MBIA Inc. Q1 2009 Earnings Call Transcript

May.12.09 | About: MBIA Inc. (MBI)

MBIA Inc. (NYSE:MBI)

Q1 2009 Earnings Call

May 12, 2009 8:00 am ET

Executives

Greg Diamond – Director Investor Relations

Edward Chaplin - President, CFO, Chief Administration Officer

Clifford Corso – Chief Investment Officer

Mitch Sonkin – Chief Portfolio Officer

Tom McLaughlin – CEO National

Anthony McKiernan – Managing Director, Head of Structured Finance Insured Portfolio Management

Analysts

[Chris Valley]

Andrew Oliver – Transatlantic Capital

[David Risgar – Northstar Asset Management]

Darin Arita – Deutsche Bank

[Adam Sclor – Monarch]

[Aaron Kumar – J.P. Morgan]

[Brian Monteleon – Barclays Capital]

[Michael Boyer – Stonehill Capital]

David Williams – CQS

Scott Frost – HSBC

[Aaron Malick – CQS]

[Patrick Dennis – Daykey Partners]

[Manuel Josera – J.P. Morgan]

Operator

Welcome to the MBIA Incorporated first quarter 2009 financial results conference call. (Operator Instructions) I would now like to turn the call over to Greg Diamond, Director of Investor Relations at MBIA.

Greg Diamond

Welcome to MBIA's conference call for our first quarter 2009 financial results. We're going to go back to a somewhat more historically traditional format for today's call. We will not deliver a presentation and the call will consist primarily of a question and answer session.

We have posted several items on our website including the Form 10-! that we filed yesterday, our quarterly operating supplement and additional material and information related to our first quarter results and condition. We've also posted information on our website regarding access to the recorded replay of today's call which will be available later.

Our company's definitive disclosures are incorporated in our SEC filings including the Form 10-Q that we filed yesterday which includes comprehensive disclosures regarding our first quarter results.

The purpose of our call today is to discuss some of these points raised 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 this call. Please note that anything we say on this call is qualified by the fuller information provided in the 10-Q and our SEC filings.

You should read the Form 10-Q as it contains our most comprehensive disclosures as of the end of the first quarter about the company and our financial and operating performance for the quarter.

For the Q&A session of today's call, we have several members of MBIA's management team. Here today are Jay Brown, CEO, Chuck Chaplin, President, CFO and Chief Administration Officer, Mitch Ogden, Chief Portfolio Officer, Cliff Corso, Chief Investment Officer, Anthony McKiernan, Head of Structured Finance and Shared Portfolio Management and Tom McLaughlin, Chief Executive Officer of National Public Finance Guarantee Corporation.

Now, for our Safe Harbor disclosures statement. Our remarks on this conference call may contain forward-looking statements. Important factors such as 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 undertakes no obligation to revise or update any forward-looking statements to reflect changes in events or expectations. In addition, the definitions of non-GAAP terms that are included in our remarks today may also be found on our website.

Before we begin the Q&A session, Chuck Chaplin will provide a few introductory comments.

Edward Chaplin

Good morning everyone. I will provide you with a brief overview of our quarter and then as Greg said, we'll throw the line open for your questions.

Our financial performance in the quarter was poor just as you would expect given credit market conditions. The quarter began with a delinquency pipeline in our second lien RNBS that exceeded our previous expectations. By quarter's end we concluded that we needed to strengthen reserves for these cases both to reflect the longer period of elevated loss rates but somewhat higher severity as well.

Total additions to reserves were $636 million on a pre tax basis. Sub prime and CDO collateral in our insured CDO's more closely tracked the expectations we used in our analysis as of fourth quarter 2008. Even so, we increased our estimates of impairments of deferred of multi-textured CDO's by $97 million.

We have learned that much of the losses taken in these two areas are attributable to ineligible collateral being in the field and we've commenced legal actions against three fellow servicers and one CDO arranger.

In addition, we hold some bank hybrid and mortgage related securities in our asset liability management investment portfolio in which $169 million in other than temporary impairments were taken in the quarter.

