Welcome to the MBIA Inc. fourth quarter and full year 2014 financial results conference call. I would now like to turn the call over to Greg Diamond, Managing Director of Investor Relations at MBIA. Please go ahead.

Thank you, Christie. Welcome to MBIA's conference call for our fourth quarter and full year 2014 financial results. After the market closed yesterday, we posted several items on our websites, including our financial results press release, our 2014 10-K and quarterly operating supplements, for both MBIA and National. We also posted the annual and audited statutory financial statements for MBIA Insurance Corporation and National Public Finance Guarantee Corporation, and updated information regarding each of their insurance portfolios. Regarding today's call, please note that anything said on the call is qualified by the information provided in the company's 10-K and other SEC filings, as our company's definitive disclosures are incorporated in those documents. Please 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. Regarding the non-GAAP terms that it will be included in our remarks today, the definitions and reconciliations to those terms may be found in the 2014 10-K, yesterday's financial results press release and our quarterly operating supplements. The recorded replay of today's call will become available approximately one hour after the end of the call, and the information for accessing it is included in yesterday's financial results press release. Now, for the Safe Harbor statement. Remarks on today's call may contain forward-looking statements. Important factors such as general market conditions and the competitive environment could cause our actual results to be materially different than those projected results referenced in our forward-looking statements. Risk factors are detailed in our 10-K, available on the 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 that later becomes aware that such statement is no longer accurate. For our call today, Jay Brown, Bill Fallon and Chuck Chaplin, will provide some brief introductory comments. Then a question-and-answer session will follow. Now, here's Jay.

Thank you, Greg. I come to today's call with so much mixed reactions for our 2014 results. On a very positive note, I'm gratified that MBIA has had its first year of operating profitability, since before the financial crisis and recession. The National Public Finance Guarantee rode its first policies, our holding company is more liquid than it's been in years and that we've worked the legacy MBIA Insurance Corp. portfolio down to $55 billion from its peak in 2007 of over $300 billion, while dramatically reducing its risk profile. In addition, our operating cash flow was positive for the past three quarters and adjusted book value increased in 2014. Our team here at MBIA has accomplished much in the past several years, and we clearly turned key corner in 2014. On the other hand, there were a handful of issues that leave me disappointed. Most significantly, National has not written as much new business as we had expected. We attribute that to several factors; some environmental, some industry-wide and some associated with National itself. In terms of the business environment, the current low interest rates narrow the marginal benefit of insurance for issuers and increase demand for higher yielding unwrapped securities. It seems likely that this will inhibit the sales of new bond insurance policies for some time, until rates increase and spreads widen. Looking at our industry, pricing has never been tighter, so many more transactions than we had expected are failing to meet our internal hurdle rate of return. Finally, National's reentry to the market is only about 10 months old. We are still reintroducing ourselves to the thousands of issuers, bankers and financial advisors across the country. The first few policies and new muni bond insurer rights are always the hardest to win. And while our…

Thanks, Jay, and good morning, everyone. I'll begin by echoing Jay's earlier comment. None of us at National are satisfied with the level of new business we've written, since achieving competitive ratings last spring. After more than six years on the sideline, we were eager to resume adding value to the municipal marketplace. And while we've made some progress, it clearly hasn't been as much as we'd hoped. Jay covered some of the challenges we've faced, as we've reentered the market. What I'd like to focus on are some factors that make us optimistic that we'll be able to write some growing amount of new business in the future. First, Tom Weyl, who we hired from Barclays, joined us on January 5. Tom, his team and I have accelerated our marketing efforts and went out on the road meeting with bankers, financial advisors, issuers and investors, in an effort to help them better understand National and its value proposition. What we've found is that while the people in some of the offices of large banks and big investment sharks are well aware of National and the value it brings, that isn't consistently the case in all of their offices who are at the retail broker level, where the majority of insured muni bonds are sold. So we've been targeting regional offices around the country. It's a time consuming process, but one that we see producing results. That's a good segue to my second point, which is that we can see the momentum building. We've insured $369 million par amount of new business since reentering the marketplace, beginning with a refinancing of the Detroit Water and Sewerage Dept. Bonds with our wrap on them have been trading comparably to those of our competitors, indicating that the market accepts the value of…

