Q1 2020 Earnings Call
All participants will be Oh my God.
Sure you need assistance for single Dolphin specialist Tricia will start to fall by zero.
After todays presentation.
Last question.
To ask a question for Starz and water Touchtone phone.
So we're trying to your question. Please press Star then too.
Please note this is being recorded.
I would now let's turn the conference over to Robert Tucker Senior managing director of Investor Relations with Communications. Please go ahead Sir.
Thank you operator, and thank you all for joining sure guaranteed for our first quarter 2020, <unk> financial results Conference call.
Today's presentation has made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Presentation may contain forward looking statements about our new business in credit outlook market conditions credit spreads financial operating loss reserves financial results.
Right and that may affect our future results.
These statements are subject to change did a new information or future events. There for you should not place undue reliance on undue reliance on them as we do not undertake any obligation to publicly update or revise them, except as required by law, if you're listening to a replay of this call if you're reading the transcript of the call. Please note that the statements made today may have been update.
Since its call. Please refer to the Investor information section of our website for our most recent presentations in FCC filings most current financial filings and for the rest factors presentation. Also includes references non-GAAP financial measures. It was that the GAAP financial measures most directly comparable to the Nongaap financial measures.
Referenced in this presentation, along with a reconciliation between such GAAP and non-GAAP financial measures and our current financial supplement an equity investor presentation, which are on our website at assured guaranty Dot com.
Turning to the presentation or speakers today are tomich, Frederico, President and Chief Executive Officer of assured Guaranty limited and Rob Bailenson, Our Chief Financial Officer. After their remarks, well open the call to your questions at the webcast is not able procure and I keep dialed into the call if you'd like to ask the question I will now turn the call over to Don.
Thank you Robert and welcome to everyone joining today's call.
I would like to send our heartfelt sympathies to all those affected by this horrible pandemic an offline thanks and admiration for the coverage of the health care providers first responders. Another a central service providers on the front lawn and we're all grateful for their dedication and hard work.
I'm also proud away assured guaranty's people have stepped up to keep our operations running without interrupting almost entirely from their homes.
Many of the remote technology, a business continuity plan, we put in place and that tested regularly for many years.
We continue to write new business at both the new insurance secondary markets. We will continue to provide value for shareholders issuers and policy holders at a time when bought insurance has never been more important it's supported the efficient function the markets.
During the first quarter assured guaranty's overall insurance production was very good even though market turbulence limited mortgage production.
P P $51 million was 21% higher it into first quarter 2019 propelled by a 39% increase in public finance PBP worldwide.
The U.S. municipal market environment during the first quarter was bifurcate it by the market reaction to the dead done.
Until the end of February be a comedy with strong interest rates right near historic lows and credit spreads were extremely tight for example yields on 30 year municipal bonds they'll do a record low 1.38% on March nine.
There was robust demand is strong liquidity in the Middle School bond market, because long term municipal mutual funds took in $114 billion of net inflows during that 14 months, leading up to March 20 Twond.
Then from February 24 through March 23rd major equity indices collapse by more than 30% and during the first four weeks of March investors pulled out an estimated $41.8 billion no. I mean is municipal mutual funds, which calls for selling by the floods the covered liquidations.
The 30, your benchmark, you'll jumped almost 200 basis points a one point.
When she wants me U.S. public finance bucket temporarily Groundswell Hall.
For us this men $800 million, a part of new issues that were mandated to ensure during the quarter were postponed best quarter at our secondary market business. However, its continued uninterrupted.
Even with the first quarter generally low yields and spreads and the lack of issuance during part of March we succeeded in increasing by 22% Department of municipal Newish, you sold with aren't sure compared with last years first quarter production.
All told across the primary and secondary markets, we ensure $2.7 billion municipal bonds during the period.
One result at the market disruption does that investors are turned more touching the credit risk.
This has created opportunities for assured guaranty, there will be reflected in future quarters results in both primary and secondary markets.
And we believe these circumstances of children helped both investors and ensures the value of our down too.
Outside the U.S. public finance most of our new business in the quarter came from international infrastructure Finance, most notably through our second solar energy transaction in Spain, which is also they first transaction three guaranteed where our new French subsidiary.
We continued our strategy of further diversifying our international production target markets include Spain, Ireland, France, Germany, as well as Australia.
Well then some transactions have been delayed in the current feel good 19 environment credit spreads have widened and we continue to see relatively strong investor appetite for our products.