So, the credit crisis continues to affect our financial results and force us to fundamentally rethink our business model and the legal entity organization of our company. On the other hand, we believe that we have adequate financial resources to manage through this trough in the credit cycle in each of our businesses.

At MBI Corp. our structured finance in International Insurance business, we have liabilities that are in current payment mode. We paid over $600 million in cash payments in the quarter reflecting a catch up on the part of some services of payments due on mortgages that were charged off in the fourth quarter. We don't expect that run rate to continue, but our total gross loss payments in 2009 are expected to top $1.8 billion.

We have $1.5 billion in cash and highly liquid assets at MBIA Corp and expect to end the year with roughly $1 billion in cash and liquid assets assuming no elective uses of that liquidity.

In the ALM portfolio, we had cash collateral against $1.7 billion of termable liabilities as of March 31, so we don't believe there's any risk associated with those potential withdrawals; we simply have a negative earnings drag.

However, we do still have risk from other positions in this book where we have non cash collateral or hedging contracts. We maintain a free cash buffer against those risks.

In our Corporate operation, we have about $430 million of liquid assets at March 31, enough to cover all of our expected cash outflows well into 2011, including debt maturities. The newly created National Public Finance Guarantee Corp. had a $500 million liquidity position as of March 31, which we expect to be more than adequate.

We have substantially reduced the no show exposure to more volatile activities. The ALM portfolio has been reduced by $16 billion and the Structured Finance and International Insurance portfolios are down $34 billion, both versus last years first quarter, and this process continues into Q2.

So far this quarter, we've had four ABS CDO's terminate in accordance with their terms at a significant U.K. housing deal also.

We started to make some moves that will put us in a position to grow in the future. Obviously we've created National Public Finance Guarantee Corp. which we expect will be a strong competitor in that space. We still have work to do there in terms of our re-domestication and our ratings position. Some litigation has been filed as well and while it appears to be completely without merit, there will likely also have some impact on our marketing in the short run.

Our Asset Management business, apart from the ALM portfolio continues to post solid investment performance statistics, and as a result, has added mandates in the core fixed income area. Year to date, we've brought on seven new portfolio's and third party assets under management, in total grew by about $1.7 billion between year end and Q1.

But the big story continues to be the impact of the economic downturn and credit crisis, and it is reflected in our financial reporting. On a GAAP side, we had $1 billion of pre tax income, more than all of it coming from a deteriorating market view of MBIA Corp's credit worthiness and the application of fair value accounting rules.

This income from fair valuing our contingent liabilities is no more economic than the loss that we've had from adverse changes in these fair values in the past. So the headline GAAP numbers may not be all that meaningful.

So we also discuss our performance in terms of adjusted book value. ABV is a non-GAAP concept that removes the effect of unrealized gains and losses that should be expected to net to zero over time.

ABV does however, include the impact of any expected cash losses on insured credit derivatives and invested assets. Our ABV fell in the quarter by $2.45 to $37.61 with the contributions from the businesses as follows; Nationals ABV contribution grew by $0.67 per share due to its operating income.

MBIA Corp's contribution fell by $2.51 per share mostly due to insured losses on RMBS and CDO's. The Asset Management business contribution declined by $0.66 per share as it had realized investment losses due to asset impairments and had a negative spread on the ALM portfolio. The Corporate Segment's contribution to ABV was a loss of $0.05 in the quarter.

And with that, I'd like to throw it open for your questions.

Question-and-Answer Session

Greg Diamond

Now we'll begin the Q&A session. We're going to start with the questions that have been submitted to us in writing and then we'll open up the phone lines to take your questions.

Our first question comes from [Chris Valley]. What was the fair value and the book value of the medium term notes issued by GFL at the end of the March 2009?

Clifford Corso

We don't break out the fair value of the NTM's specifically on a quarterly basis; however I point you to Slide 49 on the deck. That's the slide where we're showing the assets and the liabilities of the ALM business. What you'll see when you look at that slide, you'll see the book value of the NTM of $3.0 billion. You'll see all the book values of the liabilities adding up to $9.7 billion.

