Q2 2020 Assured Guaranty Ltd Earnings Call
Good day and work after this year can guarantee limited second quarter earnings conference call.
Participants will be elite remote.
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No what could be seen bank is being recorded.
Well I'll turn the conference.
To love to talk about senior managing director Investor Relations. Please go ahead.
And thank you all for joining assured guaranty for a second quarter 2020, <unk> financial results Conference call. Today's presentation is made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
The presentation may contain forward looking statements about or new business in credit outlooks market conditions credit spreads financial ratings loss reserves financial results or other items that may affect our future results. These statements are subject to change did a new information or future events. Therefore, you should not place 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 or if you're reading a transcript of the call. Please note that our statements made today may have been updated census call. Please refer to the Investor information section of our web site for our most recent presentations in FCC filing.
It's most current financial filings and for the risk factors. This presentation also includes references to non-GAAP financial measures. We present, the GAAP financial measures most directly comparable to the non-GAAP financial measures referenced in this presentation, along with a reconciliation between such GAAP and non-GAAP financial measures.
In our current financial supplement and equity Investor presentation, which is on our website that assured guaranty dot com turning to the presentation. Our speakers today are Dominic Frederico, President and Chief Executive Officer assured Guaranty's limited and Rob Bailenson, Our Chief Financial Officer after their remarks, well open the call to your question.
That's a webcast is not enabled for queuing day, please dial into the call if he'd like to ask a question I will now turn the call over to Dominic.
Thank you Robert and welcome to everyone joining today's call.
For the first time in our history assured guaranty's adjusted book value has surpassed $100 per share.
Both shareholders' equity per share and adjusted operating shareholders equity per share. We're also new records.
We achieved this milestone while producing our best direct new business insurance production for a second quarter since the acquisition of age Yeah I'm in July 2009.
Our financial Guaranty guarantee pvp of $96 million.
71% higher than in last year's second quarter.
Our success reflects a tremendous work we did over several years there for the unexpected.
Our people were extremely effective operating 100% remotely unprecedented economic and market conditions.
We had the technology processes and training in place to help us excel. During this been done it and we did XL proving again not only the combination dedication of our employees.
But also the resilience of our business model and the benefits of our value proposition.
With the virus, creating marketing and economic uncertainty bond yields had increased by the beginning of the quarter and credit spreads widen.
Investors are turned more their attention to credit quality, which our financial guarantee insurance as a solution.
And also to ratings durability trading values stability and market liquidity to all of which our product tends to add value.
The result is manifested in high demand for bond insurance.
As a result, we saw the best second quarter in first half direct U.S. public finance production in more than a decade, writing direct p. VP of $60 million, an $89 million it's back.
And I can tell you that with our July municipal insured par volume exceeding $2 billion. The surge in demand for our guarantee is not let up.
At the industry level more than 9.1 billion of U.S. public finance primary market par was sold with bond insurance in the second quarter.
The most for any quarter since mid 2009, an industry insurance penetration reached 8.7% of total new issue parcel.
Hi, squarely levels since 2009.
Six month industry in short volume is 43% higher than in the first six months to 2019.
And this strategy municipal bond insurance market assured guaranty was selected to ensure 63% or the insured new issue par sold in the second quarter.
Where would the second quarter over last year assured guaranty's primary market production was up 58% to $5.8 billion uninsured parceled and up 22% to 318, new issue and transaction count.
Hi, even par volume was partly driven by large transactions, where we continue to be the insurer choice.
Reinsured large tax exempt the taxable deals across a variety of sectors underlying rating categories, including for example.
Single, a health care issues and double a general obligation.
We guarantee the 11 transactions of over $100 billion in insured par during the quarter. The large of which was a 385 million School district transaction for the dormitory authority of the state of New York rated doubling three by Moody's and double a minus by Fitch.
The high value that investors place that our guarantee was visible among credits with underlying gets a pure moody's ratings and the double a category, where we insured more than $1 billion a primary market part in the second quarter.
We're also seeing heightened demand for a secondary market insurance.