We continue working on maintaining an expanding investor relationships and we're also seeing a growing and diversified screen. The incoming inquiries in response to the greater visibility we have achieved in the market in recent years.
In the UK the chance, there's new budget proposes a 600 billion pound investment over the next five years into infrastructure, including railroad affordable housing abroad.
We have no details on where private investor all fit into this program. We are encouraged that the current government support significant infrastructure investment.
Well there are many good reasons in the current environment for investors and issuers and all of our markets utilize our financial guarantee.
Keep in mind that this new business. We have this new business was little impact on 2020 on.
This is because while we collect the majority of our premiums up right wearing them over the life of each transaction.
Example, only approximately 3% of premiums earned in 2019 related to new furniture guarantee policy wrote in 2019.
Oh sure portfolios in good shape. The wasn't this economic disruption three quarters of Orange short exposure is to U.S. municipal bonds. The sector that is a very strong track record and stressed economic environments and the great recession and it's your ensuing years. Some 2008 to 2013 assured guaranty paid claims and only six.
New U.S. municipal default.
We obtained settlements mitigating the ultimate losses in that group separately, our international infrastructure business performed very well with only a few losses, the structured finance market leading into the great recession, we declined to ensure we turned out to be.
Some of them more highly loss severity asset classes in transaction structure, so that financial crisis.
And from 2009 to first quarter 2020.
Our insured structure finance portfolio decreased 95% going from $174.6 billion to $9.5 billion importantly for 2008 to 2013, we were profitable each year, earning a total of more than $2.7 billion in adjusted operating income.
I've been profitable profitable each yourself.
Looking at U.S. public finance from 2009, you we acquired a job.
Through 2019, the average net losses, we paid on bonds appear issuers in the 50 states was less than 45 million per year.
This excludes our Puerto Rico claims in the latter years about pure.
The U.S. territory, Puerto Rico represents presents a unique situation, we're still in the process of negotiations and the exercise of our strong legal rights, which we believe will result in significant recoveries based on our and the museum <unk> municipal markets successful history of mitigating losses.
You asked municipalities reacted to their experience a 2008, Patrick crisis, I generally improving their operating on liquidity position, which we believe has even better prepared them to ride out just pause in economic activity coping 19 appear that the longest recorded economic dispatch in certain which municipal governments.
Saturates, each grew significantly allowing them to improve their balance sheets and remediate but of course I mean, its problems are less than others and in these situations where revenues are materially reduced downgrades could occur, but downgrade themselves do not cause us to have losses.
Oh sure Archer Daniels Department as closely examined in applied stress test individual I'm sure transactions in the portfolio sectors that we believe at the highest likelihood of being affected by the fact that.
Among the sectors, we considered most at risk the largest are certain transportation sectors bonds back by hotel occupancy taxes stadiums and certain student housing.
As a class municipal bonds are well structured to protect bottle.
But most of our transactions continue covenants that require issuers to increase rates piece, where changes to ensure that there or charges to ensure they are adequate funds to meet that service requirements. While many are also require the maintenance on the debt service Reserve fund with up to a year's worth the debt service capacity.
Well, we are still the early stage the determining the long term economic impact of the Dominican issuers.
Just a point where they sit I really do we currently do not anticipate material unrecoverable losses as a result of the pent up.
We stand ready to meet our obligation to policyholders based on our excess capital financial liquidity granular in short portfolio and structural protections built into our guaranteed transactions.
Issuers are likely to reimburse us for liquidity claims if any in short order to limit damage the reputation credit ratings and capital market access.
The Federal reserve in Congress that take an unprecedented steps to limit the economic damage with this crisis, including specific programs for state municipality, the municipal bond market and additional actions are expected.
A major infrastructure Bill would almost certainly lead to me that's wants they bought being issued to show cost with the federal government and we would expect to find opportunities among those issues.
And the current circumstances sensible economic policy by the federal government keep states the municipality.
To help Stacy municipalities keep police fire fighters medical professionals schoolteachers, another public employees on the payroll until it's safe to restore tax generating economic activity.
In Puerto Rico, the locked out Oh, I suppose productivity and the title three core revealing again, how the pro nice a process that delay putting the island on the pet economic out as it could have all been resolved through consensual negotiations long ago.
One of the lessons learned this crisis does suggest the potential economic stimulus for Puerto Rico, because the pandemic has exposed vulnerabilities in the U.S. and global medical supply chain, a significant public and health and National Security Challenge that Puerto Rico get help address.
It is an opportunity for Puerto Rico to help the nation well it stimulates it's an economy that bringing medical manufacturing ought to American soil.
