MBIA Inc. (MBI) Q2 2011 Earnings Report, Transcript and Summary

Good morning, and welcome to MBIA Inc.'s Second Quarter 2011 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to Greg Diamond, Managing Director of Investor Relations at MBIA. Please go ahead.

Thank you, Jackie. Welcome to MBIA's conference call for our second quarter 2011 financial results. We're going to follow the same format as previous quarters' calls. Jay Brown and Chuck Chaplin will provide some brief comments and then, we'll open up the call for question-and-answer session. Yesterday afternoon, we posted several items on our website, including our 10-Q and quarterly operating supplement for the quarter. The information for accessing the recorded replay of today's call is included in the financial results press release that we issued yesterday, and it's also available on our website. Our company's definitive disclosures are incorporated in our SEC filings. The purpose of our call today is to discuss some of the disclosures in our most recent 10-Q to facilitate a greater understanding for investors. The 10-Q also contains information that will not be addressed on today's call. Please note that anything said on today's call is qualified by the information provided in the company's 10-Q and other SEC filings. Please read our Form 10-Q as it contains our most current and comprehensive disclosures about the company and its financial and operating results. For today's Q&A session, it will be handled by Jay Brown, CEO; and Chuck Chaplin, Co-President, CFO and Chief Administrative Officer; and Bill Fallon, Co-President and Chief Operating Officer. Now for our Safe Harbor disclosure statement. Our remarks on this conference call may contain forward-looking statements. Important factors such as the general market conditions and the competitive environment could cause actual results to differ materially from those projected in our forward-looking statements. Risk factors are detailed in our 10-K, which is available on our website at www.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 not likely to be achieved. Also, the definitions of the non-GAAP terms that are included in our remarks may also be found on our website. Now Jay will provide some introductory comments. Jay?

Thanks, Greg, and good morning, everyone. Given the fact that I share Chuck's view that he expressed in the press release that this was a generally very positive quarter, I'm going to keep my comments pretty short this morning. Since the news of the week is S&P's downgrade of the U.S. government and the ripple effect on other issuers and the overall economy, I'll begin by sharing a few thoughts on that topic. In light of the warnings from all 3 rating agencies in the weeks and months leading up to August 2, we spent a considerable amount of time analyzing what the impact of a U.S. government downgrade might be on our business. The good news is that unlike what we saw in 2008 where rating actions caused direct economic consequences for our company, we haven't identified any direct economic consequences as a result of the U.S. downgrade. And the downgrade does not require any material realignment of our various investment portfolios and does not affect our obligation to pay under the insurance policies and CDS contracts that we have issued. That said, there's no doubt there will be a period of adjustment for some issuers, and there's a greater possibility of more tepid economic growth going forward. You can be sure that we will continue to monitor our insured portfolio carefully and bring our considerable remediation skills as circumstances require it. However painful it might be in the short run, for the first time in a long while, it seems like we, as a nation, are beginning to come to grips with ongoing deficits and ever-growing debt. That can only be a good thing for our economy in the long run. We have both positive and negative developments on the legal front during the second quarter. Certainly, the one that got the most media coverage was in connection with our transformation-related litigation. We had hoped to defend only one case, the Article 78 proceeding brought by a group of banks, which we and the New York State Insurance Department believed was the only appropriate challenge. However, we had a setback in that the New York State Court of Appeals ruled that plenary challenges outside of Article 78 were also permissible. While this decision will obviously increase our legal expenses and may delay the ultimate resolution of the transformation litigation, it is entirely a procedural action and does not address any of the merits of the case. We don't believe that it will change the ultimate outcome of the transformation litigation. We continue to expect that our transformation will be upheld and then National will continue as a separate insurance company from MBIA Corporation. What's indisputable is that 2.5 years after the insurance department's determination, MBIA Insurance Corp. continues to pay all claims and to make interest payments on its Surplus Notes while maintaining substantial positive statutory capital. So we continue to believe that there's little risk that a court will find that the company was insolvent in February 2009, or that the insurance department was arbitrary and capricious in granting approval of our transformation. In the meantime, we expect that the calendar for the Article 78 proceeding will remain unaffected by the Court of Appeals ruling. We are expecting it to come to trial early in 2012 while the other cases will likely come to trial, if necessary, in 2013. We had far more positive news in our putback litigation. The New York State Supreme Court denied Morgan Stanley's motion to dismiss our fraud and breach of contract claims in our lawsuit against them. And the Appellate Division of the court affirmed the lower court's decision to deny Countrywide's attempt to dismiss our fraud claim in that case. I'm also pleased to report that we resolved our lawsuit against Merrill Lynch over their CDO-origination practices, as both parties agreed to discontinue the litigation with prejudice. We also continue to have substantial success in the early settlement of some of our insured credit default swap exposures. And since the end of the first quarter, we reached agreements to retire another $8.7 billion of exposure. The aggregate cost of these early settlements is somewhat below the loss reserves we previously assessed against the related credits. And in the aggregate, our cumulative settlement to date are still consistent with all of our reserves. And importantly, we are removing the potential future volatility associated with primarily ABS-, CDO- and CMBS-related deals. We've now executed or agreed to execute early settlements that add to a total par value of $36.4 billion. MBIA Insurance Corp.'s insured portfolio is now more than $82 billion smaller than it was following transformation. We continue to be in discussions with most, but not all, of our major counterparties, but unless and until we actually reach an agreement with them, there's not much more we can say. I should also note that all of the individual agreements contain nondisclosure clauses, which is one of the reasons we can't give more detail about individual negotiated settlements. With that, I'll now ask Chuck to take you through the numbers for the quarter.

