MBI - MBIA Inc.

[rpadebet]

Yes Bruce is long gone.

This stock keeps reminding me of that tiger article by WSJ. It is just so violent

[no_free_lunch]

I have little to add other than my understanding is that the detroit bankruptcy is causing fears that there will be a general series of copycat municipal bankruptcies going forward. 

[TwoCitiesCapital]

I have little to add other than my understanding is that the detroit bankruptcy is causing fears that there will be a general series of copycat municipal bankruptcies going forward.

 

I also think its simply a lack of catalysts going forward. Most people who were believers believed in the settlement. it came. They went. Now it will trade on its future ability to make earnings which is a longer team thesis and is less clear.

[Kiltacular]

I also think its simply a lack of catalysts going forward. Most people who were believers believed in the settlement. it came. They went. Now it will trade on its future ability to make earnings which is a longer team thesis and is less clear.

 

+1

 

I'd also add that some like Buffett has commented that he thinks bankruptcies among municipalities might become contagious.  Back when he said, I thought there was a decent chance he was working the angle a bit for Berkshire Assurance (or whatever it was/is called).  But, one thing about Buffett is that he usually doesn't say anything "just" to talk his book.

 

In any case, we're seeing a bit of his prediction come true in recent years.  Back then, he also highlighted how he thought the premiums the existing insurers had charged were far too low -- maybe by a factor of 3 if I recall correctly.

 

A longwinded way of agreeing with zachmansell. 

[vpagano]

Anyone have thoughts about this new post by ZeroHedge on MBIA?

 

http://www.zerohedge.com/news/2013-09-26/coming-soon-theater-near-you-mbias-1-billion-world-war-z

[muscleman]

Anyone have thoughts about this new post by ZeroHedge on MBIA?

 

http://www.zerohedge.com/news/2013-09-26/coming-soon-theater-near-you-mbias-1-billion-world-war-z

 

I have no idea. The worst that could happen is the structured unit thrown into rehab, but that doesn't affect National by much.

[rpadebet]

Anyone have thoughts about this new post by ZeroHedge on MBIA?

 

http://www.zerohedge.com/news/2013-09-26/coming-soon-theater-near-you-mbias-1-billion-world-war-z

 

I have no idea. The worst that could happen is the structured unit thrown into rehab, but that doesn't affect National by much.

 

After the National Loan has been repaid, is it possible in anyway that there could be any contagion from Structured to National? i.e. Is the downside from Structured limited to 0 or can it go negative (either through a future lawsuit, continual bleeding or some other contractual means)?

 

Regarding Catalysts,

1. Possibility of Ratings upgrade soon is clearly one catalyst

2. National writing new business as a consequence of the above is also a catalyst

3. Some sort of settlement in the Structured unit for remaining obligations and/or thrown into rehab could be a catalyst, as in a perverse way it removes the possibility of  any future contagion.

4. Spin off of National as a separate company is also a possibility (although Management has stated that they are not considering it at the moment)

[valueorama]

Anyone have thoughts about this new post by ZeroHedge on MBIA?

 

http://www.zerohedge.com/news/2013-09-26/coming-soon-theater-near-you-mbias-1-billion-world-war-z

 

After reading that article. It seems like fraud is going on in those CLO/CDOs. They raise a question of "Loan" definition when the lender and debtor are the same entity.

 

Clearly, these will turn out to be a long legal case  well after 2015.

[valueorama]

 

Regarding Catalysts,

4. Spin off of National as a separate company is also a possibility (although Management has stated that they are not considering it at the moment)

 

I dont think they will ever spin-off National. Initially i was hoping for a spin-off but after thinking through, it doesnt make sense. MBIA corp has lots of NOLs and it is in run-off. By having both National and MBIA corp, the holding company can realize the NOL value overtime. In my opinion, if National starts writing new insurance, it would take MBIA 3-4 years to eat through the MBIA Corps NOLs.

[vpagano]

Mark Palmer puts out a response:

 

http://www.btigresearch.com/2013/09/26/mbia-zombie-clo-story-conveniently-ignores-removal-of-cross-default-between-corp-and-holding-company/

 

 

[nkp007]

Anyone know when the 2016 leaps come out for MBIA?

