MBIA, Inc. (NYSE:MBI)
Q2 2014 Earnings Conference Call
August 7, 2014, 08:00 AM ET
Greg Diamond - Managing Director, Investor Relations
Jay Brown - Chief Executive Officer
Bill Fallon - President and Chief Operating Officer
Chuck Chaplin - Chief Financial Officer
Anthony McKiernan - Chief Portfolio Officer
Brett Gibson - JPMorgan
Brian Charles - RW Pressprich
Nagendra Jayanty - Claren Road
Darren Marcus - MKM Partners
Welcome to the MBIA Incorporated Second Quarter 2014 Financial Results Conference Call. At this time, all lines are in a listen-only mode to prevent any background noise. After the prepared remarks from the company, there will be a question-and-answer session. (Operator Instructions)
Thank you. 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 2014 financial results. After the market closed yesterday, we posted several items on our website including our financial results press release and our second quarter 10-Q and operating supplements. We also posted the statutory financial statements for MBIA Insurance Corporation and National Public Finance Guarantee Corporation, as well as updates to our insured portfolio listings.
Please note that anything said on today's call is qualified by the information provided in the company's 10-Q, 10-K and other SEC filings, as our company's definitive disclosures are incorporated in those documents. Please read our 2013 10-K and our second quarter 10-Q, as they contain our most current disclosures about the company and its financial and operating results. Those filings can also contain information that may not be addressed on today's call.
Also, we will be referencing non-GAAP terms in our remarks today. The definitions and reconciliations of those terms may be found in the glossary of our quarterly operating supplements and in the financial results press release that we issued yesterday.
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 also included in yesterday's financial results press release.
Now for our Safe Harbor disclosure statement. 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 be materially different than the projected results referenced in our forward-looking statements. Risk factors are detailed in our 10-K, which is 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, Jay Brown, Bill Fallon and Chuck Chaplin will provide some brief introductory comments. Then Anthony McKiernan will join Jay and Bill and Chuck for the question-and-answer session that will follow.
Now, here is Jay.
Thanks, Greg, and good morning, everyone. From a financial perspective, we continue to make progress towards lower loss volatility and more normal operations. And while our income statement this quarter reflects several items unrelated to our go-forward business, I believe that we've set the stage for profitable operations.
Although the major overhang on our stock price has been the speculations surrounding the situation in Puerto Rico, which both Bill and Chuck will touch on later, there were a number of important positives in the second quarter operations that are worth noting.
First, driven by lower insurance losses and litigation related expenses, consolidated adjusted pre-tax income, our non-GAAP earnings measure, was positive for the first time since the fourth quarter of 2012 at $39 million. Next, consolidated operating cash flow for the quarter was $28 million. That's particularly noteworthy as it's the first time since the onset of the financial crisis that it's been positive without benefiting from major mortgage loan putback settlements or tax refunds.
In addition, payments on our second lien RMBS exposures were negative $16 million in the quarter. That is we received recoveries for past payments in the quarter that exceeded new claims paid out. Some of the cash receipts were due to mortgage insurance premium refunds and subsequent recoveries on defaulted loans rather than excess spread. So we could still see more periods of net outflows. However, we continue to expect to see sustained net inflows as we approach year-end. But even if this was a blip, it is nonetheless welcome news.
Finally, adjusted book value grew by $0.41 per share since March 31st. We sold some previously impaired invested assets in the quarter, tutoring book gains by tax losses. As a result, we released almost all of the valuation allowance on our deferred tax asset. While future gains are of course unpredictable, for this quarter it's another positive note.
While I'm pleased to have no major litigation news to report this quarter, it's still disconcerting that litigation resolution takes so long. Our lawsuit against Credit Suisse continues working its way through the system and we hope absent a settlement in the interim that a trial will begin sometime next year. We have also filed for leave to amend our complaint in our lawsuit against JPMorgan. Both of these cases could take several more quarters to be resolved. We believe that MBIA Corp. has both sufficient liquidity and financial resources to see these litigations through to completion if necessary.
Our progress on managing the expenses is becoming increasingly evident, as first half operating expenses were $95 million versus $209 million in the first half of last year. Investment income in the first half covered 81% of our operating expenses in deferred acquisition cost amortization. We're working both side, expenses and investment income, to try and get these more in balance.