Thanks, Jay, and good morning, everyone. This quarter continues many of the trends that we have reported to you over the past year or so. Our U.S.-housing-related losses have become more stable and appear more predictable. And of course, the exposure continues to decrease. In the CMBS sector, we increased reserves as a few deals with very poorly performing collateral drove an increase in expected future loss payments in our models. And as Jay referenced, we continue to reduce potential future volatility via early settlements of insured credit derivatives with 5 counterparties. These commutations have substantial impacts on our financial reporting this quarter. So let me briefly explain the accounting. Most of the commutations were agreed near the end of the second quarter. Two were agreed upon and settled in the second quarter. And one was agreed upon in the second quarter but then settled in early July. All of those are reflected in our second quarter GAAP financial statements. The GAAP impacts include the elimination of the mark-to-market on insured credit derivatives. Because the aggregate mark on these policies was more than the cost of the settlement, GAAP net income in the quarter is favorably affected. Then, we had 2 settlements that were agreed in the third quarter. They have no impact on our second quarter GAAP financial results, but they are expected to be reflected in the third quarter financials. Statutory accounting rules, however, for recognition of such events are different than those for GAAP. In our statutory accounts, all of these commutations, including those agreed to after June 30 but before the filing date yesterday, are reflected as second quarter events. Since the amount paid in aggregate to all 5 counterparties is less than the aggregate loss reserves, statutory income is also favorably affected. Our non-GAAP measures, adjusted pretax income and adjusted book value adopt the approach reflected in our statutory accounts. So they, too, are positively affected by the settlements. Most of the exposure data that we supplementally disclose only reflect commutations when they are settled in cash. All of this is explained in detail in the MD&A, and there are several relevant footnotes to this extent in the operating supplement. Now to the financial results themselves. GAAP net income for the quarter was $137 million. Normally, the mark-to-market on insured credit derivatives would have a very significant impact on net income, and it would've had such an impact this quarter as the cost of credit default swaps on MBIA Insurance Corp. fell about 10 points in the quarter. This would have resulted in a very substantial loss. However, since, as I had mentioned, the cost of the commuted transactions was less than their marks, the settlement largely offset the mark-to-market. So the net change in fair value of insured credit derivatives was a loss of approximately $75 million. The GAAP result was also favorably affected by this quarter's tax provision. Our forecast of full year taxable income is lower now due largely in part to the second quarter and early third quarter commutation payments, requiring a catch-up to make the full year rate consistent with the current projection with pretax income before discrete items. Adjusted pretax income, a non-GAAP measure, presents, we believe, a clearer view of our results of operations. It was $161 million in this quarter compared to $48 million in the second quarter of 2010. We now have had 2 consecutive quarters of positive adjusted pretax income. In the second quarter, results were strongly affected by the early settlements. The cost of these settlements in aggregate, again, were within statutory loss reserves, so the excess loss reserves flow back into income. Adjusted book value, another non-GAAP measure, increased from $35.57 per share to $37.22 per share, largely reflecting the impact of 3 million shares, which we repurchased in the quarter. Now I'd like to go through the segments discussing the adjusted pretax income and the capital liquidity positions of the key businesses and legal entities. National Public Finance performed in line with expectations in the quarter, with adjusted pretax income of $144 million compared to $128 million in last year's second quarter. The improvement is due to lower loss in LAE expense. Last year, we had about $10 million of additions to loss reserves, and this year, we had $8 million in reserve releases as a result of remediations. We continue to monitor the portfolio closely. Today, we do not see evidence of systemic defaults in our books, but more idiosyncratic financial stresses in a handful of sectors. National's statutory capital grew to $2.6 billion in the second quarter, and claims-paying resources stood at $5.7 billion. National has adequate