The island has had a long history of producing pharmaceuticals supported years ago by federal tax incentives, whose renewal will set the stage for Puerto Rico's economic decline.
Those 50 pharmaceutical facilities cooperate there are large experienced workforce is available to the industry. This is an important untapped strength of Puerto Rico, but U.S. policymakers should recognize that the federal government can re craft appropriate incentives to reinvigorate the industry. Kittery go can help can both can both help address.
The immediate medical crisis. There's also provides also and also provide long term domestic capacity, but could reduce U.S. reliance on foreign manufacturers.
So oil prices have come down dramatically and purpose, it's been tests by the oversight or to report by May 22nd what how it can take advantage of this development purpose already announced that the reduced fuel costs will result in significant decreases in electricity rates.
Our asset management segment, which is still relatively small part of our business was affected by the market dislocation calls but that does.
This will likely affect our plans for new yellow issuance in 2020, the pace of which the legacy wind down funds will be liquidated and near term capital raising however, we believe our experience in structured finance will allow us to take advantage of market opportunities in the medium to long term, we believe in the long term value.
And returns of this business brochure go to.
As a large originators yellow assets and currently a top 26 yellow manager both in the U.S. and globally, we are well positioned in the current environment to find attractive opportunities in both the C.L. when I said that markets, where can we focus on the more liquid asset classes that are showing excellent credit resiliency and severe downturn.
Yes.
At the corporate level, we look to prudently continue our capital management program.
I like the experience or some other companies, we have no need for government assistance and given our excess capital position and the strength of our balance sheet. He believes the most appropriate decision is to continue to buy back shares at the current extreme discount to adjusted book value.
As always we will continue to assess and potentially just the level of our share repurchase program.
Hi, I'm confident that assured well, whether its current economic challenge and Peru approved again, the resiliency of our business model, which is designed to expand global economic disruptions. In fact, we came into 2020 with what I consider the strongest financial position in our history with better insured leverage less than half of what it was.
In 2009 in a short portfolio with a more conservative distribution or sector risk, then 10 years ago, including a far smaller well performing structured finance sector below investment grade exposure at a 10 year alone, let that 4% of net par outstanding and far more capital and liquidity the necessary to maintain our financial.
<unk>.
From 2008 to through 2019, our insurance subsidiaries, great $11 billion of gross public finance and structure finance claims well recover nearly half of those payments through reinsurance and loss mitigation efforts. Meanwhile, throughout that time, our consolidated claims paying resources remains out $11 billion or higher.
Yeah.
Looking at the last five years assured Guaranty has earned an average of over $600 million of adjusted operating income each year, including 400 million of average annual net investment income.
Hi quality investment portfolio in cash totaled $9.8 billion and provide far more than enough liquidity, because we are only obligated to cover shortfalls in interest and principal when they go do we can anticipate a plan for our liquidity needs and many of our insured transactions that designated funds available for debt service for the rest of the year.
Everything I said about the strength of our company was second it in a report S&P released about bond insurance industry on April the third when the 10 done that had already.
Disrupted markets.
Acknowledging the significant pandemic cause market volatility and the fiscal challenges ahead, we're all U.S. public finance sector, that's and P. wrote quote we view the potential impact U.S. bond insurers at somewhat lower at this time, notwithstanding the current macroeconomic environment, the false issues insured by bond insurers or not.
Expected to be widespread they went on to note the potential for ratings migration Osama bin shirt issues.
But said this was not expected to get stressing reinsurance capital adequacy, given the insurers robust capital position.
Encourage you to read the report.
Let me conclude by reviewing four important point segue from today's call first we are pleased with our first quarter production, which increase year over year. Despite the market disruption second the resulting environment. They will create opportunities with hiring municipal interest rate widening credit spreads and concerns ever credit driving more demand for our price.
Third we have looked carefully at our individual insured transactions in the sector. We think most likely to be affected by the pandemics economic impact and do not currently expect permanent I'm recoverable lawsuits well liquidity claims this year that we cannot easily manage and finally, we remain committed to a capital management program subjects.
The availability of funds at the holding company.
For more than three decades, we've focused on building a company that will protect its policyholders and provides diluting shareholders. Even in times like these that is exactly what we've done and I believe the current environment, which on a spotlight on the benefits of our unconditional navigable guarantee and the strength of our unique business model I'll now turn the call ever.
The Rob.
Thank you Dominic and good morning, everyone on the call.