And then you'll see a number at the bottom which is the combined estimated market value of the liabilities at $8.5 billion. What I would note or just point out is the lion's share of the market value differential between book and market is related to the NTM's.

You can also look at Slide 7 on the deck. You can see that we did re-purchase some NTM's on that slide, about $237 million for a net gain of $77 million. So that should give you a pretty good sense in terms of what the fair value of the NTM's might look like.

Greg Diamond

[Chris Valley] has another question. According to your presentation, MBIA has sufficient liquidity in its ALM portfolio to fund all potential remaining debt termination payments. Is this true for the whole ALM business as total assets were $9.2 billion U.S. and total liabilities $9.7 billion U.S. taking the market value, the short fall was about $2 billion. Do you intend to offer exchange deals or similar deals to holders of NTM's?

Clifford Corso

If you look at the slide on 49, what you see is that we do have sufficient resources overall to handle the liabilities as they come due and sufficient resources to handle we believe any kind of collateral draws. One of the items to point out is $600 million inter company line. But you're right. Those numbers that you cite are all accurate.

I guess in response to the back half of your question, we will continue to seek out on a reverse inquiry basis any kind of debt repurchases that makes sense for us. We also would consider tenders across the whole capital structure of MBIA.

And again, I would just point you to Slide 7 to give you an indication as to some of the activities that we pursued in the first quarter.

Greg Diamond

The next question was submitted by Andrew Oliver – Transatlantic Capital. Has MBIA booked any recoveries yet? If not, do you have a best guess as to when you will start to book recoveries?

Mitch Sonkin

The answer is we have not booked any recoveries yet. Consistent with how we have treated this throughout the cycle, we continue to give zero credit towards the recoveries associated with the litigation and the claims that we have commenced against Countrywide, ResCap and IndyMac. We feel strongly about the cases and believe that we if we had embedded recoveries in our loss estimates, our projected losses would in fact materially lower than we're projecting at this time.

Those cases proceed and we continue to not book any recoveries whatsoever until we have a better understanding of what recoveries in the litigation will be.

Greg Diamond

The last question that was submitted in advance in writing is from [David Risgar] from North Star Asset Management. If you exclude the ineligible loans under litigation how has the core Structured Finance division performed versus your expectations given this stressful environment.

In other words, to what extent have the problems been poor underwriting or business decision versus how much of the problems are from ineligible loans being fraudulently inserted into the pools?

Joseph Brown

Those questions are always complicated. When we look across the losses that we've estimated over the last two years, both the ones we paid plus what we expect to pay for the duration of our portfolio, as you know through all of our disclosures, the concentration is primarily second liens and secondarily in the multi-structured CDO space.

If we look at the particular losses in those two spaces, somewhere between two-thirds to 80% of the losses we've incurred to date are a direct reflection we believe of loans and different types of assets that were put into the securitization on the CDO side which were not eligible for our contract terms.

If we look across all the rest of the book of structured finance, and considering that we're looking at the worst stress we've seen in many, many years, the book is actually performing quite well. As we've noted in past presentations and as comments have come in over the last two or three conference calls, the rest of the book is actually performing quite well.

The consumer area, small business loan area, most of our international deals, are all pretty much performing where we would expect them to be performing at this point and we have very few recognized losses, nor do we expect many losses in any of those areas.

We're in the middle of the credit storm still. We're kind of half way through this cycle. That's not to say that we couldn't have losses on individual transactions, but I would say to a large extent that when we look back at our performance over the last two years, it has been primarily driven by those two areas where we have a large amount of ineligible collateral that has dominated the losses that we've seen so far.

Greg Diamond

Now we'll open up the phone lines to take more questions. At this point we only have two callers in the queue.

Operator

(Operator Instructions) Your first call comes from Darin Arita – Deutsche Bank.

Darin Arita – Deutsche Bank

I was wondering if I could ask about the second lien loss reserves that were put up this quarter and wanted to just get a better sense of the change in assumptions were. I know you gave a little bit of color in the prepared remarks and the press release but I was wondering if you could go into further detail.

