Welcome to the MBIA Inc. Second Quarter 2020 Financial Results Conference Call. I would now like to turn the call over to Greg Diamond, Managing Director of Investor and Media Relations at MBIA. Please go ahead, sir.

Thank you, Maria. Welcome to MBIA's conference call for our second quarter 2020 financial results. After the market closed yesterday, we issued and posted several items on our website, including our financial results, 10-Q, quarterly operating supplement and statutory financial statements for both MBIA Insurance Corporation and National Public Finance Guarantee Corporation. We also posted updates to the listings of our 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, 10-Qs and other SEC filings as our company's definitive disclosures are incorporated in those documents. We urge investors to read our most recent 10-K and subsequent 10-Qs as they contain our most current disclosures about the Company and its financial and operating results. Those documents also contain information that may not be addressed on today's call. The definitions and reconciliations of the non-GAAP terms included in our remarks today are also included in our 10-K and 10-Qs as well as our financial results report in our quarterly operating supplement. The recorded replay of today's call will become available approximately 2 hours after the end of the call, and the information for accessing it is included in last week's press announcement and in the financial results that we posted on the MBIA website yesterday. Now for our safe harbor. Our remarks on today's conference call may contain forward-looking statements. Important factors such as general market conditions and the competitive environment could cause our actual results to differ materially from the projected results referenced in our forward-looking statements. Risk factors are detailed in our 10-K and 10-Q, which are available on our 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 if it later becomes aware that such statement is no longer accurate. For our call today, Bill Fallon and Anthony McKiernan will provide introductory comments, which will be followed by a question-and-answer session. Now here is Bill Fallon.

Thanks, Greg. Good morning, everyone. Thank you for being with us today. For the second quarter of 2020, the Company's net loss was primarily caused by loss and loss adjustment expenses, with slightly more than half of those loss expenses recorded by National Public Finance Guarantee Corporation and the balance by MBIA Insurance Corporation. These losses largely resulted from National's insured Puerto Rico exposure and reductions in MBIA Corp.'s estimated recoveries on the Zohar CDOs. The losses for the second quarter were not meaningfully influenced by the COVID-19 pandemic. However, we will continue to review our insured portfolio to assess the impact from COVID-19 as the pandemic evolves. National's Puerto Rico exposure is largely comprised of 3 credits: the Commonwealth General Obligation Bonds, the Puerto Rico Electric Power Authority, or PREPA; and the Puerto Rico Highway and Transportation Authority, or HTA. There have been no meaningful changes to our PREPA and GO credits in the last 3 months. Regarding HTA, last month, the Title III Court denied our motion seeking to lift the bankruptcy state to pursue our property interest. We disagree with that decision and tend to appeal it once it is final. The provisions of the HTA revenue bonds are widely accepted and used across the public finance market. So the court's ruling could make it more difficult for state and local governments to finance infrastructure projects at attractive rates. Last week, our litigation against certain underwriters of some of our insured Puerto Rico debt was remanded back to the Commonwealth Court, where we had first filed it. The case will now proceed, and the underwriter banks will soon respond to the complaint. Most of the credits in our insurance portfolios continue to perform consistent with our expectations. The outstanding gross par of the insured portfolios continues to reduce, where National's insured portfolio has further declined to $46 billion, down $1.5 billion from last quarter. At June 30, 2020, National's leverage ratio of gross par to statutory capital was 23:1. During the second quarter, National purchased 9.8 million shares of MBIA's common stock at an average price of $7.32 per share. Year-to-date through July 29, 2020, National purchased 22.6 million MBIA shares at an average price of $7.58 per share. As of July 29, 2020, MBIA had 57.8 million shares outstanding and $27 million of remaining capacity under its existing share repurchase authorization. Now Anthony will cover the financial results.

Thanks, Bill, and good morning, everyone. I will begin with a review of our second quarter 2020 GAAP and non-GAAP results. The Company reported a consolidated GAAP net loss of $106 million or a negative $1.69 per share for the quarter ended June 30, 2020, compared to a consolidated GAAP net loss of $207 million or negative $2.45 per share for the quarter ended June 30, 2019. The lower net loss this quarter was driven by several factors: mark-to-market gains related to our interest rate swaps in 2020 versus MTM losses in 2019 due to favorable changes to the interest rate curves; higher VIE income in 2020, in part due to the reversal of a credit loss allowance on held-to-maturity investments and an increase in our Credit Suisse recovery versus losses in 2019 resulting from deconsolidating VIEs; modestly lower loss in LAE expense; and lower interest expense. These items were somewhat offset by lower investment income. Loss and loss adjustment expense at National was related to Puerto Rico exposures focusing on HTA, as Bill alluded to earlier. Loss and loss adjustment expense at MBIA Corp. was primarily due to a reduction in expected recoveries on claims paid on the Zohar CLOs. Discount rates played a minimal part in loss and LAE for the quarter as the risk-free rates, on average, decreased only slightly this quarter versus Q1 2020. Book value per share decreased to $5.55 per share as of June 30, 2020, compared to $10.40 as of December 31, 2019, primarily due to 2020 year-to-date net loss of $439 million, partially offset by unrealized gains on investments and 17 million fewer net shares outstanding due to share repurchases during the first half of the year. The Company's adjusted net loss, a non-GAAP measure, was $72 million or a negative $1.15…

[Operator Instructions]. Our first question comes from the line of Tommy McJoynt of KBW.