[muscleman]

Mark Palmer puts out a response:

 

http://www.btigresearch.com/2013/09/26/mbia-zombie-clo-story-conveniently-ignores-removal-of-cross-default-between-corp-and-holding-company/

 

That dose not say much compared with my post just above. :)

[Luke 532]

Back to $11. Almost as if the BAC settlement never happened

 

Material improvements in the underlying business + no change in the share price = value investor's dream

[nkp007]

Back to $11. Almost as if the BAC settlement never happened

 

Material improvements in the underlying business + no change in the share price = value investor's dream

 

A lot of the fear I think is from

 

1) Complete misunderstanding of MBIA's divisions, cross-default speculations (which are wrong), and people unwilling to wait until National restarts to invest

2) Fear that muni bonds will collapse and the paradigm whill shift

 

 

[rpadebet]

Back to $11. Almost as if the BAC settlement never happened

 

Material improvements in the underlying business + no change in the share price = value investor's dream

 

A lot of the fear I think is from

 

1) Complete misunderstanding of MBIA's divisions, cross-default speculations (which are wrong), and people unwilling to wait until National restarts to invest

2) Fear that muni bonds will collapse and the paradigm whill shift

 

Is there any information about how much MBIA can possibly lose in the event of a Puerto Rico default?

 

Never-mind the question. found the following info on National website.

5.4Bill notional exposure. Approximately 1.8B of it is GO and rest Revenue bonds.

 

So if this event does happen, it could potentially be a material event. If anyone disagrees for some reason, please do share.

SelectedExposures_20130630.pdf

[prunes]

some interesting info in http://www.bgfpr.com/investors_resources/publications-reports/CommonwealthFIODR/CommonwealthReport.pdf including debt service schedule

[prunes]

here is detroit (2012) http://www.detroitmi.gov/Portals/0/docs/finance/CAFR/Final%202012%20Detroit%20Financial%20Statements.pdf

[rpadebet]

some interesting info in http://www.bgfpr.com/investors_resources/publications-reports/CommonwealthFIODR/CommonwealthReport.pdf including debt service schedule

 

Amazing. This is my first time reading a financial report by any Govt entity. Truly eye opening on how these finances are handled.

 

Exclude interest and principal payments from your spending budget. Pay for interest and principal due that year by refinancing and pat your back that you could refinance more than expected due to "favorable market conditions" and cheer the fact that you could use the additional monies elsewhere :) All the while you are in a recession, revenues are falling, one time gimmicks are ending, and so on and so forth.

 

Reminds me of my uncle, who told me when I was young, how wonderful a thing credit card was. You didn't need money, you could buy whatever you wanted with it. When I asked, don't you have to pay back the amount borrowed on credit card, he simply said, its easy, just pay for it with another credit card! At that time I thought to myself....what a wonderful system !!

[ERICOPOLY]

muscleman,

Your prediction of $9 for MBI might be right!

 

[muscleman]

muscleman,

Your prediction of $9 for MBI might be right!

 

Sigh... I was dumb. I did say that. But after I saw the share price jumped to $16 and retraced to $13.5, and when Detroit file for bankruptcy, the share price didn't drop further, I thought I was probably wrong, so I bought at $13.5. :'(

So far the share price has slapped my face twice this year. :'(

I already sold my SHLD position this morning, so I might choose to add to MBI if I want. But still, this really sucks!

[nkp007]

I've done a ton of research on MBIA and the other insurers over the past couple weeks.

 

I even started buying MBIA shares before I turned around the next day and sold them all after thinking a bit more.

 

1) The company is extremely leveraged by nature. As a result, mistakes / expenses related to those mistakes need to be very small.

 

2) I recall reading back to Lowenstein's 'While America Aged' and how vicious the pension fights got. There was no real solution except eventual bankruptcy or long periods of weakness until near death.

 

The risk of an era of heightened legal expenses due to protracted battles with municipalities and pension plans left me very uneasy. Legal costs on just three protracted battles (Detroit, Puerto Rico, Illinois) can easily eat away at book value for years. Not to mention if there are any potential discounts to par.

 

3) In the past, MBIA could easily have said look, either give us par or we aren't writing any new insurance on your bonds. Given that was in an era where 50% of muni issues were insured (vs the 3% of new issues today), that key point of leverage is gone.

 

4) Much of this thread successfully discussed and handicapped the MBIA Corp. litigation odds. Very little was said about the economics of the municipal bond insurance business (which is the only thing that matters now). Let me leave you with this:

 

http://www.berkshirehathaway.com/letters/2008ltr.pdf (pages 12/13)

 

On the surface, MBIA looks cheap given the historical record of municipal bonds going back many decades. I'm making the humble proclamation that what we see through the windshield may look much more different than what we see in the rear view mirror.

