Q4 2019 Earnings Call

Our value-creation efforts including are affected Capital Management program resulted in a 13% growth and adjusted book value per share the non-gaap measure we believe that's approximately the company intrinsic value per share for the fifth time in the last six years. We repurchased five hundred billion dollars or more of common shares problem provide more detail on our Capital Management program in a few minutes.

Lost mitigation efforts in Puerto. Rico made progress major steps include the resolution of our exposure our participation in a restriction support agreement for prep. However, the behavior of oversight board and the government has continued to ignore creditor rights and the rule of law and we impose the current plan support agreement the oversight Board of the good she added with certain General obligation Bond voters off most importantly we can build a long-term strategic diversification priority by acquiring an established asset management firm that has a complementary skill set and target market our acquisition of Blue Mountain Cafe the management provides a new Revenue stream from a platform. We call it a short Investment Management assuring guarantees transformation into a dual Financial guarantee an asset management company Diversified Revenue in addition to our risk premium from insurance that opens new Pathways for us to create value for our stakeholders. Ask for the details. Let me begin with a remarkable new business production. Yep.

2019 it was in it was especially impressive given the head was an historic low interest rates and extremely tight credit spreads.

Record low as investors prompted by tax law changes Port an unprecedented 105.5 billion dollars into Municipal bond funds the yield on the thirty-year municipal bonds fell below 2% of times and then the year almost a full percentage point below where they start the year the low interest rate environment also make taxable issue. It's attractive for numerous Municipal issuers, bring a traditional buyers into the market all told municipal bonds issued increased 27% year-over-year to $407 billion dollars in 2019 home industry insured volume also grew 27% We saw an even higher rate of growth from 34% in insured guarantees primary Market ensure chorus old we continue to leave a gap insurance industry guaranteeing 60% of the insured new issue Parcels during 2019, including 64% of the insured are awarded through Thursday.

Events in total for the year. We guaranteed 840 tax-exempt and taxable new issues with an aggregate insured part of fourteen point seven billion dollars that included wage twenty two different transactions, but we ensured a 100 million or more far among them was the largest single Insurance Public Finance issue in almost a decade's a $700 portion of comments. It's six point five billion dollar financing which is named the bond buyers deal of the Year. This was when it several transactions generated by A Renewed presence in the healthcare sector

Municipal bond yields felt with him

additional

Please in a reflection of the municipal Bond markets high regard for our guarantee 10% of our 2019 part primary Market Municipal part insured Health underlying ratings and the Dublin category from S&P Global ratings or Moody's investor services with the addition of 1.3 billion applied. We insured in the secondary markets, we guarantee they total of 16.3 billion dollars of Public Finance business sold in 2019, which generated more than $200 of PVP. Our Municipal bond insurance is always been a way to lower the financing costs of projects with environmental benefits wall before certified Green Bond became in category during 2019 in January of 2020. We guaranteed the three largest insured Greenbaum transactions to date would be on us Public Finance a 2019 we demonstrate the value created by our commitment to a diversified the nature of guarantee underwriting strategy diligent work throughout the year on our International infrastructure.

business paid off in the fourth quarter

With the highest International result not only for any quarter but also for any years since we acquired a GM in 2009 in total for all the 2019 we produce 211 million dollars in primary and secondary Market PVP related to a variety of public sector and private public private infrastructure transactions in the United Kingdom in Europe is included probably as guarantees on a large number of some Sovereign credits and wraps and bonds is on the University Housing social housing Water Systems solar energy and local government lease-back arrangement.

Well, we have an important. Well established based in the UK Market. We have experience in other countries and took steps in 2019 to further diversify the markets where we are active. For example, we guaranteed a 207 billion-euro Spanish solar energy refinancing. That was the first rap Bond issuance in Spain since the global financial crisis. And the lounge is renewable energy transaction. We had guaranteed anywhere up to that point. The transaction was probably placed not only with European investors, but although also with investors based in South Korea. Additionally, we created a new subsidiary in France to address the potential impact of the UK's withdrawal from the European Union on our uk-based insurance subsidiary the new French company of Chicago to Europe has already begun writing new business in Europe, but we intend to transfer to it guarantees that are UK subsidiary currently provides to beneficiaries located in the European economic.

area essentially

See there is also received Financial strength ratings of double A Plus and Kroll and the double-a from s opinion additionally to develop more opportunities in Australia New Zealand. We enter into an exclusive cooperation agreement with DTW Capital Solutions, the independent arranger and adviser we collaborated with in 2018 on a rep bond issue for the port of Brisbane.

