MBI - MBIA Inc.

[Telluride]

I subsequently heard someone ask about it relative to the 20% of total disclosed claims as looking like a 60% payout ratio on what Syncora claimed. BAC made an incoherent response as to why that was too high, but seemed adamant that 60% was too high b/c there more claims either in other places (litigation reserve) or that were being pursued via court but not directly put back. So it sounded like syncora viewed their total loss # as higher than 600M.

 

Has syncora ever said what they thought there ultimate losses and potential recoveries were? Also, is the $4.7B MBIA talks about the total of the claims they have had to pay out, so that's their ultimate recapture rate if they get a full 100% payout?

[racemize]

I subsequently heard someone ask about it relative to the 20% of total disclosed claims as looking like a 60% payout ratio on what Syncora claimed. BAC made an incoherent response as to why that was too high, but seemed adamant that 60% was too high b/c there more claims either in other places (litigation reserve) or that were being pursued via court but not directly put back. So it sounded like syncora viewed their total loss # as higher than 600M.

 

Has syncora ever said what they thought there ultimate losses and potential recoveries were? Also, is the $4.7B MBIA talks about the total of the claims they have had to pay out, so that's their ultimate recapture rate if they get a full 100% payout?

 

yeah, I couldn't follow that explanation very well (neither could the questioner it seemed).

[Buddy0807]

couple interesting posts on the bofa / syncora matter:

 

http://reminiscencesofastockblogger.com/2012/07/19/trying-to-decipher-what-the-syncora-deal-means-for-mbia/

 

http://newsandinsight.thomsonreuters.com/Legal/News/ViewNews.aspx?id=52437&terms=%40ReutersTopicCodes+CONTAINS+%27ANV%27

[Grenville]

couple interesting posts on the bofa / syncora matter:

 

http://reminiscencesofastockblogger.com/2012/07/19/trying-to-decipher-what-the-syncora-deal-means-for-mbia/

 

nice blog. thanks.

[Telluride]

Looks like a new player entering the market. Good that it validates the market as did the recent news around another entity backed by a P&C company looking for outside capital. Possibly negative if enough other entities are able to get to the required rating and take market share before MBIA is able to do the same.

 

http://blogs.barrons.com/incomeinvesting/2012/07/24/muni-market-set-to-try-new-mutual-bond-insurer/?mod=BOLBlog

 

As for all the Syncora estimates, my head is still spinning as to how to apply that to MBIA/BAC if its even possible. I had found the $212M the blog mentioned as Syncora's expected recovery which was dwarfed by the $375M settlement figure. Another statistic I heard from a BAC note was that BAC was guiding analysts to a 8B of initial principal # for Syncora in CFC loans and trying to draw the settlment figure to 4-5% of initial outstanding balance which is in line with AGO's settlement. At the end of the day, I liked the Frankel quote: "its like trying to catch a butterfly without a net." Seems very hard to approximate off public disclosures.

[goldfinger]

Nice article on why MBIA may get a nice settlement

 

http://www.subprimeshakeout.com/2012/07/monoline-end-games-string-of-legal-wins-will-snowball-until-settlement.html

[JRH]

New Fairholme semi-annual letter out, some interesting info and insight on MBIA:

 

http://fairholmefunds.com/sites/default/files/2012%20Semi-Annual%20Report%20Letter.pdf

 

- It seems FOCIX is carrying bonds for not only National but MBIA Insurance Corp. as well. (Current yield of 26% - my eyes popped open a bit...)

 

- "Since 2008, the company has paid $35 per share on faulty real estate-backed bonds. Management expects to receive at least half back of the $35 from the issuers of the bonds and to restart the municipal bond insurance business with the cash proceeds."

 

Not sure if that helps understand the ultimate recovery relative to other settlements.

[PlanMaestro]

New Fairholme semi-annual letter out, some interesting info and insight on MBIA:

 

http://fairholmefunds.com/sites/default/files/2012%20Semi-Annual%20Report%20Letter.pdf

 

- It seems FOCIX is carrying bonds for not only National but MBIA Insurance Corp. as well. (Current yield of 26% - my eyes popped open a bit...)

 

These were the notes that the regulator threatened to stop payment. Also I think in this case they are consider equity so it would not be considered a default. Cannot double check or elaborate because on vacation and Mrs restricts internet time.

