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Edited Transcript of MBI.N earnings conference call or presentation 2-Mar-21 1:00pm GMT

·36 min read

Q4 2020 MBIA Inc Earnings Call ARMONK Mar 2, 2021 (Thomson StreetEvents) -- Edited Transcript of MBIA Inc earnings conference call or presentation Tuesday, March 2, 2021 at 1:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Anthony Matthew McKiernan MBIA Inc. - Executive VP & CFO * Gregory R. Diamond MBIA Inc. - MD, IR * William Charles Fallon MBIA Inc. - CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Giuliano Jude Anderes Bologna Compass Point Research & Trading, LLC, Research Division - Research Analyst * John Adolphus Staley Staley Capital Advisers, Inc. - Founder, CEO, President and Director * Paul Saunders Hutch Capital Management LLC - Portfolio Manager * Peter Vincent Troisi Barclays Bank PLC, Research Division - Director & Senior Analyst * Thomas Patrick McJoynt-Griffith Keefe, Bruyette, & Woods, Inc., Research Division - Assistant Analyst * Vadim Perelman ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Welcome to the MBIA Inc. Fourth Quarter and Full Year 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. -------------------------------------------------------------------------------- Gregory R. Diamond, MBIA Inc. - MD, IR [2] -------------------------------------------------------------------------------- Thank you, Maria. Welcome to MBIA's conference call for our full year and fourth quarter 2020 financial results. After the market closed yesterday, we issued and posted several items on our websites, 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 portfolios. Regarding today's call, please note that anything said on the call is qualified by the information 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. A recorded replay of today's call will become available approximately 2 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 report that was posted yesterday on MBIA's websites. 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, 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, Bill Fallon and Anthony McKiernan will provide some introductory comments, and then a question-and-answer session will follow. Now, here is Bill Fallon. -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Greg. Good morning, everyone. Thank you for being with us today. After the fourth quarter ended, we had 2 significant developments of note. The RMBS putback settlement with Credit Suisse and the revised Plan Support Agreement, or PSA, for the Puerto Rico GO debt. The RMBS putback settlement with Credit Suisse came after more than 11 years of litigation and resulted in Credit Suisse paying MBIA insurance Corp. $600 million. Regarding new PSA for Puerto Rico, National was a signing party to this new agreement that was announced last week. While both of these developments occurred in 2021, they were both reflected in our fourth quarter and full year 2020 financial results. For the Credit Suisse settlement, the $600 million recovery was reflected in the relevant MBIA Insurance Corp. accounts. For the Puerto Rico PSA, its economics were reflected within the cash flow scenarios and probability weightings that we use to calculate National's loss expenses and reserves. Turning to our bottom line financial results. The company's $81 million net loss for the fourth quarter of 2020 was caused primarily by the $103 million of loss and loss adjustment expense for the quarter. MBIA Insurance Corp. accounted for approximately 70% of the loss expense, which primarily resulted from reduced estimated recoveries on the Zohar CDOs. As we have noted previously, we do not believe the financial performance of MBIA Insurance Corp. has an impact on MBIA Inc. shareholders. The remaining 30% of loss expense that resulted from National was primarily due to the increase in risk-free discount rates that caused a reduction in the present value of the estimated recoveries on claims largely related to Puerto Rico credits. Last week, National became a signing party to the revised Puerto Rico PSA. Approximately 62% of bondholders supported the agreement. Subsequently, the federal oversight management board has announced that it has achieved the PSA threshold attainment level of 70% bondholders support for the revised agreement. Please note that National has the unilateral right to terminate its participation in the revised PSA on or prior to March 31, 2021. In the meanwhile, we continue to support the implementation of the restructuring support agreement for the Puerto Rico Electric Power Authority, or PREPA, and pursue resolutions of the debt obligations of the Puerto Rico Highway & Transportation Authority, or HTA. Regarding National's litigation against certain underwriters of some of its insured Puerto Rico debt, we await a resolution of the defendant's motion to dismiss the case, which was fully briefed as of November 30, 2020. Most of the credits in our insurance portfolios continue to perform consistent with our expectations. The outstanding gross par of the insured portfolios continues to reduce. National's insured portfolio declined to $42 billion at year-end, down $2 billion from the previous quarter's end. At December 31, 2020, National's leverage ratio gross par to statutory capital was 21:1. During 2020, National acquired 26.4 million shares of MBIA's common stock at an average price of $7.50 per share. As of February 22, 2021, MBIA had 53.7 million shares outstanding. Since the end of 2016, the company has repurchased 86 million shares of MBIA common stock, which we believe has contributed to substantial value to MBIA Inc. shareholders. Now, Anthony will cover the financial results. -------------------------------------------------------------------------------- Anthony Matthew McKiernan, MBIA Inc. - Executive VP & CFO [4] -------------------------------------------------------------------------------- Thanks, Bill, and good morning. I will begin with a review of our fourth quarter and fiscal year-end 2020 GAAP and non-GAAP results. The company reported a consolidated GAAP net loss of $81 million or a negative $1.64 per share for the fourth quarter ended December 31, 2020, compared to a consolidated GAAP net loss of $243 million or negative $3.21 per share for the fourth quarter ended December 31, 2019. The lower net loss this quarter was driven by several factors: Higher VIE income in Q4 2020, primarily due to an increase in our RMBS putback recoveries, reflecting the settlement with Credit Suisse; lower loss and loss adjustment expense at National; lower impairments on investments; and lower consolidated VIE expense as several VIEs were deconsolidated in 2020 due to the repayment of insured debt by the issuer and the related elimination of our insurance coverage. These items were somewhat offset by foreign exchange losses on financial instruments and lower net investment income due to lower invested assets at National. Loss in LAE incurred at National this quarter was primarily due to the increase in risk-free rates used to discount Puerto Rico assume losses and recoveries. There were no material changes to our loss scenarios. As Bill stated earlier, results of the analysis related to the GO PSA National conditionally entered into fell within our current estimates of GO loss reserves and recoveries. Loss and loss adjustment expense this quarter at MBIA Corp. was higher than the prior comparable quarter, primarily due to a reduction in estimated recoveries on claims paid on the Zohar CDOs. The company's adjusted net loss and non-GAAP measure was $36 million or negative $0.74 per diluted share for the fourth quarter of 2020 compared with an adjusted net loss of $95 million or a negative $1.25 per diluted share for the fourth quarter of 2019. The favorable change was primarily due to lower loss in LAE at National and a consolidated VIE loss in Q4 2019 related to the since deconsolidated COFINA exposure, somewhat offset by lower earned premiums and net investment income for National. Now on to the full year 2020 results. The company reported a consolidated GAAP net loss of $578 million or a negative $9.78 per share for the fiscal year ended December 31, 2020, compared to a consolidated GAAP net loss of $359 million or negative $4.43 per share for the fiscal year ended December 31, 2019. The higher net loss year-over-year was driven by greater loss in LAE at MBIA Corp. due primarily to decreased expected recoveries related to the Zohar CDOs and at National related to certain of its Puerto Rico exposures, with HTA driving the increase. GAAP discount rates reduced year-over-year, resulting in a partial benefit. Total revenues of $282 million in 2020 were comparable with the prior year, although the composition of revenues changed. There were higher consolidated VIE revenues in 2020 due to increases in RMBS putback recoveries and gains from deconsolidation of VIEs versus losses in 2019. In addition, in 2019, we recognized losses on an impaired security held at National that was sold in early 2020. These revenue increases were offset by lower gains on investments at National and lower net investment income and earned premiums in 2020. The company's adjusted net loss for the year ended December 31, 2020, was $173 million or negative $2.93 per diluted share compared with an adjusted net loss of $17 million or negative $0.21 per diluted share for the year ended December 31, 2019. The unfavorable change was primarily due to higher loss in LAE at National and lower earned premiums and net investment income, somewhat offset by lower interest and operating expenses. Book value per share decreased to $2.55 per share as of December 31, 2020, compared to $10.40 per share as of December 31, 2019, primarily due to the 2020 net loss of $578 million and nearly $200 million spend for MBIA Inc. share repurchases, partially offset by unrealized gains on investments and 26 million fewer net shares outstanding due to the share repurchases during the year. We believe that the impact on book value resulting from cumulative share repurchases should ultimately improve shareholder value. In addition, the negative GAAP book value of MBIA Insurance Corp., which includes accrued, but unpaid interest on its surplus notes, has materially contributed to the decline in consolidated book value. MBIA's management believes MBIA Corp. does not have significant economic impact on MBIA Inc.'s shareholder value, which is why it is one of the book value adjustments implemented by management. In the event consolidated book value could become negative in the future, primarily due to MBIA Corp.'s negative contribution, it does not reflect any solvency issues for MBIA Inc. and is also why, in many ways, statutory filings are a more accurate portrayal of economic value at the operating companies. I will now spend a few minutes on the corporate segment balance sheet and the insurance companies. The corporate segment, which primarily includes the activity of the holding company, MBIA Inc., had total assets of $954 million as of December 31, 2020. Within this total are the following material items: Unencumbered cash and liquid assets held by MBIA Inc. totaled $294 million as of December 31, 2020 versus $375 million as of December 31, 2019. The decrease was primarily due to calling the remaining $115 million of MBIA Inc. 6.4% notes due in August 2022 at par, partially offset by the receipt of the as-of-right dividend from National of $81 million; there were approximately $500 million of assets at market value pledged to the GICs and the interest rate swaps supporting the legacy GIC operation. As of December 31, 2020, there were $12 million of tax