Well I'd like to pick up with Dominic left off in reemphasize, the strength of our balance sheet capital position and business model all of which enable us to withstand the turbulence in global markets caused by this pandemic even in this environment, we managed to achieve record <unk> per share eyes, <unk> adjusted operating shareholders' equity of 60.
$7.25 per share or $6.1 billion and adjusted book value per share of $98.02 per share were $8.8 billion.
Oh financial strength and stability are supported by the quality of our that's an asset and its short portfolio. The investment portfolio in cash are valued at $9.8 billion as an average rating I blame minus and generate stable stream. If that's been income.
Sure Yeah.
All right change gone.
In our insured portfolio over 96% apart outstanding is investment grade.
And with deferred premium revenue.
At the phone travel in you know in short portfolio at well over 96% a part of Danny is investment grade and with the part premium revenue up $3.8 billion. It will generate a long time stream of future earnings.
Turning now to the quarter, how consolidated adjusted operating income was $33 million in the first quarter 2020, which consist primarily of an $85 million gain from our insurance segment and I mean, no loss from our new asset management segment.
<unk> 39 million dollar lost from our corporate Division.
Which is where we wouldn't be tracking a holding company results.
Starting with the insurance segment. The adjusted operating income was $85 million commensurate hundred $11 million in the first quarter of 2019.
Part of the change in insurance segment adjusted operating income attributable to an 8 million dollar after tax mark to market loss I know investments.
In short investment management fund these investments are mark to market each reporting period with changes in fair value recorded as a component of adjusted operating income in the line item equity in earnings I've invested.
The market dislocation and volatility caused by the covert 19 paint dynamic, but the primary driver of the mark to market losses in the C alone asset backed a short investment matching funds in which we invested.
As of March 30 for 2020 insurance can be said collectively invested $192 million into a short investment management fun, and we'll invest another $300 million overtime.
We expect that adjusted operating income will be subject to more volatility than in the past when our best friends for almost entirely in fixed income securities No long term view of the enhance return we will receive me short investment management funds remains positive.
Net earned premiums and credit derivative revenues in the first quarter 2020, well I've been $7 million compared with $126 million in the first quarter 2019.
The bank is mainly due to lower accelerations from me findings, which were $15 million into first quarter 2020, compared with $26 million into first quarter 2019, as well that's scheduled amortization of the in short portfolio.
Net investment income for the insurance segment was $83 million in the first quarter 2020, compared with $99 million and the first quarter 2019.
The change was primarily due to a decline in average invested investment balances and the externally managed portfolio as funds were deployed during the year to expand into alternative investments, including short investment management funds, which recorded at fair value in a separate line item as opposed to net investment income.
And to repurchase shares.
Yeah average balance of loss mitigation Securities also declined as a large troubled ensure transaction in the portfolio was favorably settled and proceeds reinvested in lower yielding assets.
Lots expense in insurance segment was down to $80 million and the first quarter 2020.
$44 million into first quarter 2019 in both periods the expenses primarily related to economic loss development on certain Puerto Rico exposures offset in part by a benefit in the RMBS portfolio.
The economic benefit in the first quarter 2020 was $3 million, which consisted of a benefit of $63 million. An RMBS exposure is partially offset by loss development a $59 million in the U.S. public finance sector, primarily attributable to Puerto Rico exposures.
The net benefit attributable to U.S. RMBS, mainly related to higher excess spread on transactions who's in short debt, it's linked to life or which decreased this quarter, but its assets partially fixed rate.
[noise] effect of changes in discount rate, which included which is included in economic development. During the quarter was a loss of $31 million of which 25 million related to first lien RMBS.
In the asset management segment.
Adjusted operating income was a loss of $9 million.
As previously announced their strategy Chin transmission investment focus and business model of our asset of a short investment management platform toward its core strategies, including an orderly wind down of certain hedge funds and legacy opportunity funds.
We'd expected the restructuring to continue throughout 2020, but depending on the duration and mark the impact of the pandemic the execution of our strategy may take longer than originally anticipated.
Prior to the Cobiz 19 market disruptions, we had made good progress in the wind down legacy ponds.
Without flows of $875 million in the first quarter.
During that time to fund, so $250 million notional yellow equity, which contributed to the increasing fee, earning AUM.
From $8 billion as of December 31st 2000, $19 billion to $9.5 billion as of March 31st 2020.
We believe the effect of the pandemic on market conditions and increased volatility may present attractive opportunities for the alternative asset management industry had a short investment management may be able to capitalize on.
So our long term outlook for the asset management platform remains positive.
