MBIA Inc. (MBI) Earnings Call Transcript & Summary

Thank you for your continued patience. Your meeting will begin shortly. at any time, please press star zero Please stand by. Your meeting is about to begin. Welcome to the MBIA, Inc. Second Quarter 2026 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, Angela. Yes, welcome to MBI's conference call for our latest financial results. After the market closed yesterday, we issued and posted several items on our websites, including our financial results, 10Q, early 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. 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 statements. Risk factors are detailed in our 10 K and 10 Q's, 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 Sackinger will provide introductory comments and then a question and answer session will follow. Now here's Bill Fallon. Thanks, Greg.

Good morning, everyone. Thank you for being with us today. Our second quarter and year-to-date financial results for 2026 provided favorable comparisons to the same periods for the prior year. Our priority continues to be resolving national's PREPA exposure. National's outstanding prep exposure reduced by $35 million to $390 million of gross par value. due to the insurance policy claims paid by national prep of bonds that matured on July 1st, 2026. There was also some progress on several of the litigations related to PREPA. The director of the White House Personnel Office, which appealed the injunctive relief that was awarded to three of the oversight board members that were fired by President Trump, has asked the First Circuit Court of Appeals to remand that case back to the trial court in light of the U.S. Supreme Court's rulings issued in late June regarding the slaughter and cook cases. In the case about the PREPA bondholders counterclaim for the calculation of net revenues, Judge Swain lifted the self-imposed litigation stay and that case is currently in discovery. Administrative claim appeal to the First Circuit. That case is now fully briefed and scheduled for all arguments in Boston on September 15th. Separately, the Oversight Board nearly doubled their settlement offer to PREPA bondholders from $1.6 billion to approximately $3 billion. However, bondholders representing about 90% of the bondholder claims soundly dismiss the offer as unacceptable and inadequate. Regarding the balance of Nationals insured portfolio, those credits have continued to perform generally consistent with our expectations. The gross par amount outstanding for nationals insured portfolio has declined by approximately $1.5 billion from year end, 2,025 to about 20.8 billion dollars at June thirtieth 2,026. National's leverage ratio grows part of statutory capital, just 21 to one at the end of the quarter, down from 24 to one at year end 2025. As of June 30th, 2026, National had total claims paying resources of $1.4 billion and statutory capital and surplus of about $970 million. Now Joe will provide additional comments about our financial results. Thank you, Bill, and good morning, everyone.

I will begin with a review of our second quarter 2026 gap and non gap results. followed by an overview of our holding company liquidity and our statutory results. The company reported a consolidated gap net loss of $46 million, or a negative $0.91 per share, for the second quarter of 2026, compared with a consolidated gap net loss of $56 million, or a negative $1.12 per share, for the second quarter of 2026. share for the second quarter of 2025. The lower gap net loss this quarter was primarily driven by two items. First, we recorded a reversal of legal expenses within a Consolidated Variable Interest Entity, or VIE, related to our ZOHAR CDO recoveries at MBIA Insurance Corp. And second, our results benefited from foreign exchange gains in the second quarter of 2026, compared with foreign exchange losses in the same period of 2025. These foreign exchange impacts were associated with the revaluation of Euro denominated medium term note liabilities. In our corporate segment, and resulted from changes in foreign exchange rates. The company's adjusted net loss, which is a non-GAAP measure, was $7 million, or a negative 14 cents per share, for the second quarter of 2026. paired with an adjusted net loss of $8 million or a negative 17 cents per share for the second quarter of 2025. The modest improvement in our adjusted net loss this quarter was primarily driven by slightly lower loss and loss adjustment expenses or at national related to its exposure. NBIA Inc.'s book value per share as of June 30, 2026 was negative $45.58 per share, reflecting a decrease of $1.31 per share from year-end 2025. This decrease was primarily due to our consolidated net loss of $86 million for the first six months of 2026. Included in NBIA Inc's book value per share as of June 30, 2026 is a negative $54.26 per share of NBIA Insurance Corps' book value. I will now spend a few minutes on our corporate segment balance sheet. The corporate segment, which primarily includes the activities of the holding company, NBIA, Inc., had total assets of approximately $635 million as of June 30, 2026. Within this total are the following material assets. Unencumbered cash and liquid assets held by NBIA Inc. totaled $337 million, compared with $357 million as of December 31st, 2025. The decrease from year-end 2025 was primarily due to ongoing debt service payments and operating expenses net of investment income. We continue to manage holding company liquidity carefully with a primary focus on meeting our outstanding obligations and preserving financial flexibility. In addition to the unencumbered cash and liquid assets, the corporate segments assets included approximately 183 million dollars of assets at market value pledged to guaranteed investment agreement contract holders. These assets fully collateralized the principal amounts of those contracts. The segment's assets also included $66 million of assets at NBIA Services, our management services company, to support its operating obligations. I'll now turn to the insurance company statutory results. National reported statutory net income of $10 million for the second quarter of 2026. Compared with statutory net income of 6 million dollars for the second quarter of 2025. The favorable variance was primarily driven by higher earned premiums, which resulted from refundings of insured credits, and lower loss in LAE and operating expenses in the current quarter. National statutory capital as of June 30th, 2026 was $968 million, up $31 million compared with December 31st, 2025. The increase was mostly due to national statutory net income for the first 6 months of 2026. As well as unrealized gains in its investment portfolio. As of June 30th, 2026, National's claims paying resources were $1.4 billion, consistent with year-end 2025. Now I'll turn to MBIA Insurance Corp. MBIA Insurance Corp. reported statutory net income of $27 million for the second quarter of 2026, compared with statutory net income of $4 million for the second quarter of 2025. The favorable variance was primarily driven by a significantly larger loss in LAE benefit in the current quarter compared with the second quarter of 2025. The loss in LAE benefit this quarter was driven by our ongoing reassessment of recoveries of paid claims and other amounts owed to MBIA Insurance Corp. related to the ZOHAR CDOs. As of June 30th, 2026, the statutory capital of NBIA Insurance Corp was $106 million, reflecting an increase of $27 million from year-end 2025. This increase was primarily a result of net income of $28 million for the first six months of 2026. Claims paying resources totaled $342 million as of June 30, 2026, up $25 million from year-end 2025. NBIA Insurance Corp's insured gross par outstanding was just under $1.8 billion as of June 30, 2026. down approximately 12% from year end 2025 due to regular amortization of the insured portfolio. And now we will turn the call over to the operator to begin the question and answer session.