 

http://en.wikipedia.org/wiki/Surplus_note.

 

However, in many cases, state insurance regulators have allowed insurance companies to classify the capital raised via surplus notes as “surplus” (which is the statutory equivalent of equity), because surplus note holders are last in line to make a claim on the company's assets in a default scenario, much like where equity holders reside in a public company.

 

 

[JRH]

 

These were the notes that the regulator threatened to stop payment. Also I think in this case they are consider equity so it would not be considered a default. Cannot double check or elaborate because on vacation and Mrs restricts internet time.

 

http://en.wikipedia.org/wiki/Surplus_note.

 

However, in many cases, state insurance regulators have allowed insurance companies to classify the capital raised via surplus notes as “surplus” (which is the statutory equivalent of equity), because surplus note holders are last in line to make a claim on the company's assets in a default scenario, much like where equity holders reside in a public company.

 

 

 

Yep, definitely the same.  One interesting characteristic of the surplus notes is that if the transformation were reversed, their price would likely partially converge towards the National bonds.  Heads I win (26% yield), tails I don't lose much? (price convergence)

 

I don't think any of it can reconcile this holding to what Berkowitz used to say, (I paraphrase), "if there is a one in 100 chance of death, you pass."

[Buddy0807]

from the BAC 10-Q:

 

“674 million of monoline claims outstanding at June 30, 2012 were resolved through the Syncora Settlement on July 17, 2012.”

 

$400mm settlement implies 59 cents on dollar. there are many moving parts to the settlement, but thought this was interesting disclosure.

 

[valuecfa]

I had to miss the call this morning....waiting on the replay to be released any minute now. Was there any new/good relevant info discussed?

[Kiltacular]

valuecfa,

 

Interested in your thoughts on the call.  It seems we're still waiting for court decisions (waiting and waiting and waiting).

 

Meanwhile, I have become a bit concerned about the municipal bankruptcy's affecting the "good" part of the business.  Buffett suggested in a recent interview that once municipalities realize that services don't stop after declaring bankruptcy, it may begin to catch on. 

 

As many following municipal finances know, the problem is pension obligations. 

 

Given all of this, it was interesting to see the following Bloomberg story.  I guess the muni insurers don't plan on taking this all lying down.

 

Here's the link:  http://www.bloomberg.com/news/2012-08-09/stockton-creditor-asks-judge-to-dismiss-city-s-bankruptcy.html

 

Still, while things play out on the court cases, it bears watching what happens on the Nat'l Public side.

 

Anyone have any thoughts on this?

 

[valuecfa]

Just a few easily gathered notes...

 

Not much new gathered from the call other than the reversals in mark to market gains in the structured finance exposures. Recent activity seemed to be a relief rally that MBIA Corp will maintain enough liquidity to fight this all the way through trial. National increased its loan to Corp, in the meantime National had another good quarter.

 

Judging by the filings and the somewhat harsh tone, the two parties are not yet near a settlement price. Perhaps the lost leverage of the article 78 (should MBIA win) will bring BAC back to the negotiating table. This has been the largest pawn in BAC's legal corner for some time. Taking that away (baring appeal, which i  think Jay is confident about) would really only leave MBIA's liquidity as a point of leverage for BAC...and the market is slightly less concerned about that after this most recent quarter's figures...

 

Patiently waiting for Kapnick's decision.

 

...Jay affirmed that the bulk of the remaining volatility and risk remains with the BAC insured products. Book value increased to $12.92, ABV decreased slightly to $31.23 . Not much else to say.

[Telluride]

 

Judging by the filings and the somewhat harsh tone, the two parties are not yet near a settlement price. Perhaps the lost leverage of the article 78 (should MBIA win) will bring BAC back to the negotiating table. This has been the largest pawn in BAC's legal corner for some time. Taking that away (baring appeal, which i  think Jay is confident about) would really only leave MBIA's liquidity as a point of leverage for BAC...and the market is slightly less concerned about that after this most recent quarter's figures...