Meanwhile, insured economic losses in our structured finance and international segment at $44 million for the second quarter and $148 million for the first six months of 2014 remain too high. We continue to work to commute volatile transactions and did accomplish one in the quarter and three after June 30th, retiring $289 million of potentially volatile par with positive impact on statutory capital at MBIA Corp.
Finally, we had a share buyback authorization dating back to 2007, which had $23 million remaining in the beginning of the second quarter. In late June and early July, we took advantage of a strong holding company liquidity position and steady progress in reducing debt leverage to buy in shares at an average price of $11.05. These purchases exhausted the remaining authorization. We believe the value added for shareholders well outweighs the marginal cost in liquidity at the holding company. We will continue to evaluate our share repurchase strategy in light of our liquidity and leverage objectives and other needs in order to maximize shareholder value.
At this point, I'll hand it over to Bill to update you on National.
Thanks, Jay. National just completed its first full quarter with AA ratings from S&P and Kroll. So far, we've seen a good volume of potential business, reviewed hundreds of transactions and bid on a significant number of deals. We're adhering to our standards for underwriting and pricing, not written any new business given the pricing levels at which insured deals are being done. But with interest rates and spreads as low as they are, our primary competitor is actually the uninsured market.
We are pricing transactions to provide an acceptable return on the capital we must hold to support them. We are confident as we see higher interest rates and spreads premium levels will increase to acceptable levels given the value added from BAM insurance. Where we can see trading and directly comparable bonds, National's rap on average provide value similar to that of our competitors. So I have no doubt that there will be ample opportunity for us.
This quarter, the spotlight has been on a couple of high-profile credits-facing stress. While this may result in short-term volatility, over the long run, the fact that investors with National Insured Detroit or Puerto Rico bonds won't miss any payments should reinforce the value of insurance and also stimulate future insurance business for us.
In Detroit, the agreement that the bond insurers made with the city related to the unlimited tax GO debt validates the special status of the UTGO bonds. It also ensures that the property tax revenues that were pledged for the repayment of these bonds will be used to fund future debt service, while providing for some additional security should tax revenues decline further in the future.
With respect to our secured water and sewer system debt, we voted to reject the city's plan as we do not believe that it is confirmable given their current intention to impair the debt. But we are continuing to maintain a dialogue with the city through the court order mediation process. We believe that the principles at stake, the priority of Board-approved bonds backed by dedicated tax revenues and the priority and non-impairment of fully secured special revenue bonds and bankruptcy are critical to municipal finance market.
As Chuck will cover in greater detail, based on the recent developments in Puerto Rico and primarily related to the issues at PREPA, our probability weighted cash flow analyses did result in our posting loss reserves for our Puerto Rico exposures this quarter. The Commonwealth has taken many positive steps and we will closely monitor the situation and work with our advisors, other creditors and the government of Puerto Rico to avoid or mitigate losses. But we continue to believe that the quality of operational and fiscal leadership and the macroeconomic tides will determine the long-term outcome.
Our view is that PREPA needs to make operational improvements. It will take some time, but when it addresses them, it should be able to substantially improve its financial situation. I'll look forward to your questions in a few minutes. But with Puerto Rico, we're still in the early innings. So it'll be hard to say much that's definitive.
Now Chuck will review the company's financial results for the quarter.
Thank you, Bill, and good morning. As usual, I'll make some comments about our consolidated results and the segments and then provide some information on the balance sheet and liquidity positions in our major legal entities.
Our measures of performance were all favorable in the quarter. Net income was $120 million compared to a net loss of $178 million in last year's second quarter. There are four drivers of this improvement. Loss and loss adjustment expense was $176 million lower than in last year's Q2. And the net change in fair value of insured credit derivatives reflects $135 million improvement relative to last year. Operating expenses were $54 million lower than in last year's second quarter. These are the largest drivers of the change in our GAAP pre-tax income, which was $55 million compared to a loss of $264 million in Q2 2013.
In addition, we recognized a significant tax benefit in this year's second quarter in connection with the asset sales that Jay mentioned. This contributed to the positive net income results and the first increase in our adjusted book value in a sequential basis since the fourth quarter of 2012.
We also reported another non-GAAP measure, adjusted pre-tax income that treats all of our insurance policies using an insurance accounting model. It provides a useful alternative view of our financial results. We had adjusted pre-tax income of $39 million in the second quarter of 2014 compared to adjusted pre-tax loss of $160 million in last year's second quarter.
