarter, tax escrow releases are not expected to be a meaningful contributor to holding company liquidity in the future. There were approximately $560 million of assets at market value pledged to the GICs and the interest rate swaps supporting the GIC book. Turning to the insurance company's statutory results.

National reported a statutory net loss of $80 million for the first quarter of 2020 compared to net income of $48 million for the prior year’s comparable quarter.

The unfavorable result was primarily due to higher loss in LAE and lower revenues, partially offset by the tax benefit generated in Q1 2020 from National's net operating loss and the impact of longer carryback period for its 2019 and 2020 tax losses under the CARES Act.

In January of 2020, National paid $59 million in gross Puerto Rico related claims, which brings inception-to-date gross claims paid to $1.2 billion. As of March 31, 2020, National's total fixed income investment portfolio, including cash and cash equivalents, had a book adjusted carrying value of $2.4 billion.

Statutory capital was $2.1 billion, a decrease from year-end 2019 due to unrealized losses, share repurchases and the quarterly net loss. Claims paying resources totaled $3.3 billion. Insured gross par outstanding reduced by $1.6 billion during the quarter and now stands at $47.4 billion.

Turning to MBIA Insurance Corp., the statutory net loss was $91 million for the first quarter of 2020 compared to a statutory net loss of $1 million for the first quarter of 2019. The unfavorable change was primarily due to higher loss in LAE related to the Zohar credits in the current year quarter, somewhat offset by foreign exchange gains.

As of March 31, 2020, the statutory capital of MBIA Insurance Corp. was $382 million versus $476 million as of December 31, 2019. Claims paying resources totaled $1.1 billion, and cash and liquid assets totaled $120 million.

MBIA Corp.'s insured gross par outstanding reduced by just under $1 billion during the quarter and was $9.1 billion as of March 31, 2020. And now we will turn the call over to the operator to begin the question-and-answer session. .

Thank you. [Operator Instructions] Our first question comes from the line of Bose George of KBW..

Hey good morning guys, this is Tommy McJoynt, on for Bose..

Good morning..

I hope everyone is well. So you re-upped the repurchase authorization at National last week.

How should we think about National's capacity to purchase MBIA's shares longer term? And kind of how you're balancing that with the need to potentially preserve capital if this uncertain outlook ends up worsening a bit?.

Yes, Tommy, with regard to that, there are several aspects, as you know. And we've been quite clear that we look at many factors as we think about the share repurchases that National has done.

As of March 31, from a regulatory perspective, there is $349 million of capacity remaining, so that's the first sort of constraint from a regulatory perspective. Then to your point, we look at many other factors in terms of the resources that National needs, what the stock price is and many other things that you would think about.

So the one known requirement is that $349 million, the Board has authorized another $100 million, we had essentially just almost completely exhausted $250 million, which we had spent roughly over about a 2.5-year period.

So we'll continue to look at all these things and decide what we think the appropriate approach is, and that obviously is subject to change at any point in time. But we have, I think, always been very clear that we think buying shares at attractive prices is beneficial for long-term shareholder value. .

All right, that all makes sense.

And just kind of broadly speaking, obviously, there's a ton of uncertainty, but how are you thinking about the kind of municipal financial position right now just given the challenging environment? How do you compare this to what we saw back in 2008? And then how dependent is your view on getting support from the federal government in the next spending, Bill?.

So as you know, there are several or many uncertainties at this point, and you touched on the financial situation back in 2008, which is 12 years ago.

From that, the municipal portfolio that we ensure really did not see any defaults; things like Detroit and Puerto Rico, we would argue, had to do with other factors, not the financial crisis back in 2008.

And even if you go back to other unfortunate catastrophes, such as Katrina, even before that, municipals have held up pretty well, but this is clearly something very different in terms of the pandemic that we're facing right now. We do not know at this point what the breadth and depth of the impact will be.

And to your point, the mitigating factors such as federal aid or federal programs that either have been approved already or might be approved in the near future. So we'll continue to look at that closely.