Mitch Sonkin

As you know, you saw the amount of increase in reserves. What we're looking at primarily against the reserves that were taken in the third quarter is the increase in the early stage delinquencies that occurred in the fourth quarter and into early '09 combined with what we saw in the pipeline in terms of later stage delinquencies.

In addition, we haven't seen that leveling off in the housing market, distress, though we have seen some recent anecdotal evidence of decreases of early stage delinquencies. Not enough that we're going to get too excited about it but we have seen some recent experience there.

So while we had been looking originally for some additional leveling off by the middle of this year starting about now, what we've done is, because of the extended stress in the markets, we've extended that out until probably looking for it at the end of the year, and consequently we moved our reserves up accordingly and we would expect that we would see that leveling off that we're looking for more likely toward the end of the year given what we've seen generally in the market.

Darin Arita – Deutsche Bank

Was that expensed, the majority of the reserve change. I know there's a mention on severity changes also. I'm wondering if you could...

Mitch Sonkin

It's not related to severity changes.

Darin Arita – Deutsche Bank

With respect to the remediation effort, how is MBIA coming up with that number of two-thirds to 80% of the losses seem to be from ineligible collateral. What information are you gathering?

Joseph Brown

We've done extensive statistical analysis of individual loan files across very, very large amounts of collateral in both the second lien portfolios by the three major issuers where we have exposure, and also in the CDO's in the multi-sector area where we've gone back and looked at that collateral at the time those CDO's were issued, and what the characteristics of what that collateral were versus what was represented in the documents, so it's a ground up level analysis of thousands of individual pieces of collateral and the rough numbers that we've come up with are somewhere in the two-thirds to 80%.

Darin Arita – Deutsche Bank

Can you discuss with respect to the litigation process with the three servicers, how are you getting additional information as you work through that?

Joseph Brown

We can't comment on litigation.

Operator

Your next question comes from [Adam Sclor – Monarch]

[Adam Sclor – Monarch]

I'm looking; this is kind of a follow up to the first question. I'm looking on Slide 44 of the presentation and I'm just wondering is you could explain your assumptions in terms of loss estimates on your second lien bonds as to how the loss curve is projected. So if you paid out $600 million this quarter, you mentioned it's approximately $1.8 billion for the year, how then that really ramps down to what looks like $100 million for all of 2010.

Edward Chaplin

What you're seeing on Page 44 is the expected loss payout schedule. It is a net schedule. In the securitization that we're making payments on currently, we do anticipate that the lion's share of all payments out, go out in the calendar year 2009 and they account for most of that over $1.8 billion number that I cited earlier.

Once the payments out are made on these RMBF securitization, essentially what's left in them are the remaining performing assets. The remaining performing assets have cash flows that are captured within the securitization and then those net against any further payment outflows in our analysis and that's sort of what you're seeing here on the slide.,

[Adam Sclor – Monarch]

I guess asking a slightly different question. What are your assumptions and what are those assumptions based on that get you to cash flows where your claims payments go from $100 million a month to $100 million per year.

Edward Chaplin

The assumptions, and this is discussed in the 10-Q for RMBF, we're anticipating that the period of elevated roles to loss that we've been experiencing over the past few quarters continues basically through year end 2009 and then reduces to a more normalized level over the ensuing 12 months. And those time frames are kind of average across all of the securitizations that we have.

Operator

Your next question comes from [Aaron Kumar – J.P. Morgan]

[Aaron Kumar – J.P. Morgan]

My first question relates to National. Do you believe that you have adequate capital to continue to grow the business there? I know on the last call, and one of your earlier presentations, you mentioned that the company is potentially interested in raising additional capital from either third parties or the public markets. That's the first question.

The second question relates to if you turn to Slide 49 on the Asset Liability Management business, and you have the assets and liabilities laid out there, if I look at the assets you have $9.2 billion, market value of $6.5 billion, $2.4 billion of which is cash and Treasuries, and on the other side you have terminal debts of $1.7 billion.

