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III Seminario DeInversiones Amafore
Puerto Vallarta 17 Octubre, 2003
Capital Strength. Triple-A Performance.
- 2 - Capital Strength. Triple-A Performance.
Financial Guaranty Insurance: The Product
Unconditional and irrevocable guarantee of full transaction principal and interest as originally scheduled
- 3 - Capital Strength. Triple-A Performance.
Notable Product Features
Insured bonds sell with MBIA’s Aaa/AAA ratings
For investors, insurance should be viewed as credit enhancement not credit substitution
Upon payment of a claim, MBIA is subrogated to the rights of bondholders
- 4 - Capital Strength. Triple-A Performance.
A Win/Win Proposition
Issuers & investors both obtain tangible benefits Issuers achieve certainty of execution at the very attractive spreads
associated with MBIA’s Triple-A ratings Investors obtain:
The security of MBIA’s timely Triple-A rated guarantee
Ratings downgrade, headline and price protection
Portfolio Diversification
Improved secondary markets liquidity
Remediation and surveillance leverage
Payment in accordance with original schedule
- 5 - Capital Strength. Triple-A Performance.
MBIA Highlights
Largest monoline financial guarantor in terms of assets, par value insured, market share and claims-paying resources
AAA/Aaa/AAA ratings (S&P/Moody’s/Fitch) Unmatched strength and insurance capacity
Balance sheet--US$11 billion in claims-paying resources Reinsurance treaties
Global Company Offices in New York, London, Madrid, Paris, Sydney, Singapore and Tokyo
US$[58] billion in non-U.S. net insurance in force
Large asset management business--$US 36 billion under management Listed on the NY Stock Exchange (NYSE: MBI)
- 6 - Capital Strength. Triple-A Performance.
MBIA Foundation Principles
Build the strongest team
No-loss underwriting
Triple-A ratings
Build shareholder value
- 7 - Capital Strength. Triple-A Performance.
MBIA Business Strategy
Our distinctive competency is credit risk management. We apply this skill to build and maintain the following franchises:
Global credit enhancement
Institutional investment management
Our products and services are provided to public finance and financial institutions clients
We manage our business with prudent risk taking, low annual volatility and competitively superior returns, consistent with our Triple-A ratings
- 8 - Capital Strength. Triple-A Performance.
Strong Triple-A Ratings
MBIA Insurance Corporation
MBIA’s claims-paying resources totaled $11.9 billion on June 30, 2003
78 percent of our insured net par outstanding is rated A or above on the global rating scale (one full rating category higher than UMS)
The average quality of our investment portfolio is Double-A, with 99 percent rated A or above
Balance sheet and profitability are strong and improving
- 9 - Capital Strength. Triple-A Performance.
MBIA Insurance Corporation: Claims-Paying Resources
Capital Ratio 154:1 162:1 166:1 159:1 166:1 164:1 159:1 153:1 151:1 146:1 144:1 141:1
Claims Paying 75:1 80:1 83:1 83:1 87:1 88:1 88:1 85:1 85:1 82:1 82:1 78:1Ratio
Leverage Ratio 32:1 37:1 39:1 40:1 44:1 45:1 46:1 46:1 46:1 45:1 45:1 43:1
$ Billions
$3.5 $4.0$4.5
$5.1$5.8
$6.8$7.8
$8.5$9.1
$11.0$10.1
$11.9
1993 1995 1997 1999 2001 6/31/03
- 10 - Capital Strength. Triple-A Performance.
Investor Benefits: No-Loss Underwriting & Surveillance
MBIA Insurance Corporation
Transactions must meet MBIA’s stringent credit criteria and be investment grade
We actively monitor the insured portfolio and aggressively remediate poorer performing transactions
The workout function allows avoidance or minimization of losses incurred
In 28 years, MBIA has insured over 88,000 issues representing $1.583 trillion in net debt service insured, and has incurred only 3 basis points in losses on 60 issues
- 11 - Capital Strength. Triple-A Performance.
Percent of Net Par Outstanding by Bond Type(As of June 30, 2003)
$514.2 Billion
MBIA Insurance Corporation
- 12 - Capital Strength. Triple-A Performance.
MBIA Insurance Corporation
New entrants -- increased competition
Pricing pressure
Deteriorating underwriting criteria
Ratings Risk
Sharp, sustained drop in issuance
Large, unexpected losses
What Are the Risks?
- 13 - Capital Strength. Triple-A Performance.
U.S. Structured
Finance29%
U.S. Municipal55%
Non-U.S.16%
Financial Guarantee Premium Sources
MBIA Insurance Corporation
1996
U.S. Structured
Finance18%
U.S. Municipal57%
Non-U.S.25%
2003 YTD
$663.8 Million $612.4 Million
- 14 - Capital Strength. Triple-A Performance.
MBIA Inc.