You know corporate division holding companies currently have cash investments available for liquidity needs and capital management activities of approximately $220 million.
Page 28 million resides in AG out.
Adjusted operating loss for the corporate Division was a loss of $39 million into first quarter of 2020.
Compared with a 25 million dollar loss in the first quarter 2019.
It's mainly consists of interest expense on the U.S. holding companies public long term debt intercompany debt to the insurance companies intercompany debt proceeds were primarily used to fund the Blue Mountain acquisition.
It also includes <unk> board of director and other corporate expenses.
The results for first quarter 2020 include a 5 million dollar loss on extinguishment of debt related to the purchase of $23 million in H.M. age principal purchased favorable pricing for yield of 7.5%.
The last represents the difference between the purchase price and the carrying value of the debt, which includes the on amortized fair value adjustment that was recorded upon the acquisition of age GMH in 2009.
The first quarter 2020 also included a $5 million write down of an equity investment.
Hi, consolidated basis, the effective tax rate may fluctuate from period to period based on the proportion of income in different tax jurisdictions in the first quarter 2020, the effective tax rate was 24.7%.
Compared with 13.1% in the first quarter 2019.
On a GAAP basis, we recorded a 55 billion dollar net loss. This quarter. This do you see put it large offsetting mark to market adjustments on thought dark spread derivatives and true and committed capital Securities, which we expect it will reverse over time, but no economic impact.
We also had a 62 million dollar loss to changes in foreign exchange rates of the British pound and the euro the FX loss, primarily relates to premiums receivable, which represents the present value of future premium installments.
Maturity dates far into the future.
Turning to our capital management strategy and the first quarter 2020, we repurchased 3.6 million shares for $160 million for an average price of $32.03 per share.
It's the ended the quarter, we've purchased an additional 3.3 million shares for $92.8 million.
Since January 2013 hours successful capital management program has returned $3.4 million to shareholders, resulting in a 58% reduction in total shares outstanding.
It's always future share repurchases are contingent on available free cash.
Our capital position and market conditions.
The effect of acumen of share repurchase program on first quarter 2020, adjusted operating income was approximately nine cents per share, bringing adjusted operating income for the quarter to 36 cents per share.
The cumulative effect of these repurchases was a benefit approximately $20.03 per share and adjusted operating shareholders equity and approximately $36.86 in adjusted book value per share, which helped drive these important metrics to record highs.
I'll now turn the call over to our operating to give you the instructions for the Q in a period. Thank you.
Thank you Sir we will now begin my question answer session.
If you like to ask a question. Please press Star then one.
It's a question has been addressing the was removed or so.
Your first starving true.
Today's first question comes from told me majority KBW. Please go ahead.
Hi, Good morning, guys. Thanks for taking my question, if everyone's doing well <unk>. When you think about the potential for municipality scanned downgraded <unk> net basis do you kind of you that positively because in the future opportunity that it creates for eight years guarantee uncensored excuse me are valuable.
Good morning, good strain anything change.
Right.
Well. It's good question. So you know you hate to say if it typically markets disruptions are normally a very create a very highly incentivized marketplace for us because as you say anytime you've got issues relative to credit performance, which is reflective of credit downgrades.
See you know desire or the attractiveness of our insurance, obviously increases broken value and visibility and therefore, we expect to see more demand and if you read any the recent articles so I'm not give me in my opinion, but if you read from the recent article there's been a consisting revived.
It's improved forecast were insurance penetration, so we've been averaging around say, 6%.
I see articles and now refer to abstention penetration throughout the remainder of the year, obviously wants markets recover budget to temper some level obviously in the same token as spreads widen the rate increase we get paid based on that service. So not only do you see more demand for your product you get the charge more premium so typically in this environment.
It really is a benefit even though it's off of a negative situation you anything I would say is remember downgrades within the investment grade classes are not significant capital users.
Only after a issue where it gets to downgrade of below investment grade that there's a significant bump in capital and even that's in percentage terms. So based on our excess capital position and the recipe noted in their report they even believes that there would be some downgrade that you're not then any impact whatsoever on the performance of our portfolio or our rating so.
You're right in a way disrupting clubs opportunity disruption will clubs increased demand better our pricing so and they also increasing rates increasing the return on our portfolio. So we get benefiting on both sides the balance sheet.
And much like in 2008 2009 as you can see based on the numbers I quoted in my speech you know our performance was spectacular during those periods as well watching the asset management area as well you know that's when you have capital and there is opportunity you got to take advantage of the dislocation in prices.
