MBIA - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 GAAP net loss improved to $51.0M (vs. $138.0M in Q4 2023), driven by lower realized investment losses, FX gains, absence of derivative losses, and lower operating expenses; diluted EPS was $(1.07).
• Non-GAAP adjusted net loss was $22.0M ($(0.48) per share), reflecting higher losses and LAE at National tied to PREPA and lower net investment income, partially offset by lower Corporate opex.
• Year-end book value per share declined to negative $40.99 (from negative $32.56 in 2023) on the consolidated net loss; MBIA Inc. liquidity rose to $380.0M; National paid a $69.0M as-of-right dividend to MBIA Inc..
• Management prioritized resolving National’s PREPA exposure (~$800M claim) and indicated bondholders filed to move litigation forward; progress on PREPA and potential capital returns (e.g., regulator-approved specials) are key catalysts for any sale process.

What Went Well and What Went Wrong

What Went Well

• Lower consolidated GAAP net loss vs. prior year quarter due to reduced investment losses, FX gains on euro-denominated debt, absence of derivative losses, and lower compensation-driven opex.
• National’s insured portfolio continued to amortize (gross par declined to $25.3B), with CPR at $1.5B and statutory capital ~$0.9B; insured leverage ratio at 28:1.
• Management highlighted portfolio performance outside PREPA as consistent with expectations, reinforcing stability in the remainder of exposures.

What Went Wrong

• Adjusted net loss widened YoY in Q4 to $22.0M (from $8.0M) on higher losses and LAE (largely Puerto Rico) and lower net investment income at National.
• Full-year book value per share deteriorated further to negative $40.99, reflecting ongoing consolidated GAAP losses and MBIA Corp.’s negative book value impact.
• PREPA uncertainty continues to impede the sale process, with management indicating prospective buyers’ carve-out proposals are inadequate and more litigation progress is needed.

Transcript

Operator (participant)

Welcome to the MBIA fourth quarter and full year 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.

Greg Diamond (Managing Director of Investor and Media Relations)

Thank you, Madison. Welcome to MBIA's conference call for our full year and fourth quarter 2024 financial results. After the market closed yesterday, we issued and posted several items on our website, including our financial results, 10-K, 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' 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 and other SEC filings, as our company's definitive disclosures are incorporated in those documents. We urge investors to read our 10-K, as it contains our most current disclosures about the company and its financial and operating results. The 10-K also contains 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, as well as our financial results report and our quarterly operating supplement. The recorded replay of today's call will become available approximately two hours after the end of the call, and the information for accessing it is included in last week's press announcement and in the financial results report that is posted to the MBIA website. 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 in our forward-looking statements. Risk factors are detailed in our 10-K, which is 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, Will Fallon and Joe Schachinger will provide introductory comments, and then a question-and-answer session will follow. Now, here is Will Fallon.

Will Fallon (CEO)

Thanks, Greg. Good morning, everyone. Thank you for being with us today. Our full year and fourth quarter 2024 financial results were lower net losses than the comparable period for 2023. Compared to 2023, our full year 2024 financial results included benefits from reduced investment losses at National and the corporate segment and lower operating expenses. Our priority continues to be resolving National's PREPA exposure. While there have been many developments regarding PREPA since our conference call last quarter, the path and timing for resolving PREPA's outstanding debt remains largely uncertain. While there have been rulings and decisions to support a more favorable outcome for PREPA bondholders, the bondholders and the oversight board appear far apart.

Given the uncertainty associated with the possible outcomes for National's PREPA bankruptcy claim, which is in excess of $800 million, we continue to believe that the process to sell the company to maximize shareholder value will likely require substantially reducing the uncertainty regarding PREPA. 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 $3.1 billion from year-end 2023 to about $25 billion at the end of 2024. National's leverage ratio of gross par to statutory capital was 28 to 1 at the end of 2024. As of December 31st, 2024, National had total claims-paying resources of $1.5 billion and statutory capital and surplus in excess of $900 million. Now, Joe will provide additional comments about our financial results.

Joe Schachinger (CFO)

Thank you, Will, and good morning, all. I will begin with the review of our fourth quarter and full year 2024 GAAP and non-GAAP results, and then provide an overview of our statutory results. The company reported a consolidated GAAP net loss of $51 million, or a -$1.07 per share for the fourth quarter of 2024, compared to a consolidated GAAP net loss of $138 million, or a -$2.94 per share for the fourth quarter of 2023. The lower GAAP net loss this quarter was driven by several items. First was a favorable change in net realized investment losses. Significantly higher realized investment losses in the fourth quarter of 2023 resulted from sales of securities to fund National's as-of-right and special dividends to MBIA Inc and in our corporate segment to fund the termination of interest rate swaps.