liquidity, we believe, against its expected payment obligations. The Structured Finance and International business primarily conducted in MBIA Insurance Corp. had adjusted pretax income of $189 million compared to a loss of $86 million in the second quarter of 2010. The driver of this segment's result is our estimate of economic loss activity, which, again, is favorably affected by the early settlements. In the quarter, we reduced our estimate of loss on ABS CDOs by nearly $400 million, primarily because of the commutations. Partially offsetting this benefit, we increased CMBS reserves by $233 million. A few of our deals have higher proportions of poorly performing CMBS tranches and resecuritized collaterals, which drove this increase. Our view of the commercial mortgage industry continues to be that the market has bottomed and continues a slow improvement. We will, however, closely monitor the market to assess whether the current slowing of the recovery impact our overall view. The cumulative incurred loss on CMBS in our portfolio is now approximately $1.5 billion, and the reserve on the balance sheet is approximately $1.1 billion. We continue to believe that this is the largest potential source of future volatility in our book of business. On the RMBS side, we increased our estimate of future payments by $53 million, primarily due to accretion and a few newly classified credits. We also saw a significant increase -- an insignificant increase in expected putback recoveries, primarily due to minor assumption changes and, again, interest accretion. The recently announced settlements with other claimants provide further evidence that the seller/servicers have substantial liabilities for breaches of reps and warranties. We expect that we will collect the $2.7 billion receivable on our balance sheet over the next couple of years. That amount represents a discount from our contractual claims, which today total approximately $4.6 billion. We also have losses of $33 million on a variety of other Structured Finance transactions, primarily older vintage mortgage securitizations. The total impact of all economic loss activity on adjusted pretax income is a $150 million credit. Cash payments in the quarter in MBIA Insurance Corp. were dominated by payments on RMBS, which were $246 million in the second quarter following payments of $243 million in the first quarter and $290 million in the fourth quarter of 2010. To relate to the comparable period last year, payments in second quarter 2010 were $421 million. Our payments continue to be somewhat below the modeled payments in our loss reserve calculations. The balance of cash, short-term and highly liquid assets within MBIA Corp. was $1.1 billion at June 30, which was before the settlements of some of the commutations. We believe that expected cash flows from premiums and investment income, repayment of the intercompany secured loan and the asset portfolio provide adequate liquidity against expected cash payments with an acceptable cushion. In addition, MBIA Insurance Corp's. statutory capital base of $2.9 billion provides a resource with which to absorb potential future loss reserve volatility. Our advisory business had a $3 million pretax loss in the quarter. Revenues had been impacted by municipal customers drawing down on reserve funds and reduction in proprietary assets from MBIA Insurance Corp. and the wind-down operations. Meanwhile, expenses there continue to be somewhat above our run rate expectations. The corporate segment had a loss of only $2 million in the second quarter, driven by favorable marks-to-market on warrants issued in connection with our capital raise in 2007 and 2008. The wind-down operations recorded a pretax loss of $168 million in the quarter, about $38 million of that is due to negative spread between the assets and liabilities in our asset liability management business. $27 million of the pretax loss is due to realized losses, interest rate swap settlements and asset impairments. The balance, about $100 million, was driven by a variety of mark-to-market effects, adverse marks impacted interest rate swaps, credit linked notes that we'd issued in the past and nondollar-denominated liabilities. Interest rates, FX and the credit default swaps on MBIA Insurance Corp. all moved against us in the quarter. But these marks do not affect our estimate of the book value deficit of assets to liabilities in this segment. And that deficit grew in the second quarter to $500 million due to the negative spread and realized losses that I referred to. All in all, this was a favorable quarter for MBIA Inc., with a significant reduction in risk and progress on the litigations that have the most significant financial impact from the company. And with that, we'll be happy to take your questions.