If you use a lot of the cash to pay off terminal debt obviously your asset balances would be substantially lower and the question is, the market value adjustment between $9.2 billion and $6.5 billion, if that is applied to the remaining assets and then you compare that to the $9.7 billion of liabilities which is then going to be reduced by the debts, it's almost like a 50% mismatch.

You can just point me if I'm wrong in my analysis, or we can take this offline later on.

Joseph Brown

Thank you, good question. Tom McLaughlin is CEO of National is here, so I'd like to ask Tom to address the question with respect to capital raise to National and then Cliff Corso can talk about the ALM assets and liabilities.

Tom McLaughlin

National is already capitalized to a very high level under the existing capital models used by both S&P and by Moody's. We're still in the midst of discussions with both agencies so I'm not going to be very specific as to what they want to see in detail, at least until they've completed their review.

We have said in the past that we intend to explore further capital raise to meet domestication at a level consistent with high developer ratings that are available from the agencies.

Clifford Corso

I'll just refer you back to Slide 49. I think one thing to point out again, as I mentioned earlier on Slide 49 is, if you look at the inter segment loan of $600 million, that's an inter-company loan at the Inc. level which is where the Asset Liability business sits. But your math is correct.

What I would say, a key to remember as we stated, is that we have sufficient cash and cash flow to pay off the liabilities as they come due, so we're not a forced seller of assets which is very important to point out because the OCI or the gap between the market value and the book value of the assets is only an issue if we have to sell early which is not the position that we're in.

Just to point out as well that we estimate about 40% I believe of our asset cash flow comes due in the next couple, three years. Barring any further impairments, in essence you'd see a big chunk of that OCI on that particular time level, tiers one, two, three just come back due to maturities of the assets.

So again, I think the key take away here is recognize that we're not a forced seller of the assets and the assets will mature at that book value over time.

[Aaron Kumar – J.P. Morgan]

In terms of terminal debts, is there any particular reason why those counter-parties have not terminated the debts since they have the rights to do that and the related question is if the NTM's are not at the company, previous comments you've made is that you made a reasonable amount of progress in buying back or you have an interest in buying back some of the securities. Have you done much of that in this quarter?

Joseph Brown

In terms of the first question, the terminal debts are spread across thousands of individual debt holders. Each one of them is making a decision based on their own alternative uses of cash. Many of them are very happy to remain with MBI and earning what they perceive to be above market rate that's fully collateralized. So it hasn't surprised us that a number of the debt holders have chosen not to terminate and we don't expect that there will be much additional termination of credit maturities from this point going forward, the bulk of the holders that made those decisions over the past six months.

We're not going to comment on security buy back activity. After the end of the quarter, we'll talk about that next quarter.

[Aaron Kumar – J.P. Morgan]

In terms of commutations, what kind of progress have you made in the past few months on that front? I know that you've been fairly; the company has been fairly interested in doing the commutation. Is that level of interest from the counter-parties waned a little bit or are you still actively on that front?

Edward Chaplin

I think the best thing to look at is the fact that we accomplished more commutations or partial commutations in the fourth quarter of 2008 and as reported, we did not engage in any commutations in the first quarter.

It doesn't mean that we're not available to have discussions with counter-parts about commutations, but nothing is reported in the quarter.

Operator

Your next question comes from [Brian Monteleon – Barclays Capital]

[Brian Monteleon – Barclays Capital]

I think last quarter you said your expectations for delinquencies within CMVS pools were between 2.5% to 3% by the end of this year. I think based on the April remit reports we're already at 2.5% so I was wondering if you could update us on your most recent thinking about where delinquencies and potentially losses could go on the $45 billion CVS and CRE, CDO book.

Anthony McKiernan

Obviously over the last quarter, you've had a substantial increase in delinquencies in the commercial real estate market and I think that given the events of the last few weeks with the general growth in bankruptcy and so forth, you're going to see a lot more loans in special servicing and so forth.

