MBI - MBIA Inc.

[johnpane]

A payout of roughly double the current market cap...

 

https://www.marketwatch.com/story/credit-suisse-may-pay-680m-in-rmbs-legal-dispute-2020-12-01

 

The payout goes to a subsidiary with, last I looked, a surplus deficit of 1.7B. It seems this subsidiary will have no value to stockholders in the foreseeable future, lawsuit payout or not.

 

 

[Arski]

Are there still some people bullish? Just came across through Twitter.

 

69% of shares bought back since 2014 while price has been nearly cut in half. I have just never seen this before.

 

Maybe someone can give me his view of this case?

[BargainValueHunter]

Are there still some people bullish? Just came across through Twitter.

 

69% of shares bought back since 2014 while price has been nearly cut in half. I have just never seen this before.

 

Maybe someone can give me his view of this case?

Lost AAA rating. No hope of writing new business. It's in runoff.

[Arski]

Are there still some people bullish? Just came across through Twitter.

 

69% of shares bought back since 2014 while price has been nearly cut in half. I have just never seen this before.

 

Maybe someone can give me his view of this case?

Lost AAA rating. No hope of writing new business. It's in runoff.

 

Then why would management own ~10% of the business and they recently bought even more stock? Are they hoping for some kind of an acquisition?

[Arski]

This tweet sparked my attention:

https://twitter.com/vperelman/status/1368557075190661130?s=12

[writser]

Are there still some people bullish? Just came across through Twitter.

 

69% of shares bought back since 2014 while price has been nearly cut in half. I have just never seen this before.

 

Maybe someone can give me his view of this case?

Lost AAA rating. No hope of writing new business. It's in runoff.

 

Then why would management own ~10% of the business and they recently bought even more stock? Are they hoping for some kind of an acquisition?

 

Probably because they expect National in run-off mode is worth more than the market cap of MBI + debt at the holding level. Over time the insurance policies will expire and the sub can distribute excess assets to the holding while the losses at MBIA corp seem to be insulated from the rest of the company.

[johnpane]

This tweet sparked my attention:

https://twitter.com/vperelman/status/1368557075190661130?s=12

 

How does Perelman get his ABV figures of ~32 at the end of 2019 and $42 at the end of 2020? The 10-K does not explicitly state ABV but applying the stated adjustments yields 22.46 and 27.37, respectively.

 

[thepupil]

I don’t want to discount anyone because of a prior mistake, but just so everyone knows, I’m 95% sure that’s the same Vadim Perelman that got close to 100% long a complex financial (Walter Investment ,mortgage servicing rights) and saw his fund (Baker Street) go to zero or close to it. That doesn’t make what he’s saying about MBI incorrect, but as with anything do your own diligence.

[Spekulatius]

I don’t want to discount anyone because of a prior mistake, but just so everyone knows, I’m 95% sure that’s the same Vadim Perelman that got close to 100% long a complex financial (Walter Investment ,mortgage servicing rights) and saw his fund (Baker Street) go to zero or close to it. That doesn’t make what he’s saying about MBI incorrect, but as with anything do your own diligence.

 

Yeah, better do your homework on this one, this is a very promotional tweet ands a pretty complex situation. There are various VIC writeups (one recent one regarding the bonds) and it has been touted as a value investment quite a few times over the years.

 

No position for me (too hard pile).

[Arski]

https://seekingalpha.com/article/4411764-mbia-terrific-odds-for-investors?utm_source=quotemedia.com&utm_medium=referral

 

Article from Seeking Alpha that made the situation clearer to me.

[Gregmal]

I would just urge caution around stuff like this...partly for reasons others have already stated, and partly because people can end up getting dragged into something just because of the "Twitter boys"....who I describe as basically a myriad of small time fund managers who consistently tout and promote their sub $1B, semi illiquid holdings and constantly bounce these things back and forth amongst one another and also run this sort of thing through other blog and message board outlets. Theres nothing wrong with this per say, but there also "may" be something wrong with it, depending of course of what "could" possibly, be really going on. Always be cautious whenever you see a lot of noise around a name on the internet, and especially on Twitter/similar outlets.

 

That said, MBI is a pretty interesting situation. Definitely event driven. I think its an OK speculation.

[writser]

This tweet sparked my attention:

https://twitter.com/vperelman/status/1368557075190661130?s=12

 

How does Perelman get his ABV figures of ~32 at the end of 2019 and $42 at the end of 2020? The 10-K does not explicitly state ABV but applying the stated adjustments yields 22.46 and 27.37, respectively.