deposits made by National under our tax sharing agreement that had not yet been refunded to National or released to MBIA Inc. and which represented the remaining portion of National's 2018 tax deposits. As we have stated in recent prior quarters, tax escrow releases are not expected to be a meaningful contributor to holding company liquidity in the future. Turning to the insurance company's statutory results. National reported statutory net income of $41 million for the quarter end December 31, 2020, versus net income of $4 million for the quarter ended December 31, 2019. The favorable result was due to lower loss in LAE, mostly as a result of lower statutory discount rates, partially offset by higher taxes. For the year ended December 31, 2020, National reported a statutory net loss of $82 million versus net income of $39 million for the year ended December 31, 2019. The unfavorable result was due to lower capital gains. As in 2019, National benefited from the sale of its PREPA and COFINA bonds, as well as lower earned premiums and investment income, somewhat offset by lower loss in LAE. As of December 31, 2020, National has paid $1.6 billion in inception-to-date gross claims on its insured Puerto Rico bonds. As of December 31, 2020, National's total fixed income investment portfolio, including cash and cash equivalents, had a book-adjusted carrying value of $2 billion. Statutory capital was $2 billion, impacted from year-end 2019 by its purchases of MBIA Inc. shares and its year-to-date net loss. Claims paying resources totaled $3.1 billion. Insured gross par outstanding reduced by $2 billion during the quarter and now stands at $41.9 billion. Turning to MBIA Insurance Corp. The statutory net loss was $54 million for the fourth quarter of 2020 compared to a statutory net loss of $73 million for the fourth quarter of 2019. The favorable result was due to higher premium revenue and lower loss in LAE, partially offset by higher foreign exchange losses. For the year ended December 31, 2020, MBIA Insurance Corp. reported a statutory net loss of $202 million compared to a statutory net loss of $141 million for the year ended December 31, 2019. The unfavorable result was due to higher loss in LAE, driven by the decrease in expected recoveries on the Zohar CDOs. As of December 31, 2020, the statutory capital of MBIA Insurance Corp. was $273 million versus $476 million as of December 31, 2019. Claims paying resources totaled $992 million, and cash and liquid assets of $130 million have remained relatively consistent throughout the year. As Bill mentioned, due to the settlement with Credit Suisse, MBIA Corp. received a payment of $600 million in February 2021. The settlement amount was reflected in MBIA Corp.'s 2020 year-end as an adjustment to salvage reserves on claims paid and statutory capital. MBIA Corp.'s insured gross par outstanding was $7.7 billion as of December 31, 2020, due to some large paydowns in Q4. With Credit Suisse behind it, MBIA Corp.'s largest remaining legacy remediation and projected recoveries are related to the Zohar CDOs. And now, we will turn the call over to the operator to begin the question-and-answer session. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from the line of Tommy McJoynt of KBW. -------------------------------------------------------------------------------- Thomas Patrick McJoynt-Griffith, Keefe, Bruyette, & Woods, Inc., Research Division - Assistant Analyst [2] -------------------------------------------------------------------------------- Yes. So could you guys provide some details on kind of what you mean by the conditions that need to be met for you to continue your support of the Plan Support Agreement? In your view, is it possible for the GO and this PBO deal to go through without resolution of HTA as well? -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Yes, Tommy, thanks for your question. You focused on the right issue, which is the attention now is turning to HTA. Whether or not it needs to be a complete agreement or whether certain issues may be addressed prior to March 31 remains to be seen. But that is the focus, and that's what the priority is at this point. -------------------------------------------------------------------------------- Thomas Patrick McJoynt-Griffith, Keefe, Bruyette, & Woods, Inc., Research Division - Assistant Analyst [4] -------------------------------------------------------------------------------- Okay. And could you discuss where we kind of stand in terms of progress toward HTA resolution? Is it kind of underway? Or is it really just kind of just getting started? -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [5] -------------------------------------------------------------------------------- Yes. Unfortunately, everything on around that is confidential, so there's not much I can comment on at this point. But given that there was agreement and that there's a date of March 31, it's reasonable to assume that parties are now focused on it. -------------------------------------------------------------------------------- Thomas Patrick McJoynt-Griffith, Keefe, Bruyette, & Woods, Inc., Research Division - Assistant Analyst [6] -------------------------------------------------------------------------------- Okay. Makes sense. So separately, you noted that you raised the risk-free discount rate, which had the negative impact on expected recoveries. Was that based on year-end rates, when the 10-year was closer to 1%? Or did it reflect the more recent rise in rates, particularly in February? What I'm getting at is just seeing if there need to be another mark-to-market? -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [7] -------------------------------------------------------------------------------- It was year-end, Tommy. We base the discount rates on the results as of the end of the