Or worldwide structured Finance business. We significantly during the year structured Finance PVP, exceeded $51 in 2019, including direct the business that would more than double the direct structured Finance PVP in 2018. Our business provides Risk Management Solutions for insurance companies accounted for two-thirds of structured Finance PVP in 2019, but the business was also Diversified across Aviation transactions collateralized loan obligations asset-backed Securities and other structured Finance transactions, since the start of 2008 our insured portfolio advertise more quickly than we add a new Financial guarantee business. This is dramatically reduced our insurance exposure that helped to improve our insured leverage ratios, even though I purchased three point three billion of outstanding common shares $600 in dividends to shareholders and paid approximately eleven billion dollars and grows claims, by the way, 70% of those things off.

Are discontinued residential mortgage-backed securities?

Business we have reached an inflection point where I rate of new business written should tend to equal or exceed that of exposures advertising a given year. They should enhance our on our proven Reserve as a potential growth that are extremely unpredictable future and rounded the new business. We write also has a direct positive effect on our claims paying resources while setting the impact that claim of the claim through Thursday currently, most of those two are Puerto Rico exposures. We've enacted in Puerto Rican negotiations and litigation to mitigate our potential losses and also to impose president's club by the rule will it could ultimately result in higher percentage and costs for municipalities throughout the United States. We've always preferred to reach potential settlements that avoid years of costly litigation and help to restore Capital Market access. I'm pleased to say that one conceptual settlement was implemented in 2019 when we and other creditors supported confirmation the campino plan of adjustment dead.

Which enabled to Puerto Rico?

Sales tax financing Corporation to restructure its deadly we paid off in full on Casino exposure and subsequent. So the exchange bonds we received in that restructuring the 2nd of June in June when prepa the oversight board the Commonwealth and holders of ninety percent of properties revenue bonds agreed to the prep the RSA We Believe prompt implementation of this agreement is the first critical step towards the privatization of rebuilding a prep so that it becomes the efficient reliable resilient and sustainable electricity provider that is essential for Puerto Rico and economic health this month University's board announced a plan support agreement for General obligation and public building authority bonds without the support of assured Guaranty and other Bond insurers bought another large and small creditors. Its treatment of Geo and PBA bonds need significant improvements to comply with the rule of law and give potential future investors at least some reason to have birth.

Put into trusting their capitals of the Commonwealth and it seems the issue new debt. Meanwhile from a financial perspective there continues to be positive news as a commonwealth revenues have consistently exceeded the conservative projections using the oversight board certified fiscal plan. For example, the Commonwealth reported that it's made bank account the treasury single account of the cash balance of $9 billion dollars as of January 31st, 2020 compared with less than eight billion projected in liquidity plan including that account. The, was reported that a year-round and Council the government is in fact, he's on a gurney Cash Cow for feeding Seventeen billion dollars. This is a large amount for a government that comes to be insolvent. We continue to believe Puerto Rico can restore the trust of the capital markets through good-faith negotiations and consensual settlements. We are ready to engage in constructive talks at any time or litigate to the extent. We cannot reach agreement.

Exposures constitute less than 2% of our insured portfolio, which is a very good shape overall a remaining RBS exposures are now largely investment-grade and that is limited to less than 2% of net carbs and total are below investment-grade net profit things is now below the 4% and more than half of that is related to Puerto. Rico exposures. The rating agencies rarely test the ability of our College resources to support doesn't short portfolio under extreme economic stress. They have also consider the quality of our management competitive position and numerous other factors during 2019 as a p affirm the double a financial strength rating. It applies across all of our insurance subsidiaries kbra a friend is double A+ ratings of a GM and mac and affirmed a GCSE Finance constructing a double A Moody's affirmed agm-88 to all these ratings have stable outlooks these ratings position our financial guarantee business continued to perform well, and now we've added another dead.

Puerto Rico

Is a segment that that fits?

Older Jeep credit experience and also expands our opportunities to improve returns and generate fee-based Revenue to complement the risk-based revenues of the financial guarantee business in short investment club and platforms as a new dimension to assured Guaranty. It Square will be Blue Mountain Capital Management LLC and its Associated entities is outstanding Equity instances. We acquired on October 4th 2019 for $157 email is an asset management firm with 17.8 billion in assets under management at your end 2019. It has a long record of success managing credit folks Investment Bank at year end is the 19th largest global manager of collateralized loan obligations. We contributed sixty million of working capital and closing an additional $30,000 in February 2022 support assured Investment Management growth in restructuring. We also believe that having assured Investment Management manage a portion of our Investment Portfolio in-house provide birth.