Thank you. 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 question, you please pick up your handset to allow optimal sound quality. And we'll take our first question from Tommy McJoynt with KBW. Your line is now open.

Good morning, this is Molly on for Tommy. Thank you for taking our questions. 1st, can you talk about the latest settlement proposal from the oversight board from your perspective? Was there anything incrementally positive about the offering terms relative to prior proposals? Or, you know, in your view, are we no closer to a potential resolution?.

previously. Yes, thank you, Molly. With regard to the PREPA proposal that came across, The positive was that it was from their perspective a substantial increase. Other than that, there's not a whole lot to talk about. As I said in my comments, the bondholders dismissed it as clearly inadequate. So hard to say where we go from here in terms of how much time, as I mentioned, the litigations are moving forward and as you know there is some uncertainty with regard to the composition of the oversight board currently currently only four members, three of whom are fighting the dismissal by the Trump administration. So hard to tell with regard to timing. and you know exactly how this will play out but those are our thoughts with regard to that proposal.

Thank you and I guess, secondly, you paid the special dividend out of national a couple years ago that caused national capital ratio to dip from just over 3% to about 2%. Should we think of any portion of the capital ratio above that roughly 2% figure as potentially being available to distribute up to the whole.

As the insured portfolio continues to run down. Yes, so with regard to national and any distributions from national holding company, you're correct. It was at the end of 2023 that we had a special. Distribution from national to holding company. While everyone looks at different metrics and does their own financial analysis as the book gets smaller, it becomes a very tailored analysis with regard to what's in the national portfolio. So I understand how everyone looks at metrics and that's in a sense fine. But it probably has to be even a more detailed analysis to determine exactly what the potential dividend or distribution could be.

Thank you. And our next question will come from investor Carlos Pardo. Your line is now open.

Hi, this is Carlos Pardo from London. Good afternoon. Just a few questions. I mean, on the buybacks, I saw that the capacity is still $71 million, and I just wanted to make sure that you confirmed that it is available and it still could be deployed. Okay. That is correct. There is 71 million available. So basically there is no other constraint, not just the legal constraint, but also it's basically up to you to decide when you think that this is in the interest of the shareholders. My impression is that since the share price has dropped as you said, as you have seen over the last year, maybe now it is the time to consider whether deploying these buybacks. And of course, I mean, I will be sending you my idea of basically the levels and the volumes as to how this could be done. But basically, at the moment with the yesterday's price, you could retire approximately 14 million shares. Since I expect that the Oversight Board will have some good news in terms of the composition of the Oversight Board soon, I think that probably this drop to around $5 is a good opportunity. So just to let you know that I will be sending you a proposal. It's always up to you to decide whether to implement it. OK. Then on the custodial receipts, I saw that you have done another transaction for 30 million. I assume that this 30 million corresponds to the payments that we made under PREPA on the 1st of July, and I think that there was another one on the 1st of January?.

So with regard to the custodial receipts and the debt service payment that we made on July 1st, So we paid 35 million on July 1st. Yes. Five million was a secondary policy. So 30 million now have been transferred into a custody account. We have the custodial receipts as we did last year. Those could be sold. fantastic okay that and then the five million that were secondary those can be sold as well so we have 35 million that could be sold if we think there's was an appropriate price or offer that we received, then we would sell up to $35 million.

That's fantastic. And then on PREPA payments, the only payments that we will have to make over the next two years is 20 million in 27 and 20 million in 28. So it is relatively benign, the payment schedule.

That's correct. The debt service payments on prep have declined significantly over the period you just mentioned. Yes.

That's fantastic. That's good news. And also, you know, related to the potential use of the buybacks, I think that, you know, that could theoretically make sense. But of course, I mean, it's always up to you guys that you have the bigger, the full picture. Then on the COP, you know, basically, you know, the COP has been extended until, I think that is... is August 2027, which I think that it makes sense in terms of the recent decisions and the potential for new members of the oversight board. But I just wanted to know, the terms of the COP has not changed. So basically, only one party to the co-op is opposing an agreement that has been reached by all the other parties to the co-op, this party, let's say for example, as your guarantee, could not block this agreement. Is that correct? Are those terms still valid? Essentially, yes. Yes. So basically, they could not block. I mean, let's say, for example, a civil guarantee does not agree with an agreement that has been reached by the rest of the co-op members, they cannot block it. My question there is, since the resolution of PREPA is so important for NBAA, and we put any further move on sale or similar on hold until this is resolved. How does the conversations within the Co-op look like? Are we actively seeking to propose potential solutions to the other members of the Co-op or are we more on.

on a passive mode? I can't get into the details in terms of the views of all the different members. at the bondholders. I can assure you we're not passive, but we obviously have a very vested interest in the outcome. And we're looking to work to 90% of the bondholders are in the co-op agreement. And I think the biggest issue really has been the oversight board. That is the uncertainty with regard to the composition of the board and also the litigation related to it. We think that could be a real catalyst. That is either the appointment of... the three vacant positions or the resolution of the litigation. Hopefully that will be again a catalyst to move this forward. Well,.