 

He makes a gross error in his tweet storm. In this tweet (

) he points out that intrinsic value is $41.67. However, if you look here:

he makes a very basic error: adding back $2.86 where he should actually subtract it (i.e. adjusted book value is ~$36, rather than ~$42). MBIA looks like an interesting stock but I think you should ignore the guy pumping this stock on Twitter. He seems very promotional and his analysis is sloppy and speculative (the part about suggesting the company could be sold for $70 within a short time seems grossly optimistic). I'll leave open the question whether he is genuine or not.

 

And yes, as others pointed out, he blew up just a couple of years ago. Not sure if that is relevant but in combination with the above, well ..

[johnpane]

How does Perelman get his ABV figures of ~32 at the end of 2019 and $42 at the end of 2020? The 10-K does not explicitly state ABV but applying the stated adjustments yields 22.46 and 27.37, respectively.

 

He makes a gross error in his tweet storm. In this tweet (

) he points out that intrinsic value is $41.67. However, if you look here:

he makes a very basic error: adding back $2.86 where he should actually subtract it (i.e. adjusted book value is ~$36, rather than ~$42). MBIA looks like an interesting stock but I think you should ignore the guy pumping this stock on Twitter. He seems very promotional and his analysis is sloppy and speculative (the part about suggesting the company could be sold for $70 within a short time seems grossly optimistic). I'll leave open the question whether he is genuine or not.

 

By the same logic he is also adding 4.29 where he should be subtracting it. The true book value at 12/31/20 was $27.37.

[writser]

I don't think so, even though the book value adjustments are extremely confusing. The first two book value adjustments are 'remove'. The last book value adjustment is an 'include'. I think you should subtract the first two and add the last one. In any case, you can more or less estimate book value ex MBIA corp yourself. Page 8 of the operating supplement gives 2.704m book value for National. Page 25 gives -890m for the holding. Assuming MBIA corp is a zero without any recourse gives ~1814m adjusted book value, or ~$33 / share.

[johnpane]

I don't think so, even though the book value adjustments are extremely confusing. The first two book value adjustments are 'remove'. The last book value adjustment is an 'include'. I think you should subtract the first two and add the last one. In any case, you can more or less estimate book value ex MBIA corp yourself. Page 8 of the operating supplement gives 2.704m book value for National. Page 25 gives -890m for the holding. Assuming MBIA corp is a zero without any recourse gives ~1814m adjusted book value, or ~$33 / share.

 

You're right. Thanks and sorry for my error.

[writser]

I think I am, but I'm not even 100% sure. That page is so strange and unreadable ..

[oscarazocar]

I don’t want to discount anyone because of a prior mistake, but just so everyone knows, I’m 95% sure that’s the same Vadim Perelman that got close to 100% long a complex financial (Walter Investment ,mortgage servicing rights) and saw his fund (Baker Street) go to zero or close to it. That doesn’t make what he’s saying about MBI incorrect, but as with anything do your own diligence.

 

Sears Hometown & Outlet presentation from Baker Street - October 2012

-Attached

 

Sears Holdings presentation from Baker Street - September 2014

https://taovalue.files.wordpress.com/2017/03/bakerstreet_shld.pdf

 

Walter presentation from Baker Street - July 2015

https://taovalue.files.wordpress.com/2017/03/bakerstreet_wac.pdf

SHOS-presentation-bakerstreet.pdf

[nsheth12]

I've become more interested in this situation lately. The crux of the thesis has been well-known for some time, which is that ABV is 3-4x the current share price, assuming you believe the loss reserving is correct. IRR is dependent on how quickly they are able to return excess capital.

 

A few questions I had below - would appreciate any help:

 

I noticed that National's "net loss and LAE reserves" are a negative liability on the statutory b/s (pg. 10 of operating supplement). I wanted to confirm - is this because they expect salvages on already paid claims to exceed what they expect they'll need to pay out on the exposures they still have?

 

More concretely, National has already paid $1.47bn in PR-related claims, and their salvage reserves on those claims are $961m, meaning they expect to recover ~65% on those. They have $2.9bn in remaining PR exposure. Their gross loss and LAE reserves are $660m, meaning they expect to recover ~77% of their remaining PR exposure. Am I understanding that correctly? At first glance, this seems aggressive...

 

How are National's buybacks of MBIA shares regulated? I know that the dividends from National to MBIA Inc. are regulated by NYSDFS, but is National effectively allowed to purchase MBIA shares whenever they want? They've paused buybacks for now... is it up to them when to start again? And what's the limit on how much they can buy? I am not super familiar with insurance regulation so I apologize if this is a stupid question.

 

It doesn't seem like National's investment portfolio is really optimized for returns at all. It's almost completely in fixed income. Why aren't they more aggressive (i.e. equities) given they don't have to worry about a credit rating anymore?

 

In the past, National has been able to buy back its own insured credits for significant discounts (for example, in 2015 they purchased $100m of their own insured COFINA bonds which had an accreted value of $150m). Since those bonds were insured by National, why were they trading at a discount? Did bondholders doubt National's creditworthiness?