year. -------------------------------------------------------------------------------- Thomas Patrick McJoynt-Griffith, Keefe, Bruyette, & Woods, Inc., Research Division - Assistant Analyst [8] -------------------------------------------------------------------------------- Okay. So at the end of the first quarter, given the recent rising rates, we expect to see another (inaudible) in there? -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [9] -------------------------------------------------------------------------------- Depending on where we are at the end of the quarter, we'll adjust the rates accordingly at that time. And if they're higher, then all things being equal, would probably have an impact on the recoveries. -------------------------------------------------------------------------------- Thomas Patrick McJoynt-Griffith, Keefe, Bruyette, & Woods, Inc., Research Division - Assistant Analyst [10] -------------------------------------------------------------------------------- Okay. Make sense. Okay. And then lastly, can we just walk through kind of where the 3 upstream sources of capital from -- to the HoldCo from National or -- and that's just meaning the tax escrow release. I think you've said that's pretty much 0. And then there's the as-of-right dividend, which were, I think, around $80 million and then has potentially special dividends. Can you just kind of make sure we're kind of updated on those what those should look like going forward? -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [11] -------------------------------------------------------------------------------- Sure. So let's start with the as-of-right dividend. So the as-of-right dividend for 2020 was about $81 million. We would expect, given National's investment base, that the as of right next November would be probably somewhere in the realm of $60 million at this point. And then future as of rights will depend on just the level of National's managed assets and investment yields going forward. The tax escrow, as we said, it's down to $12 million at the end of the year. Going forward, having settled remaining tax items in 2021, just to use the example, if National makes money, it will contribute additional deposits to the tax escrow that would be, all things being equal, paid out 2 years later to the holding company depending on National's performance. If National loses money in 2021, it will have an NOL of its own that it creates. But all-in, again, I would not expect tax escrow releases to be a material contributor. And then special dividends, again, at some point, as I think we've said before, when Puerto Rico is more settled and understood, we would potentially look for a special dividend from Inc. to National. In the meantime, when you look at MBIA Inc., as you know, we've been bolstering the cash position and liquidity profile, I think, the last several years. We repaid the remainder of Inc.'s 2022 debentures in the fourth quarter. So with our cash position today, and there's not a substantial amount of debt coming due the next few years, we're really looking more toward the 2024, 2025 time frame when you just consider as-of-right dividends, normal investment income at Inc. So we're well positioned for the next few years at the holding company. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Our next question comes from the line of Vadim Perelman of Foundation Partners. -------------------------------------------------------------------------------- Vadim Perelman, [13] -------------------------------------------------------------------------------- I wanted to ask a big picture question. So looking at the past few years, you've executed on a capital allocation strategy that frankly makes Henry Singleton and the outsiders look timid. Since '17, you've grown true economic value by 68% to $42 a share now almost. And yet the stock still trades at like a $6 of liquidation value, basically. I mean it's going to be the most mispriced security in the stock market. I do the math and you guys have something like $1 billion of excess capital at National that you could distribute, post Puerto Rico, which is 2.5x today's market cap. I mean, what am I missing here? Stock could be up 3x and you'll still be trading at half of liquidation value. Oscar Wilde's famous last words were either the wallpaper goes or I do. And this feels like the same, like either the valuation is crazy or I am. -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [14] -------------------------------------------------------------------------------- There's really not much I can say, right? You've described some of the financial metrics accurately. As you know, we've repurchased a substantial amount of stock in roughly the last 5 years. I think it's over 60%. I mentioned the 86 million shares. So we don't comment per se on the stock price relative to some of the metrics. So I'm not sure I can add much more to the commentary that you just laid out. -------------------------------------------------------------------------------- Vadim Perelman, [15] -------------------------------------------------------------------------------- Got it. And then just a follow-up to that. I mean, as you think going forward, if you bought back an incremental 20 million shares even at $12, which I think you have the capacity for at National, I get to adjusted book value or liquidation value, true intrinsic value of $59 a share. And again, the stock is at, whatever, $7 to $8. So I'm just trying to figure out, like it's -- this is third grade math. It's not differential equations. But Bill, you own 2.4 million shares, I think. So $60, it's $160 million of net worth personally. It's pretty good. How do we get there? Like what -- how do you think about that? For shareholders, for yourself, what's -- how are you thinking about the situation? It's