Got it. Thank you <unk> into your outlook anticipate some sort of funding help from the federal government likely I think you mentioned a major infrastructure bell or.
Now to kinda icing on the cake.
Well, we don't count on that relative to do what we look at but its unique in that as you think about it you know eight or nine the government's response was typically to the financial institutions and large corporation.
And at that time, we had tremendous amount of consumer exposure through our RMBS another exposure.
You look at US today, the portfolio is a lot smaller or insured leverage is way down our structured finance I mean at 140 plus billion back in 2009 to be under $10 billion. Today. You know really gives you the impression or gives you. The ER the specific evidence of how little we have exposure, but yet the guy.
I'm in response in 2020 to their credit has been across all borders right they've gone to the consumer they've gone to the municipalities they've gone through the financial markets. So the amount of government aid, which is significant seems to be better spread which to me well also kind of limited the depth of the down.
Like I say go back away, you know nine and look where the government provided support where it is today I think got responses, obviously for US better you know appropriated across all exposures in the portfolio.
Thank you can just sneak one more in here regarding Blue Mountain, obviously, there was a funny volatility around March and April did that cards, and that's kind of shake out and in that business, where you feel like the opportunity for Blue Mountain Bruker would it not stressful enough I guess you could say.
Well, so two things one if you look at the quarter and I understand you know the quarter shows some impacts of the market in the pandemic, but most of the quarter changes or or or shortfalls are really timing or temporary.
So obviously in the asset manager, we have great expectations for what that's going to deliver whereas you're going to.
However, in the current environment, they weren't able to get as much of the legacy assets sold there weren't able to issue as much the yellow opportunity they weren't able to raise as much funds as we talked about last year at the end of year. We gotta carried expenses that although we identified to be expenses related to the run off business and therefore will fall off we're paying.
Some severance and some retention we couldn't accrue it data your rent that's going to bleed and through 2020, which we would hope we would've been able to put in 2019, all those things, though are not permanent you know declines in the same thing with the mark to market now with accounting and I'm a former account.
So I won't admit that in public right. There now pushing for current value whenever they were kind of the one problem, where you had these market disruptions you've got a price to the current day. Although you don't believe that is the long term economic value nor does it reflect the long term economic returns would you expect but you're stuck with the market law. So BNP today.
Look at our results to me the delay in say recognizing refunding data catches up you know we're not at consumption business in other words the sale that we Miss in March does come back because we don't lose it right people that and if that plan and budget in approved financings need to get those financings accomplish for the reasons that work.
Finally put into their budgets and plans. So we're very different in that regard as I talked about on my speech. Most of our 2020 earnings are already know so in terms of protection of 2020 were pretty good should never to our demand should increase and number three we don't lose client and most of the impairment that we faced in the first quarter are really based on mark to market.
Temporary were just delayed activity that is fully expected, but doesn't really like the long term economic value or returning to the company.
Right and just in terms of that and the number in CLL managers like that kind of servicing the competition I'm seeing many of them are some scale did did you get a sense that you know March and April greater volatility that actually be more consolidation you expected bank freak out but.
I'll, let Andrew answer that since he's our expert on that Barb.
I think that's a good insight.
The there's 125 CLL managers in the world.
30 of them a with more than 10 $5 billion now you I'm.
And those 30 control, maybe 60% 65% of market.
And a you know it is the case that the smaller independent managers.
Are going to find this environment more challenging.
And I do think that gives us an opportunity.
Acquisition opportunity, whether it's a whole businesses are or CLL contracts.
Because were in a in a stronger position that just to be the beginning scale of our CLL business with EUR 10 billion.
Anger management, and then of course, the a the greater screw belt stability and access to capital a that we got a because were part of your shirt family I'm, sorry, I think I figure right I think your insight is right and I I think over the next nine months either organically or.
Through acquisitions, the struggles a smaller independent managers are gonna create opportunities for the larger ones.
Great. Thanks Rhonda.
Thank you.
Our next question comes from Josh That's true we're criticized someone's got.
Hello, Good morning, I appreciate you taking my question.
I see on some of the flight information that you publish that of the 6500 directly with public finance Obligors uninsured portfolio you'd expect a roughly 10 to see claim in excess of recoveries, but if he put the recovery portion aside for a moment could you talk about where are you see at least temporary disruption that could lead to.
Some level of claims payments in the foreseeable future. If that's still mostly limited to transportation student housing and some there's other pockets of exposure you mentioned earlier.
Well as we said we were actually you know.