Most importantly, insured economic losses were $61 million compared to $192 million in last year's second quarter. The asset sales that triggered the tax benefit also generated book gains, contributing to gains on financial instruments at fair value of $61 million compared to a loss of $6 million in last year's second quarter.
Consolidated premiums were about $41 million lower than last year at $97 million. This was not unexpected as a result of commutations portfolio run-off and lower refunding activity in this quarter. Investment income was slightly higher than last year's level. Cash and investments at $7.7 billion are somewhat higher than last year's level and investment yields are higher also as we reinvested cash that we held at mid-year last year.
On the expense side, operating expenses were $49 million in the second quarter versus $103 million in the same quarter last year mostly due to lower legal and settlement costs. Interest expense was $13 million lower than last year as well at $52 million primarily as a result of debt maturities and buybacks.
Our operating cash flow, as Jay referenced, was also positive this quarter. Since the onset of the financial crisis in late 2007, our operating cash flow has been positive in only four quarters, first due to a large tax refund in 2010 and then when we collected substantial putback recoveries in 2013 and now this quarter. Here the favorable result is driven by lower net loss payments including recoveries from RMBS excess spread and mortgage insurance.
Now I'll make a few comments about the major segments. Our Public Finance Insurance segment is conducted in National Public Finance Guarantee Corp., which reported pre-tax income of $62 million in the second quarter compared to $14 million in the year-ago quarter. Total revenues were $110 million in the second quarter compared to $136 million in last year's second quarter. Premiums declined 34% to $67 million. About 40% of the change is due to a smaller portfolio this year and the balance is due to lower refunding activity in this year's second quarter.
Investment income declined to $27 million as last year's second quarter included some yield from the intercompany loan to MBIA Corp. On the other hand, we had substantial realized capital gains in this year's second quarter of $15 million versus a loss of $2 million in the Q2 last year.
National's loss and loss adjustment expense was $17 million compared to $66 million in last year's second quarter. We established reserves for our exposure to Puerto Rico, but we also reduced reserves for some other municipal credits. On Puerto Rico, our reserves reflect uncertainty of the future of these credits. The electric power authority is experiencing liquidity challenges currently, but our view remains, as Bill discussed, that with operational improvements, PREPA can substantially improve its financial standing over time.
At this early point, there is very little that can be said about the future credit performance of PREPA or the other Puerto Rico related credits, but it was the cumulative impact of a number of catalysts that drove our decision to establish reserves as of the second quarter, including our first PREPA's failure to make its monthly debt service deposit with the bond trustee in June; two, the legislature's passage of a law providing a mechanism for public authorities to restructure debt; three, PREPA's inability so far to secure longer-term bank lines; and four, rating downgrades that may further exacerbate PREPA's access to liquidity.
In this quarter, there is a substantial difference between the GAAP and statutory reporting of incurred loss for National. Its statutory incurred loss was $87 million, reflecting the establishment of reserves for the Puerto Rico exposures and a material write-down of a salvage asset. The big difference between the statutory and GAAP value is attributable to the deduction of unearned premiums from reserves for GAAP that's not done for statutory, the different discount rates for stat and GAAP and the fact that the salvage asset is marked-to-market through equity rather than in loss reserves for GAAP purposes. National's operating expenses were $16 million compared to $35 million in last year's second quarter, consistent with the consolidated trend.
The Structured Finance and International segment is primarily operated through MBIA Corp. and its subsidiaries. It had an adjusted pre-tax loss of $28 million compared to $93 million in the year-ago quarter. The largest drivers of the positive variance are lower loss and loss adjustment expense and lower operating expenses.
The Corporate segment and Wind-down Operations are both operated in MBIA Inc. and its subsidiaries. The combined results of the two yielded $48 million of pre-tax income in the second quarter compared to a loss of $86 million in the second quarter last year. Asset sales contributed $57 million of gains and marked-to-market on outstanding warrants contributed $34 million. On the other hand, as a net payer of fixed rates on interest rate swaps with a negative marked-to-market of about $14 million due to lower term interest rates.
Now a few comments on the balance sheet. Consolidated GAAP equity was $3.8 billion at June 30, 2014, up from $3.3 billion at year-end 2013. In the insurance companies, National statutory capital rose to $3.4 billion at June 30th from $3.3 billion at year-end 2013. And our liquidity position continues to be healthy as the investment portfolio is high quality and liquid. National is expected to pay a dividend to the holding company later in the year.