Thanks, Bill, and good morning everyone. Today, I'll first discuss our GAAP financial results, and then focus in on the results and financial position of the Public Finance and Corporate segments whose performance is reflected in our non-GAAP measures of operating income and adjusted book value. Then I'll talk about MBIA Corp. and the margin of safety it provides to policyholders and the potential value available to surplus noteholders focusing on our statutory financial reporting. Then, of course, we'll open the call for your questions. So first let me touch on our consolidated GAAP results. Our net income on a GAAP basis was $569 million in 2014 compared to $250 million in 2013. The net changes in the fair value of insured derivatives drove both of these results, comprising the majorities of pre-tax income in both periods. In 2014, releases of marks-to-market upon commutations and terminations of policies was significantly higher than in 2013. In addition, consolidated operating expenses declined from $338 million in 2013 to $195 million in 2014. In addition to our GAAP results, we also reported non-GAAP measures that we believe provide additional context for our operating performance. Beginning this quarter, we're going to be reporting an operating income measure that is generally consistent with such measures used by others in the insurance industry in lieu of the adjusted pre-tax income measure that we have used since 2009. It omits gains and losses and mark-to-market items that we don't believe reflect ongoing business operations. And as I noted, it contains only the result for the Public Finance and Corporate segments, which we'll refer to as the combined results. Operating income is not a completely new concept for us. We reported it prior to the financial crisis and recession. So we regard this change as just another sign…

[Operator Instructions] And your first question comes from Fred Gibson of JPMorgan.

Two questions, which I'll ask upfront. First, much has been discussed in the market about the Zohar transactions and the potential for that exposure to put the company, the Corp entity that is, into some sort of regulatory action. Can you update us on the risk that transaction poses to Corp and the potential value of course it would take away from surplus noteholders? And then further, why hasn't the company commented more, given more disclosure around this exposure, what the drivers are, and how investors should think about it? That's first one. And second question is I wanted to discuss Corp a little bit more. The company recently changed the reporting structure to prioritize the Corporate segment ahead of Corp, changed the presentation of adjusted book value and characterized Corp as non-core and took out operating income. Do these actions indicate something about the company's long-term commitment to that entity?

I'll handle the first question on Zohar. I think as the market is now aware, something that we said would happen for the last several quarters is now beginning to occur, which is that the operator of the Zohar entities has now retained a banker, and has reached out to bondholders and ourselves to begin the discussions, what is the right course of restructuring those transactions. We haven't provided a lot of detail on the actual underlying performance of the assets in the transactions, because we're bound by the normal confidentiality agreements that exist between ourselves and the insured in this case. We know that the first transaction will mature in November. We believe hiring an investment banker and beginning those discussions at this point in time is appropriate. And we're going to remain cautiously optimistic that all of that can be completed before November. That would consist of all the comments we'll make on Zohar at this time. And I'll turn over the second part of your question to Chuck.

With respect to MBIA Corp., your question I think is the fact that we're changing the reporting, mean anything with respect to the way that we'll manage the business on a go forward basis. And our expectation continues to be, as I think Jay referenced in his comments, that we're responsible to maximize the margin of safety for the policyholders of MBIA Corp. as well as to maximize the recovery for the holders of the subordinate securities that are subordinate to policyholders, but superior to common equity. Our reporting, though, does recognize the fact that we believe that as things go well for MBIA Corp., we believe there will be recovery for the subordinate securities holders, but that it's unlikely that there's any recovery beyond that that goes through the shareholders of MBIA Corp. up at MBIA Inc. and ultimately to the our public common stockholders.

I think the other thing is the change at yearend reflects how we've been thinking about the company for quite a while and certainly reflects how a number of analysts that follow the company have been analyzing it, where they're basically have not for the past two or three years attributed value to the common shareholders for our ownership of MBIA Corp. And I think that the reporting that Chuck has introduced beginning with yearend 2014 is consistent with that view of the company. And we thought it was important that our basic reporting track pretty much with how the market was looking at the value of the common equity.

Your next question comes from Geoffrey Dunn of Dowling & Partners.