 

 

 

I think the Article 78 is almost a given as from what I can tell the scope was very narrowly in terms of how the regulator made its decision, not the information provided or withheld from it. I think there is a follow-on civil trial next year where a broader scope of fraudulent conveyance will be heard and that will be the real test of the separation. While there is a lot of anticipation for what forces BAC to settle, I don't think 78 will be it. Welcome any corrections to that understanding if I'm missing it. More likely if some of the core putback case discovery or summary judgements being entered/argued this Fall as the first real catalyst, with a decision maybe not until Q1'13 at earliest.

[Telluride]

 

These were the notes that the regulator threatened to stop payment. Also I think in this case they are consider equity so it would not be considered a default. Cannot double check or elaborate because on vacation and Mrs restricts internet time.

 

http://en.wikipedia.org/wiki/Surplus_note.

 

However, in many cases, state insurance regulators have allowed insurance companies to classify the capital raised via surplus notes as “surplus” (which is the statutory equivalent of equity), because surplus note holders are last in line to make a claim on the company's assets in a default scenario, much like where equity holders reside in a public company.

 

 

 

Yep, definitely the same.  One interesting characteristic of the surplus notes is that if the transformation were reversed, their price would likely partially converge towards the National bonds.  Heads I win (26% yield), tails I don't lose much? (price convergence)

 

I don't think any of it can reconcile this holding to what Berkowitz used to say, (I paraphrase), "if there is a one in 100 chance of death, you pass."

 

 

I think the 26% yield comes in doubt if the regulators force them to stop paying interest. Bond market is probably right that its a high probability given that the decision went down to the wire for the July payment, how low liquidity is, how far they have already bent in terms of releasing contingent reserves and counting putback wins as part of claims paying resources and the regulators in February or March striking down management. They are also pretty long-dated, but if all goes well likely get called at par when the window opens in the next few years. I would only assign a 50% probability or lower to getting future interest and assume your return is a pull to par at the call date if you think MBIA survives.

[Telluride]

What do folks make of the BofA CMBS disclosures? Is it a positive or a negative?

 

Positive - The thing that would tip MBIA into liquidity driven bankruptcy or seizure is big claims coming on the remaining CMBS exposure. Now we know that is almost all tied to BofA/Merrill. MBIA probably wont pay on those until they get to the end of the putback case, so no liquidity crisis until we reach the end of a trial...

 

Negative - While MBIA has booked $3.2B of recoveries from putbacks into equity today and may have another $1.7B if successful...there is a chance they are well under-reserved on the CMBS claims from BofA b/c they have based the losses on the 20 commutations done so far...MS, for instance, may have been more likely to settle at a discount to exit the position, not take the insolvency risk and take out a huge risk-weighted asset that was not proportioned to its underlying economics. Since BofA has more to gain or lose with putbacks and CMBS, the negotiation is more two-sided and they may be less likely to settle the putbacks without a big concession or payment on the CMBS which MBIA can't afford or isn't properly reserved for.

[xazp]

Here's the full portion of the BAC 10-Q (disclaimer - I'm looking at this from the BAC and not the MBIA perspective). 

 

On July 17, 2012, we, including certain of our affiliates, entered into an agreement with Syncora Guarantee Inc. and Syncora Holdings, Ltd. (Syncora) to resolve all of the monoline insurer's outstanding and potential claims related to alleged representations and warranties breaches involving eight first- and six second-lien RMBS trusts where Syncora provided financial guarantee insurance. The agreement, among other things, also resolves historical loan servicing issues and other potential liabilities to Syncora with respect to these trusts. The agreement covers the five second-lien RMBS trusts that were the subject of litigation and nine other first- and second-lien RMBS trusts, which had an original principal balance of first-lien mortgages of approximately $9.6 billion and second-lien mortgages of approximately $7.7 billion. As of June 30, 2012, $3.0 billion of loans in these first-lien trusts and $1.4 billion of loans in these second-lien trusts have defaulted or are 180 days or more past due (severely delinquent). The agreement provided for a cash payment of $375 million to Syncora. In addition, the parties entered into securities transfers and purchase transactions in connection with the settlement in order to terminate certain other relationships among the parties. The total cost to the Corporation was approximately $400 million and was fully accrued for by the Corporation at June 30, 2012.

 

Total payout was $400MM. 

 

So payout / (first + second lien original balance) = 2.5%

payout / (first + second severely delinquent ) = 9%

from memory these ratios are broadly similar to other settlements BAC has done. 