We review the entire portfolio annually for every risk and of course and risk and more attention to that that are looked at either quarterly or monthly some like Puerto Rico, probably daily. So we're constantly you know calling our portfolio to understand the risk we're constantly reaching out to the issuers and make sure. We understand that can finish the decision. So I want to pandemic yet we immediately.
Went back to the portfolio basically divided among high risk medium risk low risk went out to actually speak to the high risk people, which as you do identified transportation hotel occupancy a student housing or some of them more critical on health care and.
As we looked at that portfolio and really trying to ascertain first what is the total got service due in the next.
Six to 12 months as well as over the next two years, what does the availability of funds at the issue were either based on cash on hand debt service reserve bonds and try to map out where we thought there could be some potential request for payment and the numbers are incredibly incredibly small these are very well.
Engineered well protected typically have the availability of good service reserve.
So even as we look to the.
Liquidity payment so ignoring the recovery right. It was an incredibly small number and somebody easily absorbed within the organizations available cash and cash well so.
We continue to call that we continue to reach out to our was issuers to make sure. We understand the portfolio you try to get updates as frequently as possible. Obviously, we just had a board meeting went through a full kinda dissertation with the board on each credit each risk. So were very good shape than historically, there's not been a lot of defaults in the minutes in the market as you go back and looked at the public.
Data from like S&P, and Moody's you're talking like basis points of ultimate loss per year in the municipal market place why because they rely on the market. That's Oh, you know that like some large you know kind of the headline credit the think they can behave differently, but there's always a long term cost to it you know most people want to and do pay their bills and.
All restructure and negotiate will provide additional protection to make sure they can maintain that.
I remember in everybody's budget, there is what I'll call. It discretionary spending so as you see revenue shortfalls, even before you start tapping reserve funds et cetera, you just eliminate capex or some other discretionary funds to make sure that you can make the balance of payments relative the service because that's a critical component people do not want to get downgraded in most cases arts.
Spirit a threat in the downgrade typically results in the issue we're paying the guts service because they don't want to downgrade and have that additional cost or lack of market access stronger bucks.
I appreciate that that's that's helpful color. Thank you very much I hope everybody right there.
Yeah keep sleep everybody's they said.
And our next question comes from Giuliano Giuliano Borneo with <unk>. Please go ahead.
Good morning, Thanks for taking out some of my questions [laughter] I guess starting off on the new business front is there any way of thinking about pricing trends. Obviously its credit spreads are wider you can usually charge more and also as there's concerns about credit you can towards more <unk>. The magnitude of the pricing changes you might be able to capture in the near term.
[music].
We don't really give you that number in that detail I can tell you that pricing is improved across the board and someone might say well I'm going to second let me go back and look at your partner in the first quarter against premium versus last year down only because there's a little credit in last year that would significant called Chicago was part of the every funding that really skewed the first.
Quarter number rate was last year, but on average the rave is up reasonably well I don't want to give you a number but it's up significantly in the ended the first quarter. We expect that to continue through at least you know the next few months and not the remainder of here.
That makes sense, then thinking about the investments into the investment management funds.
Invested 192 million so far in the target as 500 million is there any sense of timing around those investments or how fast you would continue investing.
Our Chief investment Officer will answer that question [laughter].
Yeah that pace picked up a little bit.
In March and then continued in April and it was really because opportunities in the market arose.
So I don't think will continue at the pace that we saw in April we do expect.
Credit markets are going to normalize a little faster and this crisis a than they did after 2008 two reasons first unlike 2008, the banking system is healthy.
We don't have a problem with our financial transmission systems.
It's a it's a different kind of crisis or worse than in many ways and Ah, but but better in that way I better and that they're not the banking system if found.
Second the response from the public sector has been much quicker.
And much larger Oh goodness crisis, and that's both from the Fad and from fiscal stimulus programs.
So the duration of of the opportunity to make the kinds of investments. We did in April or may slow and so I don't think we'll keep up that pace.
But we do expect that by the end of the year or sometime in the beginning of next year, we will deploy that capital.
That's great. Thank you for that and then just one quick follow up I guess switching back to the insured portfolio for as I can.
One of things that that's obviously come up as lot of people are asking about exposures and specifically for as an example of New York empty I came up.
And I think yeah, what block you'll miss towards the second you, probably seven or eight times coverage and the New York empty a from a because it's a revenue bond and you have a lot of wins on revenues is there any sense within the transportation portfolio of what the coverages. When you start looking at a lot of the.
Revenue covered us and those deals.