[Operator Instructions] Your first question comes from the line of Arun Kumar with JP Morgan. Arun Kumar - JP Morgan Chase & Co: Chuck, couple of questions for you. One relates to the reps and warranties. The number did not, obviously, increase appreciably in the quarter. Could you give us your thoughts on where you stand in terms of booking additional reps and warranties from other counterparties? And related question to that is in terms of the discussions you're having with the counterparties, like you mentioned, they're ongoing, is there any time horizon that you have that you'd like to get those settled, if it's going to be 6 months or 12 months that you'd like to put those behind you? And then I have a follow-up.

So -- I'm sorry, Arun. The first question is just about putbacks? Arun Kumar - JP Morgan Chase & Co: Yes, the putbacks, the overall size of your putbacks.

Yes. The way that we are estimating putbacks today is -- relates to the amount of incurred loss that we have on the transactions because the breach rates that we have observed are more than enough for us to recover all of our incurred loss in settlements. And so the reason that it doesn't change much quarter-to-quarter is that the incurred loss didn't change by as much. So they're -- the 2 things are -- I wouldn't say they're in lock step because there could be changes to assumptions that go on over time as a result of things that happen in the litigation, the credit quality of the counterparts and things of that nature. But those things being equal, you'd expect those 2 statistics to kind of move together through time.

Arun, on the question on timing, obviously, I think our position is very clear. In virtually all of our significant counterparties, we have a very clear estimate of what we think a fair settlement would be, and that is basically on the table at all times. And we would be prepared to go through with those settlements in a very rapid fashion if they would all agree. Obviously, it takes 2 to tango. And usually, what happens is towards the end of the quarter, based on where their book of business stands, we seem to get a flurry of activity where a number of counterparties come forward and we finalize an agreement, and we agree to settle it out. And so, that has been the pattern where we've typically seen a lot of settlements around the end. In terms of the bigger picture, I think it's pretty clear from our scheduling of important court dates. We expect to be in court early next year on the 2 most significant things that will affect settlements, one being the transformation litigation. We expect that will occur in the second quarter. And in the second one, if it isn't settled before then, is the litigation we have on putbacks against Bank of America/Countrywide, which is expected also to be litigated next year. Both of those cases for various reasons will affect the pace of the remaining settlements that we expect to effect off of significant counterparties. I know it's not a clear answer in terms of precisely when we expect it to happen, but that's our current thinking of the timeframes. They are likely to occur over the next probably 12 months, 12 to 18 months. Arun Kumar - JP Morgan Chase & Co: Is there a court date for the reavail litigation for 2012?