The second quarter, we insured $533 million, a secondary market par compared with 233 million for the first quarter of the year at $327 million for the second quarter 2019.
In aggregate for the primary and secondary markets assured guaranty provide insurance on 6.3 billion of municipal bonds, 58% more than in last year's second quarter.
Although by quarter end municipal yields are trying to close to start was seen in March credit spreads generally remain wider than the pre pandemic levels and that is one reason along with very strong issuance volume for the successful performance we are saying.
We also had a great second quarter in our international infrastructure business, where we generated $28 million of direct Pvp over three times last year's second quarter Pvp and the second higher was highest quarterly direct PBT in that sector since before the great recession.
Notable transactions include our third solar bought unwrap in Spain, the modification of terms of existing investment grade ensure transaction to provide additional flexibility to the issuer.
The secondary market guarantee to European financial institution for public sector credit.
The impact of Cobot 19 has been mix for the international business.
On one hand fewer transactions are coming to market, especially its transport and social infrastructure and some transactions and our pipelines have been delayed though none have been canceled.
The other had credit spreads widened materially Napoli return to the previous tighter levels, which increases the value of our guarantees.
So we continue to see an increase right of incoming new transaction inquiries some of which are a direct result of it related investor concerns.
Our global structure Finance business also performed well move second quarter contributing $8 million of Pvp from a variety of transactions, including an insurance securitization and fuel business securitization.
And then they go slow, but that's it back issuance and the progress and sort of bar transactions the development.
But it was also widening credit spreads and creating new opportunities. We're seeing an increased number of investor let opportunities relating to portfolios of corporate credit exposure.
On our last call I explained in detail wiring short portfolios in good shape to whether this economic disruption. We have continued our due diligence and reached up almost all the obligors we identified in the vulnerable section learn how they plan to manage their resources.
Based on our research and the additional information provided by album doors. We continue to expect no material pandemic related liquidity claims to date, we have not been asked by any financial guarantee claims that we attribute to cope with Nike in pandemic.
For below investment grade insured obligations, which we have identified is already under stress we have updated assumptions to take into account the added stress. It depends on it we continue to believe that for the remainder of the portfolio. The 96% apart exposure that is investment grade there should be no material losses caused by the pandemic.
In any case as I said before we have proven the resilience of our business model.
For example from 2008 through second quarter 2020, we paid $11 billion a gross like can't claims.
Five doing that right.
I returned more than $4.3 billion to shareholders through share repurchases of dividends.
Our claim paying resources were virtually the same at the end of the period compared with the beginning.
Meanwhile, we have agreed dramatically reduced our par total par exposure and cut our insured leveraged by more than half measured by a variety of ratios.
We are in better shape today, the before the great recession.
I Hope you will take a look at two at the two reports recipe publish it depends on to the Guy.
I mentioned one on our last call. That's a piece April 3rd report on the bond insurance industry.
The second was that's a piece and your view of assured guarantee that came out on July 16.
The common theme of these reports was that notwithstanding the current macroeconomic environment.
It's a P.S. asterisk broke ought to be lower Boca bond insurers as an industry and for sure guarantee a very positive conclusion.
That's the P. affirmed the ratings of all of our business units of art all of our church units a double play with the stable outlook in June.
And the annual review that follows S&P reiterate how our strong capital position exceptional liquidity and proven business model support our financial strength rating.
Additionally, S&P recognized increased demand for assured guaranty's products of the spread of covert 19, writing that investors flight to quality and wider credit spreads should continue to provide us with primary and secondary market underwriting opportunities.
In U.S. public finance it attribute the strong secondary market demand, we've experienced to institutional investors finding the economics of bond insurance appealing as a tool for risk mitigation.
In the same report as he said it ran a cobot 19 sensitivity stress test and that even under the increase lots assumption do not scenario our capital adequacy assessment would still be excellent has to be also described our financial risk profile is very strong I wrote the during periods of economic stress our insured exposures outperforms.
Relative to the market segments in which we underwrite due to our underwriting and risk management guidelines.