 

 

[rpadebet]

This stock has been "worth it" for me from economic as well as educational perspectives. This was one of my first "value" stocks after I became a believer in the philosophy. Still holding on because I recently read somewhere that waiting for 2-3 years for value gap to close is a prudent idea. Economic profits are very small right now (no sure how much longer I get to call them profits), but here are few things I learnt:

 

1. Learnt a lot about how the legal / settlement system works (big thanks here to Christian Herzeca)

 

2. Learnt it pays well to coat tail great investors if you do your due diligence as well (read and followed Bruce Berkowitz into this, so thanks to him)

 

3. Learnt that if you buy a stock based on a short term catalyst, sell it immediately after your thesis plays out even if the price doesn't match your estimate of value. (Don't get too greedy, should have followed BB here too )

 

4. Learnt that when you can make a reasonable guess on the time frame for the catalyst, it is better to take a position using options rather than cash (Thanks to Ericopoly for this, in hindsight it was obvious that buying calls was the thing to do)

 

5. Learnt that in a bad business+volatile stock with decent upside but no visible catalyst in near term, you can make some extra money selling OTM calls in the short term against your long cash position

 

6. Learnt a little bit about the Municipal borrowers and their accounting and thinking (Politicians are bad businessman and muni-bond  tax breaks you get, don't really compensate you for the crazy risks you take)

 

7. It is so much more easier betting on good and growing businesses even if they are not ultra cheap. (I am trying to convince myself to stay out of such "turnaround" stocks in future, but I keep getting sucked into these for some reason  :)  )

 

 

PS: "Experience is what you get when you don't get what you want "  ;)

[Luke 532]

S&P on the sector...

 

“The isolated pockets of stress in the U.S. municipal market and the recent rise in interest rates may create better business prospects for bond insurers,” the report stated. “A high level of municipal refundings in bond insurers’ insured portfolios has led to accelerated growth in capital and generally stronger capital adequacy.

 

“Although stress in the legacy bond insurers’ U.S. public finance exposure may pressure capital adequacy, the protection against municipal defaults that bond insurers have provided to investors in recent years may lead to more demand for the financial guarantee product. The rise in interest rates may result in more bonds to insure and at better premium rates as compressed spreads begin to widen.”

 

“In our view, there’s still a need for municipal bond insurance in the U.S. public finance market,” the report stated. “The bankruptcy filing by Detroit may highlight the benefit of and increased demand for bond insurance.

 

“We believe the industry could end up insuring 20%-30% of the new issuance in the U.S. municipal market (vs just 3% now).”

[racemize]

This stock has been "worth it" for me from economic as well as educational perspectives. This was one of my first "value" stocks after I became a believer in the philosophy. Still holding on because I recently read somewhere that waiting for 2-3 years for value gap to close is a prudent idea. Economic profits are very small right now (no sure how much longer I get to call them profits), but here are few things I learnt:

 

1. Learnt a lot about how the legal / settlement system works (big thanks here to Christian Herzeca)

 

2. Learnt it pays well to coat tail great investors if you do your due diligence as well (read and followed Bruce Berkowitz into this, so thanks to him)

 

3. Learnt that if you buy a stock based on a short term catalyst, sell it immediately after your thesis plays out even if the price doesn't match your estimate of value. (Don't get too greedy, should have followed BB here too )

 

4. Learnt that when you can make a reasonable guess on the time frame for the catalyst, it is better to take a position using options rather than cash (Thanks to Ericopoly for this, in hindsight it was obvious that buying calls was the thing to do)

 

5. Learnt that in a bad business+volatile stock with decent upside but no visible catalyst in near term, you can make some extra money selling OTM calls in the short term against your long cash position

 

6. Learnt a little bit about the Municipal borrowers and their accounting and thinking (Politicians are bad businessman and muni-bond  tax breaks you get, don't really compensate you for the crazy risks you take)

 

7. It is so much more easier betting on good and growing businesses even if they are not ultra cheap. (I am trying to convince myself to stay out of such "turnaround" stocks in future, but I keep getting sucked into these for some reason  :)  )

 

 

PS: "Experience is what you get when you don't get what you want "  ;)

 

Nice summary of what I felt I got out of this thread/stock as well--I considered posting a similar response myself.  Fortunately, or unfortunately (depending on whether I would have sold at the right time), I never was invested.

[muscleman]

S&P on the sector...

 

“The isolated pockets of stress in the U.S. municipal market and the recent rise in interest rates may create better business prospects for bond insurers,” the report stated. “A high level of municipal refundings in bond insurers’ insured portfolios has led to accelerated growth in capital and generally stronger capital adequacy.

 

“Although stress in the legacy bond insurers’ U.S. public finance exposure may pressure capital adequacy, the protection against municipal defaults that bond insurers have provided to investors in recent years may lead to more demand for the financial guarantee product. The rise in interest rates may result in more bonds to insure and at better premium rates as compressed spreads begin to widen.”

 

“In our view, there’s still a need for municipal bond insurance in the U.S. public finance market,” the report stated. “The bankruptcy filing by Detroit may highlight the benefit of and increased demand for bond insurance.

 

“We believe the industry could end up insuring 20%-30% of the new issuance in the U.S. municipal market (vs just 3% now).”

 

 

Agree! I am in this sector a big way (Put in 15% of my portfolio for both MBI and AGO).