incredibly valuable security in the equity. -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [16] -------------------------------------------------------------------------------- Yes. As you know, the key issue for the shareholders is Puerto Rico at this point, and everyone is aware of that. It's obviously a complex situation. There was, I think, quite a bit of attention last week with the PSA and the fact that, at least, the parties involved, the words recently seem to generate more urgency or indicate more urgency around trying to resolve Puerto Rico. Now the key is whether the actions follow awards. And then following up on some of the metrics that you have mentioned, the issue, I think, for shareholders is being able to move money from National to the holding company as the exposure that is the insured portfolio reduces and as the exposures reduce. So that's how it works and that's where the focus is. And as I've said, for quite a while, the emphasis is on Puerto Rico right now because that's the key to freeing the cash up and reducing the sort of the stressed exposures at National and then being able to move money up to the holding company. So again, that's where the emphasis is. -------------------------------------------------------------------------------- Vadim Perelman, [17] -------------------------------------------------------------------------------- Got it. Yes. I mean, you guys have done an extraordinary job actually growing intrinsic value per share, even with Puerto Rico, even with not writing new business. It's frankly, extraordinary. So anyway, very excited to be partnering with you here. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Our next question comes from the line of [Allen Weinstein] of Elliott Investment. -------------------------------------------------------------------------------- Unidentified Shareholder, [19] -------------------------------------------------------------------------------- It's a similar question to the gentleman prior. I've been a long-term shareholder, Bill, and grew up in the municipal bond business. And, I guess, my question has to do with enhancing long-term shareholder value. What is your plan, post Puerto Rico, to enhance shareholder value. Since we're not writing new insurance, what does the business look like 2 or 3 years down the road? And how do we make the stock perform the way we all think it should? -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [20] -------------------------------------------------------------------------------- First of all, thank you for the question, Allen. In terms of what things look like at this point in time, after Puerto Rico, generically, there are a couple of things people could do. We, as a company, have looked at lots of different alternatives. I am aware of, obviously, other runoff companies that have looked to diversify, get into other businesses. We've looked at lots of things. We've concluded that the best thing for shareholders given the situation is to runoff the portfolio, that is the insured portfolio, and get as much of the cash up to the holding company and available to the shareholders. That's how we think we can enhance shareholder value at this point in time. And therefore, to your question, the real issue is one of being able to do that in large quantities, obviously, the amount of dollars coming from National and the speed at which we can do it. And again, similar to the last call that all focuses on Puerto Rico. So once we're able to do that, to the extent there are things that we can do to eliminate other exposures, sometimes you see refundings that have taken place in the portfolio, many of those are not within our control. It's as municipalities refinance their exposure. But that's how I think we can increase shareholder value. And again, that will continue to be the focus. So again, it's Puerto Rico, and then it's getting the cash up to the holding company where we think we can really make it clear and transparent that there is value for the shareholders. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- Our next question comes from the line of Paul Saunders of Hutch Capital. -------------------------------------------------------------------------------- Paul Saunders, Hutch Capital Management LLC - Portfolio Manager [22] -------------------------------------------------------------------------------- I have a couple of questions just on MBIA Corp. Congrats, by the way, on the Credit Suisse settlement. So on that item specifically, can you provide any color on what you plan to do with the $600 million of capital there in Corp.? -------------------------------------------------------------------------------- Anthony Matthew McKiernan, MBIA Inc. - Executive VP & CFO [23] -------------------------------------------------------------------------------- So sure. Given that we have the money in the door right now, Corp. -- the good news is Corp.'s in the best liquidity position it's been in -- I probably can't remember back to post-financial crisis. So what we need to look at now is the following. One is how do we position the funds from an investment portfolio standpoint to optimize returns and cover future policyholder claims. Number two, to the degree that we may consider repaying some of or all of the MZ Funding facility, we need to look at the balance between the investment portfolio strategy and possibly paying that down with some Credit Suisse funds, that's subject to New York Department of Financial Services approval. But, at that point, again, it really becomes more of a normalized situation for Corp., where claims paying resources have primarily been in the form of recoveries the last many years. And now we're in a position where we actually have some of those recoveries monetized, and it's really getting the investment portfolio rightsized