Well, yeah, the transportation or portfolios one of the portions of the portfolio that benefits. The most from structural protections and that's into regard one cash on hand, and we do occur sweep of cash on answering those would be available funds are and two debt service reserves. So as we looked at the airports MTN.
Et cetera, that's ours reserve a significant then we will pay claims paid that service for a minimum of six months about 12 months, obviously MTS kind of a special circumstance, where the revenue bops only accounted for around 50% of its total revenue relative to the ability to be it expenses paid that service we have a gross revenue play.
Page on M.P.A., which makes it off seed and higher protected I think they've already bought a record saying that the you know bankruptcy is not an issue and they will continue to fund all payments.
That makes sense and I appreciate the due to some color in perspective, there I will jump back into queue. Thank you.
Thanks, good to see good here.
That are less worsen today comes from Jordan Hymowitz, where.
So what else do the financial please go ahead.
Oh, Thanks, guys. A couple of questions you continue to buy back stock even after the quarter can you confirm that there's nothing.
In terms of state authorization or anything that would prevent you from buying back that 500 million this year it's needed.
Well remember Gerard.
That is composed of two portions right or our ability to buy back or the ability of funds. One is what does create is normally out of the operating companies subject to know approval process or the notification in the payment of dividends and to the top it up to the level than we'd like to get to on an annual basis, we typically rely on special dividend obviously into.
Ladies environment, we didn't expect that they're gonna be a little hasn't too as you know approve a special dividend so that portion of the funding.
Well, we'll have to be delayed at some point time, obviously in my remarks, we're committed to capital management, we believe the strengthened the balance sheet. The granularity of the portfolio the protections that our implied there in still provide if that opportunity and then of course adds up to the significant discount. That's now currently available doesn't stop we did some goofy numbers that you know people.
Especially the accounts like the play with numbers all give them. Some credit if you look at where the prices versus what we anticipate the price to be for this year relative to the stock authorization buyback, we're going to probably still buyback more shares that we would have had in the original authorization out the share price not reflected the volatility in its current pandemic so bottom line.
We still do require special dividends at some level at some point in the year topped off the funding that we could accomplish the two other sources like borrowing if he wants to do that so all things around the table for US obviously, let's say we're committed to the program. We believe we're in great financial condition to a well do that and just a matter of getting me available funds with all the company too.
Basically executing strategies, where we're at today.
Hi, second this do you still anticipate the portfolio flattening this year in terms of all the decline.
That's a great question you know obviously, we have looked at 2020 as the year the balance right and obviously with the market disruption and obviously, there's been some delay it really depends on when the recovery began when these shoppers at home are lifted when normal becomes more normal if there will ever be normal. So you know having all those.
Caveat, but as I said, the nice thing about our situation that we typically don't lose the customer it just to leave the customer. So while there are hopeful bounce in 2020 goes a little first or second quarter 2021, I know begin makes much difference I think we see the truck we see the trend.
And you know, we know that the acceleration of the amortization of the portfolio by and large has run its course, so therefore, and we know we've got good after the activity across all of our profit line you know in the current marketplace where really.
Trust and the number of inquiries regarding across the structured financing and actually infrastructure area. Obviously, the massive municipal market is more or less a they flow market. There's been a fundamental demand all the time, there, but we still see an increased interest in insurance anyway because of the current volatility. So you know if things work out well the recovery.
Steeper than what people think and markets normalize I think we'll get the balancing 2020, if not because the 2021 because of bad debt I also want to add Jordan that if you look at last year. The Iran numbers are your new PR was greater than the prior year. So we did increase our store of earnings at the end of this year.
At the end of last year.
Okay. Thank you.
Thanks sure.
Our next question comes from generic drugs Dolly partners. Please go ahead.
Thanks, Good morning, Jordan beat me to the punch on the buyback question, but.
Rob could you just give me the breakdown of the primary secondary and your business this quarter for me.
Sure.
A secondary PBT for the first quarter was $9 million.
First 22 last year and Dominic did mentioned there was a significant transaction last year.
Which was Chicago, that's the Delta for the difference significantly and deep pocketed was 230 million.
For the first quarter of 2021st $338 million and the first quarter 2019.
Okay. That's all I got thanks.
Thank you.
And ladies and gentlemen. This includes the question answer session I'd like turn the conference back over to the management team for any final remark.
Thank you operator, I'd like to thank everyone for joining us on todays call. If you have additional questions. Please feel free to give us call. Thank you very much.
Thank you. This concludes todays conference call you may now disconnect your lines have a water.