 

 

[Sunrider]

I've become more interested in this situation lately. The crux of the thesis has been well-known for some time, which is that ABV is 3-4x the current share price, assuming you believe the loss reserving is correct. IRR is dependent on how quickly they are able to return excess capital.

 

A few questions I had below - would appreciate any help:

 

I noticed that National's "net loss and LAE reserves" are a negative liability on the statutory b/s (pg. 10 of operating supplement). I wanted to confirm - is this because they expect salvages on already paid claims to exceed what they expect they'll need to pay out on the exposures they still have?

 

More concretely, National has already paid $1.47bn in PR-related claims, and their salvage reserves on those claims are $961m, meaning they expect to recover ~65% on those. They have $2.9bn in remaining PR exposure. Their gross loss and LAE reserves are $660m, meaning they expect to recover ~77% of their remaining PR exposure. Am I understanding that correctly? At first glance, this seems aggressive...

 

How are National's buybacks of MBIA shares regulated? I know that the dividends from National to MBIA Inc. are regulated by NYSDFS, but is National effectively allowed to purchase MBIA shares whenever they want? They've paused buybacks for now... is it up to them when to start again? And what's the limit on how much they can buy? I am not super familiar with insurance regulation so I apologize if this is a stupid question.

 

It doesn't seem like National's investment portfolio is really optimized for returns at all. It's almost completely in fixed income. Why aren't they more aggressive (i.e. equities) given they don't have to worry about a credit rating anymore?

 

In the past, National has been able to buy back its own insured credits for significant discounts (for example, in 2015 they purchased $100m of their own insured COFINA bonds which had an accreted value of $150m). Since those bonds were insured by National, why were they trading at a discount? Did bondholders doubt National's creditworthiness?

 

If you think they should go into equities in this part of the cycle ...

 

Anyway, the credit investments are not because they worry about a credit rating. It’s an insurance company, so it’s likely to match maturities and insulate their regulatory solvency position from interest rate movements.

[Ice77]

Looked at it briefly a few weeks back because it showed up on the buyback screen as a big outlier relative to market cap. Decided to pass as it seemed to be in too hard bucket.

[nsheth12]

@Sunrider by equities I meant primarily MBIA stock... since the policyholder surplus is $1.5bn right now, doesn't that give them ample room to safely buy more MBIA stock for the investment portfolio w/o endangering solvency? (assuming of course that their reserving is legit)

 

@Ice77 definitely a complex situation, no doubt

[Sunrider]

@Sunrider by equities I meant primarily MBIA stock... since the policyholder surplus is $1.5bn right now, doesn't that give them ample room to safely buy more MBIA stock for the investment portfolio w/o endangering solvency? (assuming of course that their reserving is legit)

 

@Ice77 definitely a complex situation, no doubt

 

I am not sure that buying your own stock would be seen as an investment by regulators. If you mean they should do share repurchases at holdco then why not just call it that?

[valueorama]

Ok here is my 2 cents for what it is worth.

 

After PR dust settles, National should be able to send lots of money as special dividends to MBIA Inc. At this point Share price should have reacted and stock buyback will not accrue to book value.

 

I feel like MBIA mgmt has two options, pay out a special dividend of its own to shareholders or Establish a new Insurance op co called National2, infuse capital, get AAA or AA rating and start underwriting new business.

 

If they are able to setup National2, then they wont pay income tax on it for sometime to come as they have a large operating loss carry forward ($3.1BB).

 

Am i too greedy in assuming that they will be able to setup new Insurance op co? Mgmt would like to make more money after-all.

if it is possible what is the value of this new entity? 1x book, 2x, ?

[Sunrider]

Ok here is my 2 cents for what it is worth.

 

After PR dust settles, National should be able to send lots of money as special dividends to MBIA Inc. At this point Share price should have reacted and stock buyback will not accrue to book value.

 

I feel like MBIA mgmt has two options, pay out a special dividend of its own to shareholders or Establish a new Insurance op co called National2, infuse capital, get AAA or AA rating and start underwriting new business.

 

If they are able to setup National2, then they wont pay income tax on it for sometime to come as they have a large operating loss carry forward ($3.1BB).

 

Am i too greedy in assuming that they will be able to setup new Insurance op co? Mgmt would like to make more money after-all.

if it is possible what is the value of this new entity? 1x book, 2x, ?

 

I haven’t looked at many insurance companies recently, but few trade well above book ... and probably for good reason, as their ROEs are (?) 10 - 12% ... so not too far above investors’ hurdles/CoC.

 

Not saying it’s not possible for them to do that, just that a lot would need to go right for it to then trade significantly > book.