MBIA Corp. had statutory capital at June 30th of $758 million, down from $825 million at year-end 2013. Its liquidity position was $427 million and we continue to believe that Corp. has adequate resources to cover expected claim payments with an acceptable margin for adverse deviation. In the long run however it will be important that positive flows from second lien securitizations begin in earnest and that MBIA Corp. converts some of its illiquid assets and the cash and investments to make its positive liquidity positions more permanent.
MBIA Corp.'s outstanding surplus notes now have a principal balance of $953 million and accrued interest of $232 million as of July 15, 2014. The accrued interest is recorded for GAAP reporting, but it is not for statutory. MBIA Corp.'s free indivisible surplus from which any surplus note interest or principal payments must be made declined to $80 million as of June 30th. When MBIA Corp. is profitable, the free indivisible surplus will grow, but we do not expect it to approach the principal and accrued interest on the surplus notes.
MBIA Corp. also has outstanding preferred stock with approximately $275 million in liquidation preference on which dividends are not currently being paid. In order for MBIA Corp. to pay dividends to the holding company, it would have to begin paying preferred dividends. In addition, the company has a negative earned surplus position of $1.7 billion. Dividends to the holding company can only be paid when this measure is positive. So while we believe that Corp. has adequate assets to service its policy obligations, we do not expect that Corp. will be able to pay dividends for the foreseeable future.
At the holding company level, we had a liquidity balance of $365 million at June 30th, which we believe provides adequate coverage of near-term operating and debt service cash needs. Our holding company investment portfolio totals just over $1.6 billion at June 30, 2014, including the liquidity position, approximately $420 million in the taxes grow account, and other investment assets pledged as collateral for GICs and derivatives.
In the quarter, a holding company subsidiary, Meridian, repayed all of its outstanding debt and was liquidated. Its remaining capital of $9 million was distributed to MBIA Inc. and is part of that period-end liquidity position.
In our operating supplement, we've published a presentation of selected assets and liabilities of the Corporate and Wind-down segments, which provides an estimate of the net debt that must be serviced over time by distributions from the operating subsidiaries. That net debt position as of June 30, 2014, was $1 billion, down from $1.1 billion at year-end 2013.
In summary, we believe that we're making substantial progress toward returning the company to a more normal operating environment. We believe that the positive changes to ABV and adjusted pre-tax income are setting the stage for future shareholder value creation. And our second quarter's net inflows on second lien RMBS and the positive consolidated operating cash flow give us greater confidence about our future asset positions. We expect further that holding company liquidity will benefit from the dividend from National in the fourth quarter and a tax escrow release will take place early in 2015.
And now, National is up and running and it has substantial opportunity to generate value for issuers and for our shareholders. At this point, we'd be respond to any questions that you may have.
(Operator Instructions) Our first question comes from the line of Brett Gibson with JPMorgan.
Brett Gibson - JPMorgan
Two topics to address this morning, I guess, the first is topical, Puerto Rico. I didn't hear you discuss or mention what the actual gross losses were for Puerto Rico in the quarter. And then separately, I think it would be helpful to us to understand the methodology that you're using to determine those loss reserves. You talked about a probability weighted scenario, a set of scenarios, but can you talk about how many scenarios there are, what underlies the scenarios and what probabilities might be attached to some of those. And then separately, how do you think about the various exposures? Are you only concerned about PREPA at this point or do you also have concerns for highway? And then any other comments that you'd like to make. And then I have one other topic to address.
We do not provide detail on the reserves that we take per credit. However, our loss reserving process is similar across the entire portfolio. So we have assessed multiple hypothetical scenarios of loss, some of which entail very little loss, others which entail greater loss. Assign probabilities to them and then some across the probability weighted values to create the loss reserve. So that's about all I can provide really in terms of the process for determining the loss reserves.
You can observe in our supplement that our total loss reserves are $116 million before consideration of salvage assets. So that's in our supplement. So our reserve for Puerto Rico is inside of that number. And then also, it's the largest single driver of the $87 million in incurred loss that you see in the National book this quarter.
I mentioned that the catalyst really for us to assess reserves this quarter, a lot of the catalysts are PREPA-driven. We observed that PREPA is the entity that is perhaps most liquidity constrained today. But that does not mean that we're unconcerned about the balance of our Puerto Rico exposure.