to handle future claims. -------------------------------------------------------------------------------- Paul Saunders, Hutch Capital Management LLC - Portfolio Manager [24] -------------------------------------------------------------------------------- Just as a follow-up to that, if you don't mind, as it relates to Zohar and MZ Funding, and again, can you provide kind of any color on what it -- what monetizing that portfolio looks like and timing? And then just as your discussions with the New York regulator goes, how do they think about that in terms of, even if, say, Zohar, 0? I know it's not, but would they still allow Corp. resources to be used to pay bad debt there at MZ Funding? -------------------------------------------------------------------------------- Anthony Matthew McKiernan, MBIA Inc. - Executive VP & CFO [25] -------------------------------------------------------------------------------- Well, let me go to your first part of the question. We are in the midst of a Chapter 11 bankruptcy process in the state of Delaware related to the Zohar. And everything, specifically the portfolio companies, is confidential. But there are court orders in place related to the sales of portfolio companies. We're in the midst of that process now. So I would say our hope is that over the next year, we make some meaningful progress in monetizing some of those portfolio companies and getting some funds in the door to repay MZ funding. As far as -- I'm not going to speak for the department. But obviously, what we need to speak with them about is the adequacy of overall claims paying resources and the benefit to policyholders of potentially paying down some of MZ. So that -- it's really an optionality question at this point because MZ doesn't mature until January of 2022. But that's what we'll be looking at over the next couple of months. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- Our next question comes from the line of Giuliano Bologna of Compass Point. -------------------------------------------------------------------------------- Giuliano Jude Anderes Bologna, Compass Point Research & Trading, LLC, Research Division - Research Analyst [27] -------------------------------------------------------------------------------- I guess, shifting back to a topic that's come up a few different times. Obviously, resolving the GOs will be a positive in Puerto Rico. And fortunately or unfortunately, you paid out a lot of claims on GO, so there's potential for some recoveries there. But then when we look at the other exposures, perhaps it seems like it's moving along, at least there's a document in place. Execution is obviously part -- a potential risk there. So if you then were to resolve the highway and transportation exposures, that effectively mostly resolves your Puerto Rico risk. Would that be sufficient if you resolve those buckets to request a special dividend? -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [28] -------------------------------------------------------------------------------- It's possible, as we said, when there's more clear around Puerto Rico. Now, you've just outlined out, Giuliano, the 3 remaining credits of substantial size. So if all those are resolved and some type of restructuring is executed on all those, we could be in a position at that point to go and ask the department for a special distribution up to the holding company. So again, I suppose we've got to get into the details of those 3 things and I don't want to get ahead of ourselves. But as those get resolved, and we do have the clarity that we've been looking for, we obviously are looking to move money up to the holding company. -------------------------------------------------------------------------------- Giuliano Jude Anderes Bologna, Compass Point Research & Trading, LLC, Research Division - Research Analyst [29] -------------------------------------------------------------------------------- That makes a lot of sense. And then from a capacity perspective, I'm just trying to get a sense of what the capacity would be to buy Inc. shares from National on a go-forward basis kind of based on where you were, at least, at the fourth quarter. -------------------------------------------------------------------------------- Anthony Matthew McKiernan, MBIA Inc. - Executive VP & CFO [30] -------------------------------------------------------------------------------- As of December 31, Giuliano, we had about $235 million of capacity for National to buy Inc. shares. It's measured every quarter. Every quarter, it's measured based on the share price at the end of the quarter. So there's a market value fluctuation. But as of the end of December, the remaining capacity was about $235 million. -------------------------------------------------------------------------------- Giuliano Jude Anderes Bologna, Compass Point Research & Trading, LLC, Research Division - Research Analyst [31] -------------------------------------------------------------------------------- That sounds good. And then one last one that I was curious about was, when we think about reserving and kind of where your reserves are positioned, do your fourth quarter reserves include the Puerto Rico announcement and the deal that was made -- or the announcement, does it include any of that transact -- announced transaction or deal, at least, in the fourth quarter numbers? Or would that flow through in the first quarter? -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [32] -------------------------------------------------------------------------------- No, it's already reflected -- go ahead, Anthony. I'm sorry. -------------------------------------------------------------------------------- Anthony Matthew McKiernan, MBIA Inc. - Executive VP & CFO [33] -------------------------------------------------------------------------------- I'm sorry. So in the -- it's reflected in the fourth quarter numbers, Giuliano. We analyzed the economics of the transaction versus our third quarter loss reserve and recovery estimates and the economics of the transaction fell within those bounds. So they are reflected in the fourth quarter analysis for loss reserves and recoveries. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from the line of [Robert Martelli], private investor. -------------------------------------------------------------------------------- Unidentified Shareholder, [35] -------------------------------------------------------------------------------- Most of them have been answered. I was wondering if you could elaborate a little bit on the status of negotiations on the highways and power -- the Puerto Rican highways and power insured. -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [36] -------------------------------------------------------------------------------- Yes, Robert, unfortunately, there's nothing I can say at this point, given the confidential nature of those discussions. But as I mentioned, it is highlighted as a condition that other -- us and other parties have to the GO deal announced last week. And obviously, highway is an important credit for us. And as I've said, our attention is now focus there. -------------------------------------------------------------------------------- Unidentified Shareholder, [37] -------------------------------------------------------------------------------- And am I right in thinking that when you say you have capacity to purchase $250 million worth of shares this year, is that available for actual purchase? -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [38] -------------------------------------------------------------------------------- Well, as Anthony mentioned, that number fluctuates and is measured every quarter. We do not currently have an authorization from the Board, which is required to repurchase shares, but it is something that we continuously look at. And as we've done in the past, we've bought substantial shares, and we do believe that it does add to long-term shareholder value under the right conditions, essentially meaning the price that we can buy it at. -------------------------------------------------------------------------------- Unidentified Shareholder, [39] -------------------------------------------------------------------------------- All right. Last question. Going back to highways and power. Do you have any kind of time frame as to how long it might take for all that to get resolved? -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [40] -------------------------------------------------------------------------------- No. It's very hard to predict, as you can imagine. We've been involved in Puerto Rico. Some things at times seem to move quickly and other things have taken a long time with this effect that I think the oversight board has been in place now for 4.5 years. -------------------------------------------------------------------------------- Operator [41] -------------------------------------------------------------------------------- Our next question comes from the line of Peter Troisi of Barclays. -------------------------------------------------------------------------------- Peter Vincent Troisi, Barclays Bank PLC, Research Division - Director & Senior Analyst [42] -------------------------------------------------------------------------------- Just a quick follow-up on the Credit Suisse matter. Will there be a gain that is booked because the amount of cash that is collected -- or if the amount of cash that was collected is in excess of where the recoverable was booked? -------------------------------------------------------------------------------- Anthony Matthew McKiernan, MBIA Inc. - Executive VP & CFO [43] -------------------------------------------------------------------------------- We actually reflected that in the fourth quarter. So on a GAAP basis, the majority of the VIE revenue for the quarter is the increase in the VIE related to Credit Suisse loan repurchase receivable. So that was reflected in that column. And on a stat basis, we increased the salvage recovery on Credit Suisse to reflect the $600 million settlement. So the -- from an accounting standpoint, it's been reflected. It Is in the form of a VIE recoverable on GAAP and salvage for stat. That will be converted to cash in the first quarter. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- Our next question comes from the line of John Staley of Staley Capital Advisers. -------------------------------------------------------------------------------- John Adolphus Staley, Staley Capital Advisers, Inc. - Founder, CEO, President and Director [45] -------------------------------------------------------------------------------- So similar to you and your management team, I have been a long-term holder of MBIA. And a lot of my issues have been addressed in previous questions. But I'm very puzzled, with aggressive capital allocation program buying back the number of shares that you articulated. A lot of it was done. Some of it at double digits. A lot of it's down around the $9, $9.50 level. Most recently, it's $7.50. My guess is the stock is going to be lower than that this morning, if premarket indications are because of the report. What is it if you have the capacity that is keeping your Directors from supporting the view of going in and buying another $50 million or $100 million, that you have the $250 million capacity, what is stopping you from buying more stock at this level? -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [46] -------------------------------------------------------------------------------- Yes, John, again, thank you for the question. As we look at it, as you can imagine, there's lots of factors we assess. I