We also realized mark-to-market losses on those interest rate swaps in 2023, with no comparable losses in 2024. In addition, in the fourth quarter of 2024, we reported foreign exchange gains on euro-denominated debt within our corporate segment compared to foreign exchange losses on that debt in the fourth quarter of 2023. The gains and losses were driven by movements in the U.S. dollar/euro exchange rate in each period. Finally, consolidated operating expenses are lower in the fourth quarter of 2024 compared to the fourth quarter of 2023, primarily due to lower compensation costs. The company's adjusted net loss, a non-GAAP measure, was $22 million, or a -$0.48 per share for the fourth quarter of 2024, compared to an adjusted net loss of $8 million, or a -$0.16 per share for the fourth quarter of 2023.

The unfavorable change was primarily due to higher loss in LAE and lower net investment income at National, partially offset by lower operating expenses. For full year 2024, the company reported a consolidated GAAP net loss of $447 million, or a -$9.43 per share, compared to a consolidated net loss of $491 million, or a -$10.18 per share for full year 2023. The lower consolidated GAAP net loss for full year 2024 was driven by lower net realized investment losses at National and in our corporate segment, lower losses related to the termination and deconsolidation of variable interest entities at MBIA Insurance Corp, and lower operating expenses.

These favorable variances were somewhat offset by fair value losses on assets acquired in connection with recoveries of paid claims related to the Zohar CDOs, lower net investment income primarily due to a reduction in invested assets from dividends paid in 2023, and higher loss in LAE at National. The company's adjusted net loss was $184 million, or a -$3.90 per share for full year 2024, compared to an adjusted net loss of $169 million, or a -$3.49 per share for full year 2023. The unfavorable change was primarily due to the higher loss in LAE and lower net investment income at National, partially offset by lower operating expenses. MBIA Inc's book value per share decreased $8.43 to a -$40.99 per share as of December 31st, 2024, from a -$32.56 per share as of December 31st, 2023.

This decrease was primarily due to our consolidated net loss for full year 2024. Included in MBIA Inc's book value as of December 31st, 2024, is a -$49.48 per share of MBIA Insurance Corp's book value versus a -$44.91 per share as of December 31st, 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 $707 million as of December 31st, 2024. Within this total are the following material assets: unencumbered cash and liquid assets held by MBIA Inc totaled $380 million compared with $411 million as of December 31st, 2023. The decrease was largely due to spending approximately $78 million in the first and second quarters of 2024 on purchasing GFL euro-denominated medium-term note liabilities and 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 the fourth quarter of 2024, National declared and paid an as-of-right dividend of $69 million to MBIA Inc, which partially offset MBIA Inc's decrease in cash and liquid assets during 2024. In addition to the unencumbered cash and liquid assets, the corporate segment's assets included approximately $213 million of assets at market value pledged to guaranteed investment agreement contract holders, which fully collateralized those contracts. Now I'll turn to the insurance company's statutory results. National reported a statutory net loss of $10 million for the fourth quarter of 2024 compared to a statutory net loss of $9 million for the fourth quarter of 2023.

In the fourth quarter of 2024, higher loss and LAE related to National's PREPA exposure and lower net investment income were largely offset by lower net realized investment losses compared to the fourth quarter of 2023. For full year 2024, National reported a statutory net loss of $133 million compared to a statutory net loss of $142 million for full year 2023. The favorable change was primarily due to lower net realized investment losses partially offset by lower net investment income and lower loss and LAE mostly related to National's PREPA exposure. National's statutory capital as of December 31st, 2024, was $912 million, down $205 million compared to December 31st, 2023, largely due to its statutory net loss for full year 2024 and the $69 million as-of-right dividend paid to MBIA Inc in December of 2024. Claims-paying resources were $1.5 billion, down $174 million from December 31st, 2023.

Now I'll turn to MBIA Insurance Corp. MBIA Insurance Corp reported statutory net income of $4 million for the fourth quarter of 2024 compared to statutory net income of $6 million for the fourth quarter of 2023. Higher net income in last year's fourth quarter was primarily due to a small loss in LAE benefit. For full year 2024, MBIA Insurance Corp reported a statutory net loss of $64 million compared to a statutory net loss of $28 million for full year 2023. The higher net loss in 2024 was primarily driven by higher loss in LAE mostly related to adjustments to estimates of recoveries of paid claims associated with the Zohar CDOs. As of December 31st, 2024, the statutory capital of MBIA Insurance Corp was $88 million, down from $152 million at year-end 2023, primarily due to its net loss for full year 2024.

Claims-paying resources totaled $356 million at December 31st, 2024, compared to $504 million at year-end 2023. MBIA Insurance Corp's insured gross par outstanding was $2.3 billion as of December 31st, 2024, down about 18% from year-end 2023. The decrease in gross par outstanding was driven by regular amortization of the insured portfolio, as well as our proactive de-risking of exposures for which we held reserves and were paying claims. We will now turn the call over to the operator to begin the question-and-answer session.

Operator (participant)

If you have a question at this time, please press star one on your telephone keypad. If you wish to remove yourself from the queue, press star two. We ask that when posing your question, you please pick up your handset to allow optimal sound quality. We will take our first question from Tommy McJoynt with KBW. Please go ahead.