There is not a specific -- there is a specific date but it slides a little bit. So it's -- our best estimate right now is second, third quarter. It really will have a lot to do on the motions, summary judgment motions that will take place early in the year, which are on track. Discovery is near completion. Motions will be filed in the beginning of the year. And then depending on how fast those motions get decided and the actions of the appeal court will determine when we actually have the trial, if we have the trial. Arun Kumar - JP Morgan Chase & Co: Okay, fair enough. Just another question in terms of the Surplus Notes. You mentioned in your comments early on that you're continuing to make payments. Those are callable in a few years. They're also costing you there a big part of your statutory capital other than contingency reserves at this point, if not all of it. And in terms of it's costing you $140 million in payments, have there been any discussions with the regulators on that front in terms of approval of payments, or are they just going to continue to let you make those payments?

Yes, couple of things, Arun. First, the Surplus Notes are a little bit less than $1 billion, about $960 million outstanding. And statutory capital is $2.9 billion. So if you want to think about it in those terms, it's about 1/3 of stat capital. And we are making [indiscernible] July 15 and the next one is January 15, 2012. So this kind -- I mean, the regulator has to affirmatively approve each of those payments. So in the 30 to 45 days prior to that time, we do provide them a complete financial rundown on the company. And they're able to make a determination as to whether or not they approve the payments based on that. And obviously the -- all of those payments have been approved to date. And there isn't any conversation that we've had with the regulators that would suggest anything different. Now the call date is January 15, 2013. As Jay and you just touched on some of this, a lot is going to happen between now and January 2013, but it is our current plan to retire the Surplus Notes at that time, if they're not retired ahead of that time. Arun Kumar - JP Morgan Chase & Co: And I guess the $2.9 billion that you referred to includes the contingency reserve on the balance sheet, correct?

Yes. Yes, that's what we typically think of as the statutory capital that we have to sort of absorb loss reserve volatility.

[Operator Instructions] Your next question comes from the line of Phil Smith with Deutsche Bank.

This is actually Sean Farrell on for Phil. Couple of questions. Just wanted to follow up on the summary judgment. I think there's a hearing coming up, we believe, in August. Wanted to see if you guys have any thoughts on that and how that may -- might lead to some more wholesome settlement discussions with BofA?

Yes, so the hearing that you're referring to is the loss causation. We filed a motion a couple months back to ask the court to just interpret the language in our contracts in terms of what's the meaning of loss causation. We filed that motion. BofA/Countrywide responded. We filed yesterday the final papers. And then the court hearing will be on August 18. It's a pretty important potential -- call it, it could change the playing field somewhat in terms of if we're successful in having the court interpret our view that the lost causation has a very significant effect on the ability to rescind or obtain recessionary damages versus having to putback individual loans one by one. So it can affect the view of both parties as to the likely outcome of the trial. And so we think it is an important hearing. We don't know whether the judge will make a quick decision or whether it will take some time. Obviously, this hearing, as we found with most things with Countrywide since that's the case it furthest along, will also affect the other 4 cases that we have running in tandem that are slightly behind in terms of timing, but with a different judge. But in general, all of the New York judges have a habit or tendency to file the same thinking on the putback cases. And so this one, I think, is an important one and could change a little bit the negotiations between the 2 parties.

Okay, that's helpful. And then the ABS CDOs, as it relates to commutations, just wanted to get a sense -- I mean, you guys said in your release, obviously, that the commutations were within the aggregate statutory loss reserves. And then we see the $400 million reduction and change in expected payments. That's clearly a significant number. On the 2 commutations that you guys got done post the end of the second quarter, I mean, are we -- should we be looking at similar amounts of reductions and reserves on those commutations, or is -- it just seems like a very large number relative to the comment that you guys made that it was within the statutory losses about the huge reduction, I guess, from our perspective? Any thoughts on the other 2 that you guys have gotten done?