think the big change is, one, we bought a lot of shares in 2020, as we've indicated. And additionally, with the onset of the pandemic approximately a year ago and, at the time, we'll continue -- or what appeared to be continued delays in Puerto Rico, it just created some uncertainty as to what the liquidity needs of National might be with regard to any future claim payments. And so we just want to take a good look at that and make sure we have enough liquidity. As people mentioned, we paid out over $1 billion in claims on Puerto Rico. If things are not resolved in the near term, we obviously have other payments that are scheduled that if Puerto Rico doesn't pay them, we have to pay the claims. And it was unclear, I think, as we went through the third and fourth quarter, what impact the pandemic might have. The good news is the pandemic does not appear to create -- be creating the stress municipalities that people initially thought. So that is, I think, trending in a positive direction. And well, as I said, we will continue to assess the liquidity of National and the ability or the decision to buy additional shares. -------------------------------------------------------------------------------- John Adolphus Staley, Staley Capital Advisers, Inc. - Founder, CEO, President and Director [47] -------------------------------------------------------------------------------- Okay. Yes. And I -- to make my question is much simpler, as you look at your capital allocation program, and we go out another year or so, do you think it's going to be a mistake or we're all going to have a smile? -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [48] -------------------------------------------------------------------------------- A mistake to not be purchasing shares right now? -------------------------------------------------------------------------------- John Adolphus Staley, Staley Capital Advisers, Inc. - Founder, CEO, President and Director [49] -------------------------------------------------------------------------------- Yes. Correct. You already purchased them in the past. -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [50] -------------------------------------------------------------------------------- Yes. As I said, we've purchased a lot. I know your question, is we stopped a little while back. I'm not going to predict, and I stay away from what the stock price will be at any point in time. But again, we have been big proponents of repurchasing shares, and we continue to look at it in terms of assessing buying additional shares. -------------------------------------------------------------------------------- John Adolphus Staley, Staley Capital Advisers, Inc. - Founder, CEO, President and Director [51] -------------------------------------------------------------------------------- Is the stimulus bill critical to the health of the state? Or do you think you're in good shape, independent of the stimulus bill and the allocation or whatever, how many billions to the states? -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [52] -------------------------------------------------------------------------------- Yes. In the current proposal, there's about $350 billion for the states and cities. We think independent of that, the portfolio is performing quite well. As I said, I don't think the stress has been what people were predicting, if you went back to the summer of last year. However, if it is passed in a form that was discussed over the weekend, it would clearly be a positive for many states and cities in terms of the allocation at $350 billion. But we don't believe that right now, we need it to see the portfolio strengthen, but it clearly would be a positive. -------------------------------------------------------------------------------- John Adolphus Staley, Staley Capital Advisers, Inc. - Founder, CEO, President and Director [53] -------------------------------------------------------------------------------- Okay. And then I see a negative credit comment on a matured debt instrument you have from some type of a railroad, southern, something or other. -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [54] -------------------------------------------------------------------------------- I'm not sure which one you're referring to. -------------------------------------------------------------------------------- John Adolphus Staley, Staley Capital Advisers, Inc. - Founder, CEO, President and Director [55] -------------------------------------------------------------------------------- Okay. So you haven't had any new credit issues on your insured? -------------------------------------------------------------------------------- William Charles Fallon, MBIA Inc. - CEO & Director [56] -------------------------------------------------------------------------------- Nothing substantial, no. -------------------------------------------------------------------------------- Operator [57] -------------------------------------------------------------------------------- Ladies and gentlemen, that was our final question. And I'm showing no further questions at this time. I'd like to turn the floor back over to Greg Diamond for any additional or closing remarks. -------------------------------------------------------------------------------- Gregory R. Diamond, MBIA Inc. - MD, IR [58] -------------------------------------------------------------------------------- Thank you, Maria, and thanks to all of you for listening to our 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 our company. Thank you for your interest in MBIA. Good day, and goodbye. -------------------------------------------------------------------------------- Operator [59] -------------------------------------------------------------------------------- Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.