Brett Gibson - JPMorgan
Okay. Just one clarification on what you said. So the $17 million of losses that you booked on a GAAP basis versus the $87 million in statutory, I think you mentioned the write-down of the salvage assets, but in your comments there, you just talked about the largest component being the PREPA. How do I think about that $17 million versus $87 million and how the Puerto Rico losses fit in?
There are two big differences between the stat and GAAP, actually there're three. The largest is the difference in discount rates, because for GAAP we're discounting at a risk-free rate, which are very low. Some of them are in the 1% zone. And for statutory, we're discounting at a portfolio yield rate, which is closer to 5%. So that creates a significant difference in and of itself.
Secondly, for statutory, the salvage asset that we did take a write-down on this quarter, is reflected in the loss reserve. For GAAP reporting purposes, we don't do a discounted cash flow analysis of it. We simply take the fair value into equity through other comprehensive income.
And then third, there is the impact of unearned premium. So for GAAP reporting, unearned premium is kind of deducted from our evaluation of potential credit loss, and that's a GAAP reporting requirement.
I think the important point to note is the fact that it's in an early stage like this in Puerto Rico, as Chuck has rephrased, we look at hypothetical scenarios. And the reason for that is there is no definitive plan that has been suggested yet as to how they're going to work through any individual credit. This is not dissimilar to what we've seen in the past. When we're starting into a credit, we try and identify the scenarios that may occur. And then as things evolve, we actually then adjust those scenarios to more properly reflect what we believe will happen.
If you look at our Detroit exposure, for example, we first established reserves over a year ago based on the information we had at the time. They've been adjusted both up and down in each subsequent quarter as we've gotten more information about the actual plan and the probability associated with it being achieved. And I think that's one of the things to understand is that at this point in time, it's very hard to put any degree of accuracy around a reserve that's been established before. We have an actual proposal from the issuers as to how they might want to deal with the issues associated with their existing debt.
Bill made the point that we do believe that there're operational changes that can be made inside at least PREPA that would put it on a more solid financial footing. So that does play into our loss reserve thinking.
Brett Gibson - JPMorgan
And then shifting gears, I think the other quick topic I wanted to address was the holding company and the capital structure there. So I guess this is for Chuck. How does the company think about the sustainable capital structure at the Holding Company? And what steps does the company need to take to achieve that? Do you see the MTNs in their current structure as a sustainable part of the capital structure over time? And then if you could comment on what the maturity profile looks like on the MTNs in years 2019 and just for the few years after that that hasn't been disclosed in the regulatory filings. And then finally, just how do you think about the offset between reducing MTN liabilities and share repurchases?
A couple of things. First, you asked us is the capital structure sustainable. We believe that the holding company has adequate resources over time to service all of its outstanding obligations.
Brett Gibson - JPMorgan
That wasn't what I meant. I was just saying is this the capital structure that you want to stay with or do you want to look for changes?
We've also made the point that we think that the leverage level at the holding company should be lower and that we are targeting to get to a debt-to-capital ratio that's in the middle investment-grade quality spectrum and that our current game plan calls for us to get there by about year-end 2017. So that's kind of the way that we're thinking about it is that we should be legging into a lower leverage position over the next few years. And we expect to do that not by issuing additional debt or any other securities, but by using the operating cash flow that comes up from the operating subsidiaries to bring down that debt over time. And if you look at the past three quarters or four quarters, we've reduced outstanding debt about $300 million.
Now the other thing to note is that we did engage in some share repurchase in the second quarter and early third quarter. That, all other things being equal, would slow down our ability to reach the leverage target by year-end 2017. And obviously the amount that we're talking about here, $23 million, doesn't make any kind of a material change in that year-end 2017. However, share prices have been weak and we're going to continue to study whether or not there are ways for us to engage in share repurchase that doesn't put us too far off of our objectives.
Our next question comes from the line of Brian Charles with RW Pressprich.
Brian Charles - RW Pressprich
I might have missed some of the color you gave regarding your commutation activity during the quarter. I think you discussed about $289 million of par commuted in the second quarter and the third quarter. I don't know if you have any other color you can share regarding that.
We continue to look at opportunistic commutations that we think make sense in certain asset classes that contain some volatile exposures. So for the commutations we achieved in the second quarter and over the last month or so, it really ranged across a number of asset classes, ABS CDOs, commercial real estate, first lien RMBS. So to the degree we can target those exposures and engage in commutations that are stat capital accretive, we're certainly looking to engage in those deals.