I had a question about whether you have any expectation or built into your numbers as to whether there will be federal support for state and local governments in the next release, Bill. And basically, will there be an impact if it's included or if it's not included?

There is not an explicit number, but as you can imagine, we are carefully monitoring what's going on in D.C. these days. And as you know, in the past, while there was a lot of support financially, this time around, at least from the democratic side, there's a lot of talk about specifically money being distributed to state and local government. So we'll wait and see how that plays out, and clearly, it may have an impact. And while we haven't seen any claims immediately from, for example, general obligations of state or cities, over time, there could be more and more stress depending on how the pandemic evolves. So it is an important factor. But no, there's not an explicit part of the calculation right now related to that.

And you mentioned that in your 2Q number for loss and loss adjustment expense, there was really minimal impact, you said, from COVID-19. And does that kind of broadly extend to potentially municipalities facing more constrained budgets, given lower sales tax revenues and potentially higher expenses related to dealing with the pandemic?

The short answer is yes, and behind that, again, we have to wait and see how this evolves. While, clearly, there's been some stress on many of these situations, we're waiting to see, for example, what the government does and then also what response some of the states and cities have to the drop in revenues.

Okay. And then last one, switching gears. There was a ruling last week that you mentioned that gives the guarantors the right to pursue claims against the -- some of the banks for underwriting in Puerto Rico. Is there any way for us to think about sizing what the potential recovery could be there? Obviously, the RMBS claims proceed over a number of years and the settlement stayed pretty widely. Is that a good proxy for what we're seeing here? Or just how should we think about that?

Conceptually, there are some similarities that you just referred to. In terms of sizing, however, it's pretty early in the litigation process. We obviously feel we have a very strong claim here. And as I indicated, the next response is really from the banks [in them now], the Puerto Rico court, which we think is the proper venue for this to be heard. So this is one, as it evolves, it will be easier to start to size and perhaps even probabilities, if that's what you're trying to do against this, but it's pretty early right now to come up with that.

And given the timing of when that ruling came out of in July, there was no financial impact from that in 2Q numbers, correct?

No. There's nothing from that litigation reflected in our recoveries at this point.

Our next question comes from the line of Mark Palmer of BTIG.

With regard to the Title III court ruling on HTA, could you give us some sense of what the timing is with regard to the appeal of that, and if you could comment on the broader implications if that ruling is allowed to stand?

Yes. First, with regard to the timing, there are a couple of other procedural elements of the litigation. But over the next month or 2, I think that's a reasonable period to think of the appeal being filed. So again, sometimes hard to pick on litigation, but that will move relatively quickly in terms of whatever action we need to take. In terms of the second part of your question, Mark, with regards to the implications, as I mentioned in my comments, we strongly believe that this was not the right decision. We do believe that it has knock-on effects for the broader market. We do believe that there are liens in place and that this is the way the municipal market has functioned, and that is reflected in the rates that issuers are able to borrow at. And if that is not the case, then we think that changes the market, but we are confident and optimistic that as we pursue this, that, that is likely to be reversed.

[Operator Instructions]. Our next question comes from the line of Joshua Esterov of CreditSights.

With regards to the insured portfolio at National, were there any exposures or sectors where you did need to devote additional time for review given the ongoing conditions? And in general, any color you could give on sectors or credits outside of Puerto Rico that you're tracking particularly closely, given the ongoing pandemic situation, that would be helpful.

Yes. As you can imagine, we looked at the entire portfolio. There are clearly some that are more likely to face some stress due to the impact of COVID-19. So I'll give you one example of a sector or subsector. There are some credits in our National portfolio that are related to rent-a-car deals and fees associated with rent-a-cars. And as you can imagine, with the severe reduction in travel since so much of the rental car business is associated with airports, those are being reviewed very carefully, and we'll continue to monitor those. That's probably the best example. And there are some others, as you can imagine, where revenues have just slowed down, whether they be sales tax type things in certain states or cities. But again, we're looking at the entire portfolio, and again, at this point, there's been no claims. We don't see, in the near term, any claims, but it is one. The longer the impact is felt by the issuers, the more stress they will experience.

And If I could just get a second question in. Could you give us an update as to what the plans are with regards to potentially requesting approval for a special dividend from National, which I think was originally planned for 2021? But any update on that would be helpful as well.

Yes. I don't believe there's ever been a date that was put out with regard to a special dividend from National to the holding company. I think what we've said is after there is meaningful progress on the Puerto Rico restructuring, we would consider going to the Department of Financial Services to discuss the special dividend from National up to the holding company. And the challenges, you're aware, is that it's just very hard to estimate the timing of the Puerto Rico restructuring at this point. And we continue to think about it more in terms of events as opposed to any day on the calendar.

And ladies and gentlemen, that was our final question. And with that, I would like to conclude today's conference call. Thank you for joining today's MBIA Second Quarter 2020 Earnings Conference Call. You may now disconnect, and have a wonderful day.