I would change or improve investment returns in federal utilize our internal resources. We intend initially to commit five hundred million of capital to fund managed by assuring Investment Management plus additional amounts and other accounts and manages of the five hundred million. We have invested approximately $79 by year-end and three new investment vehicles with each vehicle dedicated to one of the three strategies Cielos asset-backed Securities and Healthcare private Capital. These strategies are consistent with the investment stress of a short investment management and our plan The Fosters its growth found CEO and CIO Andrew feldstein who co-founded the firm is now also CIO and head of asset management for assured Guaranty overseeing both the investment activity of our insurance companies wage operations of assuring Investment Management our insurance and asset management teams have already begun developing the synergies of hurting their Mutual stressing Credit asset-backed Finance infrastructure and Healthcare wage.

one of the first initiatives is the

They should have assured HealthCare Partners to manage Healthcare structure Capital Investments and to attract funds from third-party limited partners. So as we begin a new chapter in the story of assured Guaranty, I believe the overall quality of our insured portfolio is strong, but will continue to improve your business production wasn't actually replenish the amortization of the insured portfolio and further contribute to our financial strength. We will continue our strategic diversification of both defensive obligations reassure ensure and the geographical reach of our financial guarantee markets. We will expand our new Asset Management business office supply our Revenue opportunities and strengthen our ability to improve returns and we will manage Capital efficiently for shareholders while above all preserving the financial strength to fulfill our unconditional Faith irrevocable obligations to protect policyholders. I will now turn the call over to Rob. Thank you and good morning to have around-the-clock mentioned. We had an exciting 2019.

as far as

Order any results. Let me give you a brief summary of some reporting changes that you may have noticed in our earnings release and financial supplement with the closing of the Blue Mound acquisition and expansion team based on business. We have now changed our view and presentation of the financial results from a single Consolidated statement to a multi-segment approach that reflects the company's diversifying all prior periods have been presented a consistent segmented basis for ease of comparison starting. This quarter will be reporting our results for the insurance segment job management and corporate division separately Insurance segment represents, our long-established insurance business and the asset management segment includes the newly-acquired blue ash trees which will operate within the short and Investment Management platform. Both of these segments will be presented without the effect of consolidating fgteev. I use and Bluemound. Yep.

The vehicle in which the insurance subsidiaries is best.

And a short Guaranty Municipal the corporate division includes interest expense losses on extinguishment of debt costs for administrative expenses allocated from the operating room and board of directors expenses.

Our non-gaap operating income is what we now call adjusted operating income. We are importing non-gaap operating shareholders equity, which is now adjusted Opera shareholders Equity Home and adjusted Book value. Both of which are calculated calculated the same manner as they've always always always have them.

When analyzing our Consolidated adjusted operating income you can easily identify the effect of viu consolidation which shows separately in a column labeled other internally with an alliance result of our two segments and corporate division before the effect of the consolidation on a Consolidated basis adjusted operating income was $87 in the fourth quarter of 2019 compared with ninety $2 in the fourth quarter of 2018.

Well results reflect the activities of our three holding companies assured Guaranty limited us Holdings.

I will start with.

Insurance same results adjusted operating income was $130 million dollars of the fourth quarter of 2019 compared with $129 in the fourth quarter of two thousand eighteen months later brings in furniture with revenues in the fourth quarter of 2019 with $129 including $30 of acceleration is due to refund Exchange in fourth quarter, 2018, Saturn premiums and credits rapid revenues, 433 million dollars and putting $29 in accelerations primarily get everybody's

What was expense was $21 in the fourth quarter of 2019 compared with twenty four million dollars in the fourth quarter of 2018 in both periods expenses am waiting to Economic Development on certain Puerto Rico exposures.

In the fourth quarter of 2019 was $13 this included $15 and lost development primarily trip to Puerto Rico and a $9 a month increase in Los and Ellie in various structured Finance transactions partially offset by an eleven billion dollar benefit on second lien rmbs wage earners.

Some changes in the discount range on economic development was a benefit of $7 in the fourth quarter of 2019.

$85 for the fourth quarter of 2019. We have a dining on May 4th of 2018. The variance is mainly due to lower average invested assets.