Jay, I just want to clarify the debt leverage comments. And it sounds like basically you're aiming for like 20%, 25%, and would that include the straight corporate debt plus the investment agreements and the medium-term notes?

The way that we're thinking about debt-to-capital ratio is we're taking our unsecured senior debt at the holding company and adding to it the MTNs issued by the global funding subsidiary. Those are the holding company obligations that are unsecured and need to be serviced out of ongoing cash flow from the operating subsidiaries. The guaranteed investment contract that we've issued, at this point, and it have been since 2009, are all of fully collateralized by cash and high-grade securities, treasuries and agencies. So we don't regard them as net debt, if you will, at this point. We're comparing the senior debt and MTN to the capital-based debt plus the equity of that company, and again excluding the equity of MBIA Insurance Corp. on a standalone basis. And you're correct, Geoff, the target is 25% or lower.

And then special dividends are a popular topic in this space these days. You're accumulating capital very quickly in U.S. public finance. How do you approach those conversations? And what are those things where you can't really approach the conversation until Puerto Rico is resolved?

That's correct. And certainly, our intent when Puerto Rico gets resolve, to then discuss our capital position with the regulator and any dividends that we might suggest.

Your next question comes from Brian Charles with RW Pressprich.

Unfortunately, I think we got cut off on the conference call, maybe some listeners missed a few minutes there, so pardon me, if I'm asking that question that you might have already addressed. But I had a couple of questions. First off at MBIA Corp., I was trying to find some information, some updated information on your BBB CMBS exposure. I wasn't able to find it in the 10-K. And I'm not sure if you given that information elsewhere or if you have any comment on how that has amortized down over the last 12 year, but particularly in the fourth quarter.

We do have one transaction, a BBB CMBS that we've wrapped on which we have been making payments for over a year, since some time in 2013. At this point, there is about $300 million of par outstanding on that transaction. So I mean, we say, it's amortized down. We've been making payments on it.

I guess, that was a $322 million at the end of September, so that's amortized down to $300 million. Has that amortization been payments or maturities of exposure?

Payments by us.

The other pool that you had exposure to, has that have been generating losses at all? I think, as of September you had --

No, we only have one CMBS that's classified.

And secondly, I don't know if I've missed some comments on this, but you had talked earlier about how you're characterizing the resolution of MBI Corp? And how you were trying to maximize value to surplus notes holders? Did I miss anything in the second part of the call on how you see that unfolding over the next several years?

Nothing has really altered in terms of our approach. We have extremely long-term contingent liabilities at MBIA Corp. Some of the policies still stretch out 35, 40 years in the future. So the ultimate resolution of MBI Corp. and its subsidiary MBI U.K. will take quite a long time. We continue, I think, as we reflected in our comments, 2014 was a good year. We ended with slightly statutory capital. We've maintained liquidity. And we saw through a combination of normal maturities and then commutations and terminations, we reduced from $80 billion to $55 billion. By the end of this year in 2015, MBI Corp. will actually have more outstanding policies in the Public Finance segment internationally, than it will have in the structured settlement area. And that will continue, that ratio of public finance to structured finance exposures will continue to increase as we go out over the next five, 10 years. And so it's becoming predominantly an international public finance company, which we believe those results will be more stable and more predictable, when we get to a certain level, that's when we believe that the regulator will then start to consider surplus note payments on the accrued interest. I would note that as we've said in the past we have had discussions. We continue to be opened to the discussion, if the current surplus noteholders have a better idea of how to optimize value for the surplus noteholders. Always in recognition that the first priority for MBIA Corp. is to honor its policyholder obligations and then secondarily its surplus note obligations.

Your next question comes from Jane Castle with Avenue Capital.

Your comments did cut out when you were discussing the Corp entity. But my question was, was there any compensation to Corp during the year and the quarter for the DTA use?

Corp actually had a positive taxable income in one of the quarters of 2014. And it did not make any payments to the holding company for taxes. So while it would provide taxes on its income statement in that quarter, it doesn't actually pay anything to the holding company.

But what about the reverse, if the DTA is used by National or the holding company? Has there ever been a payment to Corp for the generation of those NOLs or the DTA? Has cash ever flown?