0
10
20
30
40
50
60
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 YTD2003
Book Value Per Share Average Annual Growth Rate 13%
Adjusted Book Value Per Share Average Annual Growth Rate 12% $ Per Share
Building Shareholder ValueHistorical Book Value Per Share
- 15 - Capital Strength. Triple-A Performance.
Summary – MBIA Strengths
Monoline industry leader with unmatched financial position
Triple-A global ratings by Moody's, Standard & Poor's, and Fitch
Excellent credit quality and diversification of insured portfolio
Highly rated, liquid investment portfolio
Conservative underwriting and constructive remediation process
State-of-the-art portfolio modeling complements risk management
Strong management team
- 16 - Capital Strength. Triple-A Performance.
Why Do Issuers Use Financial Guaranty Insurance?
Most cost-effective borrowing cost
Certainty of execution, particularly during periods of stress
Structuring expertise
Access to the broadest range of investors
- 17 - Capital Strength. Triple-A Performance.
MBIA Global Business Lines
Public Finance
State & Municipal Obligations General Obligations Leases Tax–backed debt
Transportation Infrastructure
Colleges & Universities
Hospitals
Structured Finance
Mortgage Backed Securities Residential Commercial
Consumer Receivables Credit cards Car loans
Corporate & Future Flow Receivables
Collateralized Debt Obligations
Equipment Pools/Transportation Fleets
- 18 - Capital Strength. Triple-A Performance.
Financial Guaranty Market Penetration
U.S. public finance 45% - 55% 8% - 10%
U.S. structured finance 25% - 35% 10-14%
International public finance Very Low >20%
International structured finance Very Low >20%
Insured 3 - 5 YearPenetration CAGR
- 19 - Capital Strength. Triple-A Performance.
Mexico: Target Sectors
Transportation infrastructure Toll roads Airports Ports
Housing Mortgage backed finance Construction bridge loan securitization
Electric, gas and water utility infrastructure
State and municipal finance
- 20 - Capital Strength. Triple-A Performance.
MBIA’s Pricing Methodology
MBIA’s insurance pricing has two overall objectives: Offer economic benefit to issuer for utilizing insurance Balance transaction risk and return
Successful pricing should offer savings to issuer while achieving risk adjusted return hurdles
- 21 - Capital Strength. Triple-A Performance.
Overview of Issuer Economics
Credit Rating A2/A Aaa/AAA
Coupon Rate 5.55% 5.4%
Net Interest Cost $53,208,000 $52,071,000
Cost of Insurance -0- $306,200
Total Cost $53,208,000 $52,377,200
Net Savings -0- $830,800
P.V. Savings -0- $356,346
XYZ State, $50 MillionGeneral Obligation Bonds, Series 2000 (30-Year Term)
Uninsured MBIA-Insured
- 22 - Capital Strength. Triple-A Performance.
International FinancePercent of Net Par Outstanding by Country(As of June 30, 2003)
Germany10%
Internationally Diversified
53%
United Kingdom10%
Netherlands 2%
Spain 2%
Mexico 2%
Italy 3%
Japan 3%
Canada 2%
France 1%
Other 6%
Australia 6%
$69.2 Billion
- 23 - Capital Strength. Triple-A Performance.
Mexico is a Priority Market for MBIA
Increased economic integration with U.S.
Favorable macroeconomic management
Acceptable political environment
Growth of fixed income capital markets Investor credit quality requirements Investor need for portfolio diversification
Sound legal basis for asset securitization
- 24 - Capital Strength. Triple-A Performance.
Challenges for MBIA in Mexico
Triple-B sovereign ratings ceiling presents a narrow opportunity for “global” rating scale investment grade credits
Need for ongoing success with legal and regulatory systems
Well established global relative value of MBIA wrapped bonds is not yet fully recognized in the Mexican domestic market
The spread above UMS that domestic investors have initially demanded is a distortion of MBIA’s global relative value
Not fully explained by the peso-dollar swap spread Will likely reduce the volume of wrapped paper for Mexican
obligors placed in the domestic market
- 25 - Capital Strength. Triple-A Performance.
Conclusion: Investor Opportunities
MBIA wrapped bonds provide investors with significant benefits
Very favorable risk adjusted returns
Portfolio diversification, uncorrelated to systemic Mexican market risks
Unparalleled credit strength and stability, reflected in MBIA’s Triple-A “global scale” ratings
- Ensures timely payment of debt service when due- Eliminates credit loss risk and downgrade risk - Promotes price stability
Much enhanced secondary markets liquidity
Experienced surveillance team – manages long term credit risks
- 26 - Capital Strength. Triple-A Performance.
Conclusion: MBIA-Investor Challenges
MBIA would like to continue to work with local investors on those remaining challenges posed by wrapped bonds in Mexico
Acceptance of the full value of global scale Triple-A ratings Residual uncertainty regarding the unconditional nature of MBIA’s
insurance policy Reconcile trading value and trading levels Demand characteristics and limitations of local markets investors Treatment of wrapped bonds under a changing regulatory regime
Capital Strength . Triple-A Perform ance.
www.mbia.com