And the engine management segment excluding amortization of intangibles and restructuring charges adjusted operating income with the loss of two million dollars as we previously disclosed investment focus and business model of our short guarantee Investment Management platform toward its core strategies. We have begun the process of an orderly wind-down of all hedge funds and certain Legacy opportunity funds we extend to restructuring and integration process to continue throughout 2020. We made excellent progress towards this goal in the fourth quarter with net Distribution off the line down tons of 1.3 billion dollars, but more importantly we lost additional opportunity Fund in asset-backed finance and Healthcare structured Capital using primarily wage Insurance segment capital.

Cielos generating assets under management of $977 we extend to see positive return.

a new strategies to have a pay stub line down costs in late 2020 and early 2021

for your 2019 adjusted operating loss for the the corporate division was thirty two million dollars compared with thirty-four million dollars in the fourth quarter 2018 fourth quarter of two thousand nine thousand six hundred dollars in acquisition expenses related to the Blue Mound acquisition while fourth quarter 2018 through an eight million dollar loss on extinguishment of debt.

In fact of Consulting via is now only the fgb but also assured Guaranty Investment Management funds and one is short guarantee Investment Management clo wage and that in fact me just enough income of consolidating. These was not significant in the fourth quarter of 2019 or 2018. The Consolidated tax rate was 3.5% in the fourth quarter of 2019 compared with 11.8% of the fourth quarter of 2018. The lower tax rate was primarily due to a favorable impact of a regulation issued and 4th 2019 related to basal erosion an anti-abuse tax.

moving on

Employee results adjusted operating income was 391 million dollars to pay was $482 in 2018.

Insurance segment had adjusted operating income a fiber and $12 in 2018 compared with $582 billion dollars for 2018 full-year Insurance results for a lower wage primarily due to lower premiums and try to derivative revenues which were $511 in 2019 compared with $580 in 2018. A decreased would not be able to lower refunding determinations and the scheduled amortization of that car lost expense was also Higher by $16.

Corporate division had adjusted operating loss of $111 in 2019 compared with ninety $16 in 2018.

Trying to share repurchases and a fourth quarter of 2019. We repurchased 3.3 million shares for $160 bringing year 2019 purchases to eleven point two million shares or five hundred million dollars. These shares were purchased at an average price of $47.97 per share.

And 2020 we have purchased an additional $840,000 shares for $40 since January 2013. I was successful Capital Management program has been dead three point three billion dollars to shareholders resulting in a 55% reduction per cent reduction in the total shares outstanding.

I appreciate basis adjusted operating income benefit from the coverage on don't share repurchase program the effects of accumulative sharing Quarters Program on the fourth quarter 2019 adjusted operating income wage, like approximately thirty-six cents per share bringing pressure adjusted operating income for the quarter $0.90 for the full year 2019. The cruise effect of share repurchases are Jack and was it cost me $1.56 to the fact that these repurchases for the benefit of a processing $19.24 per share. It adjusted operating shareholders equity and it cost me $35.06 and adjusted some cyber share which helped Drive per share adjusted up and shoulders equity and adjusted book. H. And you recognize a $66.96 and $96.86 respectively.

2019 Routan $700 and dividends to our shareholders and this week the board approved at 11% increase in our quarterly dividend to twenty cents per share the boss also authorized additional sharing for additional share repurchases of $250 bringing our current outstanding authorization to 408 million dollars. We currently have over $2,000 in cash and Investments available for the putting these in Capital Management activities at the holding companies with ninety million events at AGL. I'll now turn the call over to our operator instructions for the Q&A. Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you were using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause.

momentarily to assemble our roster

The first question comes from goes George of KBW, please. Go ahead. Good morning. This is Tommy McGee going on for Bose.

Is on the table and we believe that will get approved. So obviously we're very secure in our view that the supplements that you see out. There are not going to be the settlements are open to leave home if they want to get into a litigation bottom which we do not believe it's in their best interest, you know, so be it I think the legal agreements that we have in the terms that we have are incredibly strong in our favor the office also remember the 3% is the control boards kind of offer relatives of a clawback revenue meaning the non toll on other direct Revenue sources of Transportation. So that would not represent the full settlement anyway, so I think the numbers are going to change we do have actually have a lot more information in private negotiations that we're not allowed to share who are highly confident am bility to maintain, you know easily in any of our financial strength not having any significant impairment relative to financial results of the company. Okay? Thank you for that month.

how how you think of that process as we have such a wide range of outcomes starting with a $0.03 crammed down to the current $0.40 to some people suggesting that long recovery should be far far greater given the the liens that attached to those bonds.