There's no doubt that there are certain revenue streams to states and cities that have been adversely affected; for example, sales tax revenues, we've seen a significant drop in those, but we continue to monitor it. There have not been any claims made against any of our policies at this point. But as we've mentioned, we will look at it closely..

Thanks. And then just last one. In the release and in your prepared remarks, you called out Puerto Rico exposure that's contributing to the loss in LAE expense this quarter.

Was that just related to the timing of you kind of continuing to cover claims, given the down set of COVID delayed kind of any resolution? Or was there other adverse developments that you incorporated?.

You just hit on the primary one. Because of the pandemic, timing has been delayed with regard to pretty much all aspects of the restructuring. And we'll wait and see exactly how long those delays might be, but you hit the right one. .

Okay.

In the May 15 update with PREPA, is that going to be made public, do you know?.

We would expect that some portion or all of it will be made public shortly after that..

Okay, great. Thank you guys..

Our next question comes from the line of Giuliano Bologna of BTIG..

Good morning guys. Thank you for taking my questions.

Starting on the loss reserve side, obviously, there were a few adjustments, but I'd be curious to get a sense of how much the impact was from kind of credit-driven assumptions versus interest rate assumptions?.

So Giuliano good morning. Assumptions governed the increase in loss reserves, the changes in profiles to both the amount of payments that we'll be making and the decrease in salvage drove the loss reserves. Obviously, it's a credit by credit issue for some of those credits that we made those adjustments.

The assumptions drove it because you have lower discount rates on the payments themselves, which drove it. For other credits where we did not make those kind of adjustments or as many adjustments, the lower discount rate obviously reflects itself in increasing salvage.

So I would say assumptions all in governed the loss reserves for the quarter, but certainly discount rates are a factor, especially for Puerto Rico, just given that there's a significant salvage piece..

That makes sense.

And then thinking about the holding company liquidity, are there any opportunities to buy any of the securities back, whether it be some of the remain – whether it be bonds or any of the other debt securities at the holding company at a discount to accelerate deleveraging and take out interest expense – and potentially take out interest expense faster?.

So there as you know, during the last year, we took out a part of the 2022 6.4% debt. We're still essentially concentrated on getting through the liquidity window of 2022 at this point we're you know now starting to be able to look beyond that, but that's really been our focus.

But to the degree, again, that there's opportunities, we're always looking to see if something is optimal for us to do..

That makes sense. I appreciate that. And thanks for taking my questions..

Thank you so much..

Thank you..

Our next question comes from the line of Geoffrey Dunn of Dowling Partners..

Thanks. Good morning. I just want to follow-up on that.

Can you actually disclose the impact the discount rate changes had on the National's $48 million this quarter for incurred losses?.

No. We're not – we can't break it out exactly. Only just to say, again, the assumptions drove the loss reserves more than the impacted discount rates, but it's a credit by credit impact, so I can't give you the exact breakdown. .

Okay.

And then can you discuss the investor-owned utility reserve adjustment for the quarter?.

Sure. That's a credit that was on our caution list prior to the quarter, which given change in facts and circumstances on it, we wound up taking a reserve this quarter that was in part contributing to the loss in LAE for National this quarter..

And what are the issues that had it on your caution list and incrementally drove the reserve?.

Essentially, we had a bankruptcy of the utility..

Okay. And then I just want to revisit this discount rate question again.

Excluding the impact of discount rates, was there favorable development in the quarter or was there an actual incurred loss provision?.

There was an incurred loss provision..

Okay, thank you..

[Operator Instructions] Our next question comes from the line of Paul Saunders of Hutch Capital..

My questions have actually been asked and answered already. Thanks guys..

Thank you..

Okay, thank you..

And 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..

Thanks, again, Maria. And thanks to all of you who are 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 goodbye..

Thank you, ladies and gentlemen. This does conclude today's first quarter 2020 earnings conference call. You may now disconnect..