Again, for adjusted pretax income purposes, we're using the economic loss concept that's discussed in our press release. And so all of the commutations that were achieved up through, really, the filing of the stat blank, which was yesterday, are reflected in that number. So you're looking at the impact of the deals with 5 counterparties.

Okay. So could we assume that the other 2 were larger impacts on -- the last 2 were larger impacts on that statutory reserve?

No. Again, the impact on the statutory reserve that you're seeing is the impact of all 5.

Right. But the 3 that got done before, it just seems like a very large number relative to the commentary. Just wondering if there was less of an impact on the 3 that got done in the quarter versus the 2 that got done after.

No, I think it's a mistake to -- one is it is a large number, but sometimes, it's a large number the other way. So I wouldn't -- we don't get too excited about individual agreements. But we get excited about, and are very pleased about, is in aggregate, we've done $32 billion of these. In aggregate, it's been a few hundred million dollars under our total reserves. Given that our objective is to settle all cases and to see all of these things eventually get done with, as long as we're tracking against our carried reserve, we're very happy. But one individual settlement, don't try and read too much into it.

Okay, that's helpful. And anything on structured CMBS commutations? Any -- I assume you guys are having further discussions there, but any comments on that?

Stay tuned.

Your final question comes from the line of John Helmers with Swiftwater Capital.

A couple of things. One, on commutations, would you say that the low hanging fruit, to a degree, has been done, in other words, the ability to commute at the level that is reserved in statutory? Or is that something that you expect will continue at the same type of pace? And I have a couple more.

I guess my expectation is, is what you've seen over the last 2 or 3 quarters is a reasonable expectation of the kind of pace that you should see over the next 2 or 3 quarters. There's no -- there are some obvious things out there that are going to be a little bit more difficult. I would also say there's 4 or 5 counterparties that are really easy, and we can't quite figure out why they haven't agreed yet in terms of the amount of money involved. But it's -- there's no real pattern. There's obviously a couple that are going to be more difficult than the others, but we expect that we'll be able to get them all done with it's said and done.

Jay, if I can just add to that. When we set our loss reserves for statutory, we take into account everything that we know about those credits, including the propensity to -- for them to early settle. When you look at the volume of early settlements that we've done in the past 6 quarters or so, we sort of have to take that into account so the likely or sort of expected value of commutations does itself play a role in setting the loss reserve.

Understood. And then, just thinking about the lawsuit on the -- and I'm far from a legal expert, but it would seem to me that at least on the lawsuit where you're being sued, on the ability to split into the 2 entities, the longer -- and I believe you then also countersued. It would seem to me that the longer MBIA Corp. continues to pay and shows its viability, the more you would have the potential for significant damages. And that would in fact increase your leverage in terms of the potential settlement. Is that the right way to think about that or not? Does that have any bearing?

We really -- we have not countersued on that specific issue. The issue of them asking us to essentially -- or fighting the split of the 2 companies is one way. Our lawsuits back have to do with individual transactions that we believe were misrepresented to us at the time we contracted to insure them. In terms of if when we believe we'll be successful on the transformation lawsuit, I don't really think that we're seeking damages. We'd just be happy to have it all behind us at this point in time.

Understood. I guess I just think that every day you can't write new business, there is obviously a damage being done. The last thing is we're owners and long-term investors, and I -- and Jay, I really like the letter to owners you write each year. But I just want to make sure that as a long-term investor, that you agree that ABV is the right way to think about, or at least the best metric to think about in terms of intrinsic value. And then, just to add to that, when you think about ABV, where do you see the biggest concerns or potential risks to that number not being the end value that's achievable?