Tommy McJoynt (Director of Equity Research)

Hey, good morning. You pay the regular way dividend in the fourth quarter every year, and that's a way to trickle out excess capital out of National. As the rest of the portfolio continues to run off and you naturally de-lever, are there ways to think about your strategy to release incrementally beyond that regular dividend? You obviously paid the very large special at the end of 2023, but I guess I'm referring to is it possible to work with your regulator to allow more frequent, albeit smaller and more measured special capital releases out of National rather than only pursuing a large lump sum special?

Will Fallon (CEO)

Tommy, the answer is yes. We can do that. To your point, you just need the regulator to approve it. We obviously have ongoing conversations with our regulator. Given what was going on with Puerto Rico when you go back several years and we had approximately $4 billion of exposure, we did not think it was prudent to engage in those conversations. As you just mentioned, we then had a large dividend of $550 million, which was a special dividend in addition to the annual as-of-right dividend that you referenced. We continue to look at that. I think right now, given the size of the portfolio, the way the portfolio is amortizing, and again, with the exception really of PREPA, which is the one thing we focus on quite heavily, we probably would want more certainty around PREPA before we went for a special dividend from the regulator.

It all depends on all the factors you mentioned. If the portfolio continues to come down, we'll continue to look at it. I think right now, given the size of PREPA with the $800 million claim that we have, the regulator would want to see some movement towards resolution of that.

Tommy McJoynt (Director of Equity Research)

Okay. Got it. Switching over with regards to the PREPA litigation, can you just talk about your position within the creditor group and perhaps as your objectives relate to the rest of the members of that group? I'm kind of thinking, are there points where maybe MBIA has the incentive to focus on expediting the potential resolution rather than maximizing recoveries? Can you just talk about your objectives relative to the other members there?

Will Fallon (CEO)

Sure. When we think about what would be best for our shareholders, there's the two points that you just alluded to. One is the dollar recovery or the percentage recovery, however you want to think about it. The second is timing. Obviously, all things equal, having this resolved sooner rather than later would be beneficial to our shareholders. We look at both of those things. I think all of the bondholders also look at both of those components of this. While I'm sure everyone has a differing view as to exactly what they're looking for, right now, I think there's very strong alignment, and we'll continue to work through this. The biggest challenge right now seems to be the oversight board and their position, but hopefully we'll see some movement in the near future with regard perhaps to litigation. As people know, we filed, that is, all the bondholders had a filing this week to try to move the litigation forward because, to your point, timing is important. The sooner we can get this resolved, the better.

Tommy McJoynt (Director of Equity Research)

Makes sense. Thank you.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question today, please press the star and one on your telephone keypad now. We will pause for just a moment to allow any additional questions to queue. We will take our next question from Paul Saunders with Hutch Capital. Please go ahead. Please go ahead, Paul Saunders. Your line is open.

Paul Saunders (Portfolio Manager)

Hi. Sorry about that. I was on mute. Can you guys hear me?

Will Fallon (CEO)

Yes.

Paul Saunders (Portfolio Manager)

Morning. Hey, Will. Thanks for taking my question.

Will Fallon (CEO)

Morning, Paul.

Paul Saunders (Portfolio Manager)

You guys have been asked this somewhat over the last few quarters, but in terms of just sort of the uncertainty around PREPA and that being what's holding up sort of the bid-asked, I guess, on a sale process for MBIA, can you explain sort of why kind of carving that out of a purchase price and sort of some sort of contingent type instrument to where if recovery is less than the buyer expects and they pay less to shareholders type of thing? Is there any sort of possibility to strike a deal for MBIA excluding the PREPA obligation?

Will Fallon (CEO)

It's possible, and we've had those conversations. Everything that has been suggested or offered has been, in our view, very inadequate as far as our shareholders would be concerned.

Paul Saunders (Portfolio Manager)

Why is that? I guess my thought is just if they have some view on what ultimate recovery is and they're worried about it and you think it's going to be higher than that, I don't really understand why you couldn't solve exactly for that. Or is it something unrelated to PREPA that you're saying is unsatisfactory to the shareholders?

Will Fallon (CEO)

I suppose I don't know exactly what is in the mind of the people who are expressing some interest, but I think when you deal with the size of the PREPA claim and the complexity around it, the prospective buyers aren't willing to offer, again, what would be acceptable, and therefore it is better to play out the PREPA situation.

Paul Saunders (Portfolio Manager)

Yep. Got it. Okay. Thank you.

Will Fallon (CEO)

Thank you.

Operator (participant)

Thank you. At this time, I am showing no further questions. I would like to turn the floor back to Greg Diamond for any additional or closing remarks.

Greg Diamond (Managing Director of Investor and Media Relations)

Thanks again, Madison. 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 about the company. Thank you for your interest in MBIA. Good day and goodbye.

Operator (participant)

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