Based on where we are today, you certainly could see delinquencies that pierce the 4% level. It's very hard at this point to make a firm projection on where things are going to be at the end of the year. I think the other factor here is that there is a lot of activity in the quarter where this month, you'll see a lot more loans in special servicing because of the general growth of property bankruptcy, but a lot of those properties are actually performing properties.

There has also been very few liquidation examples out there to really get an understanding of where severities could go at this point. We looked at the John Hancock example this quarter where the CMVS was ultimately protected. So I think we're going to see a lot more activity over the year.

Delinquencies certainly at the pace that they are could pierce the 4% level easily at this point, but that's about as far as I think we can project at this point.

[Brian Monteleon – Barclays Capital]

A quick question on National, I think the surplus there was at $250 million from $416 million pro forma at the end of the year and I know there is a $60 million loss on the Texas portable housing deal, but that shows an offset by revenue. I was wondering what caused the $166 million decline in surplus there.

Tom McLaughlin

National has a deferred tax asset which is recognized over time as an admitted asset in accordance with Statutory accounting principles. The adjustment of surplus and corresponding change in CPR as a result of this recognition schedule and we note actually that upwards of 65% of the $250 million for tax asset will be admissible and included in the balance sheet over the next 18 months.

You asked about the portable housing loss. You notice that it was a loss of $54 million. We established the $54 million loss reserve related to that transaction to cash flow generating from underlying assets were insufficient to cover the required debt service payment. In its entirety, the portfolio the portfolio of surveillance group is involved in active remediation at this particular time.

[Brian Monteleon – Barclays Capital]

One last question on the ALN business, the $6.1 billion of collateralized and secured liabilities, are those all market value basis, they're mark to market collateral?

Edward Chaplin

Yes.

[Brian Monteleon – Barclays Capital]

If you look at $6.1 billion of collateralized liabilities and $6.5 billion of market value assets, it implies there's only $400 million of free unencumbered assets. I think there's $325 million of NTM maturities in the second quarter of this year which would imply $75 million of unencumbered assets pro forma for those maturities. Does that sound right?

Clifford Corso

No. I think you're accurate on your excess cash, but that excess cash is assuming that we paid off all the liabilities including the ones that are coming due. And just to give you a sense, we're projecting now that for the foreseeable future, for quite a long length of time, years actually, we have more asset cash flow coming due than liability cash flows on the outflow side.

Operator

Your next question comes from [Michael Boyer – Stonehill Capital]

[Michael Boyer – Stonehill Capital]

What is the market value of the collateral secured in the $2 billion inter-company note from MBIA Corp. to ALM?

Edward Chaplin

We have not disclosed the market value of that collateral this quarter. The nature of the agreement between MBIA Corp. and the holding company is that a pool of assets was posted as collateral for the loan at the outset, and that loan is not trued up. The book value of the asset is greater than the $2 billion loan. The market value is somewhat less.

[Michael Boyer – Stonehill Capital]

Is it more or less than last quarter? I think you said 10%. Can you at least answer that?

Edward Chaplin

It's more this quarter and it's reflected in the change in OCI that you see in the ALM portfolio which increased this quarter, a portion of those assets that have been dedicated to that particular loan facility.

[Michael Boyer – Stonehill Capital]

Can you reconcile for me on Page 25 of your presentation, you mention net total payments in MBI Corp of $455 million and then on Page 30 it seems to suggest gross loss and loss adjusted payments of $750 million. What's the difference between the $455 million and the $750 million?

Edward Chaplin

If you go to Slide 25 the gross payments on RMBS is about $617 million. There's about $10 million of cash flow received, salvage realized, collected; about $157 million in increased recognition of salvage which gets you down to the $450 million in payments on RMBS.

So that's Page 25 which is a GAAP presentation, so for GAAP payments on these cases, you reflect the cash outflows net of any salvage received so the salvage that we're recognizing in the quarter offsets the $617 million of gross payments.

So then if you go to Page 30, to get to the $750 million of gross payments, that's of all cases not just RMBS, you have $617 million paid on RMBS. You have $145 million of payments on other cases including one payment which was recognized for accounting purposes in the fourth quarter but actually was made in the first quarter which was about $60 million.