The 2 biggest risks associated with that, probably, one would be the level of our reserves, which is still volatile. And as Chuck pointed out, at this point in time, we would say 2/3, 3/4 of the remaining volatility in our balance sheet centers around CMBS reserves. That doesn't mean that there can't be other things, but that's our current thinking of where the biggest volatility. The other thing is that ABV is a concept that represents present value of dollars in, dollars out. To the extent we are not able to do new business, that could alter somewhat very modestly the way that valuation will come out and be played out to be able to be realized. And that's part of the trickiness associated with it. That said, we think that is the best way to understand what has become a very complex understanding of our GAAP and statutory balance sheet. So we've put ABV out there, so people can have a relative constant measure to say, "Hey, as a balance sheet, this is about what's happening on a per share basis." It also properly reflects, we think, accretive transactions such as buying back debt or buying back shares much more rapidly than you would see it through looking at the GAAP or statutory balance sheet. The second end measure, of course, is pretax income. And that's a complementary adjusted pretax income. That's a complementarity measure to give you the period effect of what's going on in the income statement. And, again, Chuck has tried to take away what we think are temporal adjustments in mark-to-market and things of that nature and give you the best understanding of why we think of what happened to us economically over a 3-month, 6-month or a 1-year period, depending on which income statement you're looking at. But all in all, I think if you see ABV stay the same or go up, and you see the stock price such as today's substantially below it, I think you can feel safe that we view that as a huge discount and a huge opportunity for shareholders to see value in the future.

Your next question comes from the line of Jonathan Carmel with Carmel Asset Management.

A couple of quick questions. First, you've listed out your top 10 below-investment-grade exposures for MBIA Corp. But I believe it does not include any of the commuted transactions. Should we expect that any of those will disappear when you report third quarter?

I'm just going to the page now. [indiscernible] only exclude those transactions that were officially commuted prior to June 30, 2011.

Yes, again, we remove them from exposure lists when they are settled, when they actually close, as opposed to when they are committed.

Got it. But for the 3 that you closed in the third quarter, can we have any expectation that any of the 3 will be among that list?

Can't comment on that. You should just watch the list and to the extent, obviously, that any of them are deals that closed in the third quarter, they'll be removed.

Okay. Next question, little more just your opinion, when you went through the S&P downgraded the United States, obviously, the monoline guarantors are waiting for S&P to come out with their new ratings guidelines. Do you think that the downgrade of the U.S. will have an impact on the kind of metrics that will be required to obtain extremely high ratings out of S&P?

I guess the metrics that are required to obtain high ratings out of S&P are extremely in flux right now with respect to the monoline industry. And I guess a lot of people would say that the metrics that are used to assess the credit quality of the United States are also greatly in flux. So it's a little hard to say that one would have an impact on the other. I would note that S&P had taken actions against some of the very highly rated insurance companies but couldn't draw any direct line between that action and the rating on our companies.

Great. And one final just technical question. For your wind-down operations, you've got the intercompany loan coming due later this year. And you also, I believe, have the repo lines between National and the wind down coming due. Have you had any discussions with New York State regulator about extending either of those?

We have ongoing discussions with the New York State Insurance Department about all of these facilities. Just to clarify, the secured loan does come due in November of 2011. The facility with National that we referred to as the asset swap does not come due at that time. At this point, the wind down operations has adequate cash flow to retire the secured loan and to continue to meet all of its obligations for the near future. I would note that, and we do reference in our supplement, the book value deficit between assets and liabilities, which is about $500 million, at some point, that does start to materialize in cash. But that point is some years away at this point.

This concludes the formal Q&A session of today's call. At this time, I would like to turn the call back over to Mr. Greg Diamond for any additional or closing remarks.

Thank you, Jackie. I'd like to note that we did handle all the questions that were submitted through the queue today. I'd also like to thank all of you who joined us for today's call. Please contact me directly if you have any additional questions. I can be reached at (914) 765-3190. We also recommend that you visit our website at www.mbia.com for additional information. Thank you for your interest in MBIA. Good day, and goodbye.

Thank you. This concludes today's conference call. You may now disconnect.