Well, I guess you can start out looking at it, you know two different ways one if you think about our friends in Detroit and with the first offer there was on the you know, tax back bonds wage in the Detroit bankruptcy, right? I think the first offer by Mister & Company was in to 3 to $0.05 range and would we open they get paid $0.75 74 cents. So you'll end of the day I would love positioning in the marketplace from the standpoint of negotiation just like in Detroit. I believe we're legal rights are incredibly strong. And if you really want to pursue that pace, God bless.

again, staying on topic with

Puerto Rico

given the movement in negotiations. Do you get a sense, you know internally that with all that's going on with that a confirmation plan can be put in place by year end of a not fully closed but agreements in principle and and not, you know, the process of dotting I's and Crossing T's is year-end reasonable or widen shouldn't get their hopes up that this could be concluded by Christmas this year.

Well, remember there's two big caveats over that right number one is the Supreme Court's decision on the constitution of the control board, whether it's legal or illegal. That's a huge open issue that we hope to be resolved in the current session of the Supreme Court. So where that falls can have a dramatic impact on that number two, I believe anything can be wrapped up very quickly to get to a consensual agreement. I mean as long as you see on the job obligation, you're starting to come up to a number that maybe people won't be a very upset with you put some better topic on it and at the end of the day you can get a deal done transportation. We think is even easier because I'm not enough Revenue in the tolls and the oil tax that was awarded the transportation to pay the obligations. They could get that done the government sitting on $17 in cash mean at the end of the day you could have made all been sick the last three years until leaving that a hundred percent of the market. I mean their arms of solution out there. They could easily be achieved in the Chinese but you got to have you know people that are going to recognize rule of law come to the table and wreckage.

We go, right if they do that even in some negotiating for misconduct.

To get done pretty quickly. But as I said first the Supreme Court into we've got out of change in the attitude of the control board.

The next question comes from Jeff redone of dialing in Partners, please. Go ahead. Thanks. Good morning. I wanted to follow up on what you were just talking about about, you know, the actual authority of the permiso oversight board right now. Obviously, the, the the appointments of the board members was ruled against last year, but they seem to be pushing forward more than ever. So I I just don't quite understand where the authority stands right now particularly as you see them expand this attempted go effort.

So could you just somewhere that?

I'm sorry. I'm sorry. I was just saying could you update us somewhere that all stands just to kind of catch us up on on that?

The next question comes from Michael Temple a private investor, please. Go ahead. Good morning. Gentlemen, a series of questions some some Puerto Rico. Mm. I know you can't comment too much directly on negotiations, but I wonder if you could just address the situation with HTA bonds where on the one hand.

Wish I could catch you at work, but really in the hands of the Supreme Court, I mean, I think the board is trying to show they're going to get something done. If you really think about it. The campino son was done really bio-weapon the caffeine age and without really the involvement of the board and it was done with us the marketplace. So in the absence of the board, you got the largest settlement done. The private someone has been done but we can finally go through the approval and certification of the court and I blame that on the court and the judge specifically we keep delaying that hearing these guys I would think would like to get something done that before they're either terms expire for their disbanded it yet the way they're going about it. They're never going to be able to claim that down. I think also there are other things going towards represent too big of a credit or pool could ignore it. And I think that if you don't get to any potential settlement, maybe they get suspended. Maybe they don't if they do get disbanded remember the next litigations going to go prior acts so, you know, that could really dead.

Of a heavy influence that doesn't include computers at 7:47. As I said not from the title three of the control board. There's a lot of open moving Parts if you want to get something done and they'll get around this make the entire Point move about the Constitution the board to get a consensual settlement done and it's finished. And as I said on the GM side

You're getting close to a a consensual deal if you move up some of the numbers and now it's just not handling Transportation, which really spells easier field hands on the entire process cuz there's enough Revenue out there and the amount of funds that are probably sitting in government accounts will confirm that even more.

Okay.

The other question I had was on Capital Management is the company still committed this year to five hundred million plus a buyback.

That's part of our plan.

Okay. I had one more, but I'll have to follow up. I forgot it. Thanks. No problem. This concludes our question-and-answer session. I would like to turn the conference back over to Robert back to your marks.

Thank you operator. I'd like to thank everyone for joining us on today's call. If you have additional questions, please feel free to give us a call. Thank you very much. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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