So when you take the sum of those and net down actual cash collections which total about $25 million, you get the $750 million.

[Michael Boyer – Stonehill Capital]

What is the $157 million on Page 125 is that an actual cash inflow or is that just an accounting adjustment?

Edward Chaplin

It is not actual cash flow. It is a recognition of salvage. I touched on this earlier that on the RMBS cases, after you make the payment out on the mortgages that default, what remains is the securitization on the mortgages that didn't default. We recognize the respective cash flow on those performing loans as we make the payments.

[Michael Boyer – Stonehill Capital]

What is the expected collateral loss on your assumptions for second liens? So if you look at those deals the way that you model them, what is the implied loss on the underlying collateral of those bonds?

Anthony McKiernan

The expected losses, they range widely because of the type of transaction and the vintage and the issuer. The ranges can be anywhere from 5% to 10% of the low end to 60% to 80% on the high end. So it's really wide range depending on the issuer, the type of transaction and the vintage.

[Michael Boyer – Stonehill Capital]

Is there any sort of mid point? I know there's dispersion there, but what is the average across those?

Edward Chaplin

It's not a meaningful number to use in that point. We have the data at individual transaction level. I know from the outside sometimes you have to model at a macro level, but all of our modeling is done at the transaction level because the transaction sets a substantially different performance. We think that's a more accurate way to get an assumption.

[Michael Boyer – Stonehill Capital]

I think you mentioned earlier that you got a benefit to you earnings from the change in your credit spread. Can you quantify what that actual number is?

Edward Chaplin

This is laid out in one of the slides. It's actually in the press release itself, so if I could direct you to the press release, there's a table that shows the attribution of the change in fair value of matured credit derivatives that shows the two biggest impacts being the change in non performance risk which is assessed against the entire balance sheet mark to market which is $4.2 billion in the quarter.

Then the biggest change going the other way is the increase in spreads on CMDS collateral in the securitizations. So you just look at the table, there's quite a bit of detail about that.

[Michael Boyer – Stonehill Capital]

So the non performance risk then the change in your credit spread?

Edward Chaplin

Yes. The change in our credit spread, that $4.2 billion number also includes the impact of changes in the perceived credit performance of our re-insurers as well, but because we re-insure relatively little, almost of the change is due to the widening in CDS's spreads on MBIA Insurance Corp.

Operator

Your next question comes from David Williams – CQS.

David Williams – CQS

On Page 31 of your operating supplement, I noticed there's $5 billion or so of structured insurance securitizations. Could you tell us what percentage of those are REG XXX transactions and of those, have you made any provisions for reserving on those transactions given that the invested collateral in those transactions most probably is insured, etc?

Joseph Brown

The vast majority, almost 100% is in fact XXX insured securitization. We don't believe that your second statement is accurate. The vast majority of collateral is not in fact second liens and we constantly evaluate the portfolios of each individual transaction and we don't see any current problems in those portfolios.

Operator

Your next question comes from Scott Frost – HSBC.

Scott Frost – HSBC

Could you remind us which outstanding cash issues at the holding company have cross the fault provisions with MBIA Insurance Corp?

Joseph Brown

Most of them have provisions that would permit them to accelerate upon certain events that affect MBIA Insurance Corp.

Scott Frost – HSBC

So the $1.25 billion of debt at the holding company, pretty much all of it you say has cross default provisions in some manner.

Joseph Brown

There are two different indentures. You should read the indentures to understand exactly how they work.

Operator

Your next question comes from [Aaron Malick – CQS]

[Aaron Malick – CQS]

On Page 37 of the presentation, you have $3.4 billion of first liens then on 38 you give a chart of performance, and it seems that the foreclosure alone is kind of now at an even level with credit support with other delinquencies in there also. Are you currently holding anything, reserves against these first liens for losses?

Edward Chaplin

No. At this point we don't have any reserves against the All State portfolio.

[Aaron Malick – CQS]

At what point in the future, or what trigger would there be to start reserving against it. Is it some sort of mechanical percent of foreclosure over credit support for foreclosure plus REO over credit support, or is there really no formula.