Brian Charles - RW Pressprich
Regarding the commercial real estate, was any of that regarding BBB CMBS exposure?
It was more focused in commercial real estate CDO exposure, some of which contains BBB CMBS in it.
We do have a question from the line of Nagendra Jayanty with Claren Road.
Nagendra Jayanty - Claren Road
I actually have two of them. The first one is on the supplement in the MBIA Corp. section on the liquidity profile, just wondering the operating and other expenses that include gross plan payments related to US Public Finance transactions made on behalf of National, if you excluded those, what would that cash draw be from the operating and other expenses?
They should be indicated right in the table.
The losses are separate from the operating expenses. In the footnote, those are the amounts paid to National.
Nagendra Jayanty - Claren Road
How should we think about operating expenses going forward? Should they stay at this level or could they decline, given there's less litigation going forward and a declining book?
I just want to make the point, just in terms of the geography, is just that we have gross loss payments of $79 million in the quarter and then the $34 million is just operating expenses. In terms of our plan is to see a gradual reduction in operating expenses in MBIA Corp. and other parts of the company, both through the remainder of this year and over the next two years. We have some long-term objectives that we've got plans in place to keep those expenses coming down. There obviously in particular quarters will be little blips, but basically the trend is going to continue on a downward slope, particularly in MBIA Corp., because the portfolio there is shrinking fairly rapidly.
I can tell you that at a consolidated level, we've disclosed that our operating expenses last year were about $320 million for the full year and we're expecting them to be in the range of $200 million this year. So a pretty substantial reduction, most of which comes from reductions in legal consulting and settlement related costs.
Nagendra Jayanty - Claren Road
I know you've gone through Puerto Rico and PREPA a lot, but how that may impact the tax escrow release that would come at the end of the year or early next year if there was to be some issue, claims pay moratorium or default or whatever it is. I may be reading into this more than I should, but there is a change in the MBIA liquidity statement from 1Q to 2Q. In the first quarter, you said you believe that MBIA, Inc. has sufficient liquidity resources to meet all obligations for the foreseeable future. And then in this quarter, that was omitted. But I may be reading into it too much, I just wanted to get a sense of what that may be driven by.
Well, we continue to be comfortable with the holding company liquidity position. And you are correct that a big part of that position over time is going to come from both dividends that come up from National as well as releases of cash from the tax escrow. With respect to the 2015 tax escrow release, it is based on the contribution to tax escrow or tax payments made by National in the calendar year 2012. So to the extent that National is not entitled to a tax refund in 2014, the 2012 deposits would be then released to the holding company as free cash sometime early in 2015.
We do not anticipate this, but to the extent that National were to have core operating performance in 2014 through the balance of the year than we expect, that will mean that the deposits to the tax escrow that it makes for tax year 2014 will be lower than our expectations. And therefore, the amount that could be released from the tax escrow in calendar 2017 would be lower than we currently expect.
Nagendra Jayanty - Claren Road
So the 2012 should be released regardless.
That's sort of the mechanics of it. The only thing that would impair the release of the 2012 deposits would be if there were to be a tax refund that is due back to National, meaning that it only loses more money in the second half than we made in the first half, but that losses are even greater than that. I think statutory income for the first half is about $100 million in National.
Our next question comes from the line of Darren Marcus with MKM Partners.
Darren Marcus - MKM Partners
I just had a quick question on your capital structure at the holding company. And I know you want to get to a more optimal structure by 2017. So with all the inflows to the holding company from National dividends, from tax escrow, how much could you possibly repurchase in shares that would make you comfortable that you'd be able to satisfy the other obligations on an annual basis? Have you thought about the level of share repurchase that you guys could possibly do going forward?
Expense and the share price, Darren.
Darren Marcus - MKM Partners
Well, if the share price stays at $9, $10, $11, something around there?
It certainly eludes us to look at that very strongly and consider moving out that net debt leverage objective that Chuck mentioned in 2017. We have no discomfort of moving that out a year or two if the price were to sit at this level and then start to address much greater share repurchases. That said, that's not a decision we've made. We're continuing to evaluate that. And so stay tuned.
We have no further questions at this time. I'd like to thank everyone for participating in today's conference call. You may now disconnect your lines.
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