 

I don't think the payout/claims is a good metric.  For example, this settlement covers 9 trusts in addition to the 5 trusts that were the subject of lawsuits.  Claims are quite variable between companies - some orgs will throw the entire trust in as a 'claim' while others identify specific loans.  Some orgs stopped making claims while pursuing litigation or settlement, so the claims understate what they're asking for.  Anyway just my opinion - cdon't base your payout on some ration of claim #'s, but use delinquency or original balance numbers.

 

Also FWIW BAC says that MBIA owes them money too - BAC was a large purchaser of MBIA's insurance, so they both need to pay MBIA, and be paid by MBIA.  This litigation is really hard to understand for that reason.  I don't have a good understanding of where it will end up, which is why I'm here. 

 

 

 

from the BAC 10-Q:

 

“674 million of monoline claims outstanding at June 30, 2012 were resolved through the Syncora Settlement on July 17, 2012.”

 

$400mm settlement implies 59 cents on dollar. there are many moving parts to the settlement, but thought this was interesting disclosure.

[valuecfa]

Just a heads up.

 

Judge Kapnick is on vacation for the next two weeks...so we will have to wait a while longer for the decision.

[Telluride]

What is the exact starting principal amount of RMBS that MBIA insured via BAC/Countrwide?

[valuecfa]

Fairholme Funds presentation on MBIA:

 

http://www.fairholmefunds.com/sites/default/files/120827%20Case%20Study%20IV%20%20MBIA%20v7.0.pdf

[PlanMaestro]

Fairholme Funds presentation on MBIA:

 

http://www.fairholmefunds.com/sites/default/files/120827%20Case%20Study%20IV%20%20MBIA%20v7.0.pdf

 

A good presentation, much better than the previous one. Once again I do not see any discussion on liquidity but I guess that BAC would gladly settle for $3.2 billion any day if they need it. Therefore, it should not be an issue.

[muscleman]

Fairholme Funds presentation on MBIA:

 

http://www.fairholmefunds.com/sites/default/files/120827%20Case%20Study%20IV%20%20MBIA%20v7.0.pdf

 

A good presentation, much better than the previous one. Once again I do not see any discussion on liquidity but I guess that BAC would gladly settle for $3.2 billion any day if they needed it. Therefore, it should not be an issue.

 

Hi Plan,

    I am very interested in MBIA since two years ago. The stock price hasn't been moving, but fundamental is improving fast.

    If you are optimistic about this company, when do you think they will completely resolve all the risky issues? Does it look like two years is reasonable?

    What are the potential risks that could shock this company down and invalidate the investment thesis? :D

    Do you think Fairholme's presentation that MBIA has 100 Billion+ additional market growth potential is realistic? I know MBIA is one of the largest muni insurer, so probably 100 Billion is the whole pie for this industry, right?

 

 

Thanks

Muscleman

[PlanMaestro]

Muscleman, check previous posts in this thread. There are people here with much more knowledge about MBIA than me.

[JRH]

"Fairholme expects MBIA to recover at least half of the gross claims paid to date in a 2012 settlement or all in a 2013 trial."

 

Assuming "all" is supposed to mean all claims with violated R&W's, not gross claims paid since some appear legitimate even by Jay Brown's included quote. In any case, optimistic! Plan for the worst, hope for the best!

[newbee]

Comparison of Assured(AGO) and MBI equity value:

MV, BV, Adjusted BV

MBI:11,17,25

AGO:14,25,47

 

1. Assured Management seems to be doing a decent job. They came through the financial crisis without any major issue. During the crisis they were buyers of FSA

2. Rating agencies are unwilling to give AGO credit upgrades. S&P AA- and moody's possible down grade. When MBIA starts writing the new business, i believe they will face the same headwinds with credit agencies. Unless they have a decent rating, they cannot write new business.

3. Negative market sentiment towards Public finance, especially Municipalities and there are few ongoing bankruptcies

4. Overall business is in trough with minimal growth. I understand that this is the time one has to buy, but i do not see any near/medium term catalyst for the market to turn. For MBIA, i see one catalyst ie) Settlement with BAC.

 

Latest presentation of Assured: http://www.assuredguaranty.com/uploads/PDFs/KBW.vF.pdf

 

I feel AGO is a safer investment when compared to MBIA.  Just wondering what others think?