Joseph Brown

There is a formula. We look at each transaction based on the same characteristics that we've described for MBS. I'll let Anthony McKiernan tell you what we're currently seeing in the performance. In terms of the question about when we reserve, we reserve as soon as we believe that we have an accurate estimate of ultimate losses and in this case we don't believe there's any loss resident based on current assumptions in the All State portfolio.

Anthony McKiernan

What we're looking at, first of all it's about $3.5 billion, about 75% of the collateral in those deals are fixed rate loans so it's not your typical affordability product type portfolio. There's been some concentration, but diverse. About 50% is 2005 and prior, so we think about the composition of the book, it's not heavily weighted or not overweight towards the more recent vintages.

What we're looking at is the delinquency pipeline, the roll rates, severities that the portfolio is experiencing. To this point we've got very low realized losses. Severities in the book are relatively consistent around 40%.

Obviously when you're looking at some of the off base statistics in the market, you look at the affordability product, those statistics are worse. We do have one transaction that if you look in our 10-Q, it's about $560 million of par, Deutsche Bank transaction on our underperforming list. So it's the largest transaction in the All State Portfolio.

But the rest of the portfolio is essentially enhanced at the top of the capital structure of all these transactions. At the top is AAA at this point.

[Aaron Malick – CQS]

A previous caller asked about total loss assumptions on second lien transactions and the answer is that each transaction is kind of unique. What's the high water mark on second lien transactions? What has been the worst deal what is the estimate for loss? Can you give that?

Joseph Brown

From a collateral loss standpoint, it could be 60% to 80% of the actual collateral in the worst transaction.

[Aaron Malick – CQS]

Another caller called about REG XXX deals. What is the collateral in those deals? I think they assumed it was second lien and you said that's not true. What is the collateral underlying?

Joseph Brown

Each transaction has a very specific investment criteria that it has to adhere to. So when these transactions are done, there's limitations on different types of securities by vintage, by rating, issuer and so forth that need to be adhered to in the transaction. So there would be a certain limit on RMBS, certain other types on ABS. The ratings requirements when these deals were done were quite high.

[Aaron Malick – CQS]

Are you aware of any other ABS or multi CDO's included in those deals?

Joseph Brown

There's certainly ABS securities transactions, but as far as the CDO buckets, I honestly don't know if there are, but if they were I'm sure they were small. We can get back to you on that question.

Operator

Your next question comes from [Patrick Dennis – Daykey Partners]

[Patrick Dennis – Daykey Partners]

A quick question related to the MBIA National capitalization. Directly, the MBIA National capitalization insurance regulator stated that National was above the single risk limit for 55 issuers and above the aggregate risk limit for insurance companies. Can you give an update on where National is at? I believe you have until the end of 2009 to cure these breaches. Can you give an update on where National is at getting into a compliant level?

Joseph Brown

We anticipate that amortization of the book at National will actually cure a large number of those individual breaches for which we received a waver from both the State of Illinois and the State of New York.

Operator

Your next question comes from [Manuel Josera – J.P. Morgan]

[Manuel Josera – J.P. Morgan]

I have a question with respect to Page 48 of the presentation, the second to last bullet point, should I understand that the MTN's were bought back at an average price of $0.52 on the dollar?

Joseph Brown

Yes.,

[Manuel Josera – J.P. Morgan]

Were these purchase happen mostly on the first half of the quarter or the second half of the quarter? The first half of the quarter is when MBIA probably was tighter with respect to the second part of the quarter.

Joseph Brown

We don't comment on when the individual transactions take place during the quarter.

Operator

This concludes the Q&A session. Greg, your closing remarks?

Greg Diamond

We note that we have not accepted calls from the press and parties that have taken legal action against the company. We will provide responses to the press via our public relations/media relations department and will respond to counter-parties on legal actions in an alternative forum.

Thanks to all of you who have joined us for today's call. I encourage those of you with additional questions to contact me directly 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. Thank you and goodbye.

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