No, there has been no payment.

Is there any expectation for payment in the future or what? Is that disclosed in the exhibit that you filed?

It is. And we wanted to make sure that this is clear to everyone. So we provided the tax sharing agreement as an exhibit to the 10-K. And you could also find it if you go in the Frequently Asked Questions section of website, there is a hotlink to it.

Your next question comes from Andrew Gadlin of Odeon Capital Group.

On National, in relation to the new policies that were written, can you talk about pricing and profitability for these new policies?

As we've mentioned, the market primarily driven by low interest rates and low spreads is quite competitive. However, we do have capital models and pricing models. And what we're seeing is, on those types of deals that you're seeing low -- excuse me, high-single digit returns on those. We still think that longer-term pricing needs to improve to really increase the attractiveness, but we are finding acceptable returns on the pricing.

Are is it by looking at different type of deals in your competitors or is it just getting comfortable with the current pricing level and the risk associated?

It really is the latter, getting comfortable with the current pricing. And again, relative to when we reenter the market what we thought might be the case, it's turned out that pricing is just a little bit lower than that. But the deals are competitive in the sense that there are multiple insurers bidding on most of the deals.

In Puerto Rico, this petroleum tax that's being passed and the proposal of refinancing some of the HTA debt has been controversial. Some folks like what it does, in terms of cleaning up HTA's balance sheet and others don't. Can you comment on how you view that situation?

Well, in Puerto Rico, I think there's two key things that we're looking for. One is the capital raise, which is what you're referring to here. Because of the increases in petroleum tax, it should allow the Commonwealth through HTA and then actually through PRIFA is what you're seeing in the press, that they would raise capital. Most of that, we believe, will go to support the general needs of the Commonwealth through the General Development Bank. The second thing we're looking for is the operational restructuring of PREPA, which is going to take some time to become more visible in terms of what suggestions and what recommendations they have. As you know they've hired Chief Restructuring Officer. So those are really the two things that we're looking for to increase the stability of the Puerto Rico situation.

But Andrew, just to be clear, we are very much in favor of the petroleum tax increase and the financing. The devil is in the details. We do have some suggestions about how that been structured to make it more viable to the market and have more sustainability over the long-term, so we just don't do a refinancing and find ourselves back in the situation in the near-term.

And your next question comes from Seth Glasser of Decade Capital.

I wanted to just ask another question regarding Zohar. With regard to the negotiation that's about to commence or that may have already commenced, what would your goals be? Would your goals basically be to try to support the process of a refinance or a restructuring of the deal by basically rewrapping a restructured deal? Or are there ways within the language in your contract that you think a restructuring might actually be able to take you out of your exposure?

There is a lot of different ways this restructuring could proceed. It is incredibly early days. And I'll tell you now, because you'll be asking the question in the next couple of quarters, there won't be a lot of discussion about what's happening until it actually occurs. So we're not going to offer any comments as to what is the possible outcome. But the two you mentioned are certainly different courses that we could take, depending on what's best for MBIA Corp. and it's other policyholders and its surplus noteholders. We believe that there are viable answers here to minimize any losses to Corp and that we're going to pursue those with a great deal of vigor here over the next several months.

And with regard to the timeframe, you said that you hope that it can be resolved by the November maturity. I mean, do you think this is a process that will take a few months? Or is this going to become a much more difficult and drawn out process that may include litigation in your opinion?

It's premature to know how long it's going to take. We remain optimistic that it will be resolved by the November timeframe.

Your next question comes from Randy Fabian of Tricadia.

Can you guys discuss any fourth quarter commutations you guys may have done at the MBIA Corp. subsidiaries within the structured CMBS book?

There were only a very small amount of commutations in the fourth quarter, and nothing of significance in the CMBS account area.

Thank you. At this time, there are no further questions. I will hand the floor back over to management for any additional or closing remarks. End of Q&A

Thank you, Christie. And thanks to all of you who have joined us for today's call. Please contact me directly, if you have any additional questions. We also recommend that you visit our website at mbia.com for additional information on our company. Thank you for your interest in MBIA. Good day and good bye.

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