As a beat is not publish a figure for our excess capital into their AAA depressed distress model. We estimate that we have 2.6 billion of capital in excess of S&P AAA requirement as of yearend 2019, and this incorporates the impact of our capital management program, the acquisition of Blue mountain or elimination of an excess of loss.
Got it facility and the continued payment of Puerto Rico debt service claims.
Another at Fort Worth Reading was issued by Kroll Bond rating agency on July Thirtyth.
It provided a detailed discussion of the recent increased activity in demand for bond insurance in the report KBR I also makes the positive observation that it believes the pandemic should remain largely liquidity event for bond insurers with the exception of Puerto Rico.
On the subject of Puerto Rico, we continue to pursue a consensual resolution of the situation well defending our rights and the title three bankruptcies.
We have in 19 in the pending government gubernatorial election, maybe slowing progress somewhat.
In recent news proper hired a private U.S. Canadian consortium to operate its electricity transmission and distribution system.
This appears on the phase to be a step into right direction, but the essential step to restore and improve the power system is to complete the restructuring support agreement that all appropriate parties have agreed to.
We agree with the oversight board that quote as long as proper remains a title Threed utility will not have an effective access to capital markets to fund a critical grid modernization and improvement plans.
Titlethree court refused to lift to stay on our ability to assert our property rights with respect to highways and transportation authority, rather bonds, we will appeal this ruling.
At least two members of the oversight board announced their immediate resignations eminent resignation and all members are subject to replacement Arena nomination.
Congressional leadership in the President Jews Board members more familiar with municipal government in fine.
Lastly supply chain management has become a significant issue on Capitol Hill, creating an opportunity for legislation that could allow the country would take full advantage of Puerto Rico's long history at a well established capability in the production of pharmaceuticals medical supplies the medical device.
This would help solve the current public health crisis, and approve the nation's security and preparedness for the future while at the same time revive it keep portion of the island's manufacturing base and provide that put us.
Students economic recovery.
Turning from the vintage guaranteed business to asset management.
Sure It investment management benefited from a strong rally in the credit markets during the second quarter and profitably monetize yellow debt charges was yellow issuance degree gaining steam.
All right, we acquired newly issued investment grades yellows and in June assured management investment management price its first yellow issuance since the market dislocation.
All the current market environment has delayed the realization of this business lines potential for the short term we remain confident is diversification strategy.
Yesterday, we announced an important change within the leadership of our asset management business, Andrew Feldstein, Chief investment Officer. It had about that management has decided to leave the company.
Debuts in Blue Mountain Deputy Chief Investment Officer will assume Andrews responsibility as CEO in CIO Blue Mountain and head of asset management of the CIO of sure guarantee Andrew will continue to serve on the boards the Blue mountain funds and to support a smooth transition you remain with the company as senior advisor to David through the end of October 22.
Morning.
I want to thank you for helping to establishing the radar shirt <unk> investment management platform since we acquired Blue Mountain last year.
We are confident in the long term prospects of our asset management business under the leadership, but they abusing and the talented senior management team.
I want to emphasize it does leadership transition reflects no change in assured guaranty strategy with respect to assured investment management, we continue to support the growth of the business and have allocated $1 billion of our investment portfolio two investments it managers with the goal generate even greater value for our investors are policyholders.
Look forward to seeing our asset management business, making a significant contribution to the value of assured guaranty and I am certain Dave is the right person to lead this effort.
It was lead executive in our acquisition of Blue Mountain and has been involved in every aspect of our asset management strategy and operations is a cosmic financial professional who has served and top executive roles that a number of financial companies as we worked with David for a long time has over 30 years of experience includes senior positions that Ace financial solutions, which required.
Capital Erie, when David wasn't CFO, and which is the company. We now know as a short guarantee Corp.
We're in the middle of a unique year, which had previously unknown disease has affected millions of people cause hundreds of thousands of das and disrupted economies worldwide.
Congress the administration and the fed up taking action to provide money the people in need inject monetary liquidity, a businesses survive and support capital market.
They local governments are tackling the challenges of providing essential services administering social programs and bidding financial obligations of mid sharp reductions in revenues. They deserve additional direct federal assistance to provide look to prevent large scale I also government employees.
And a potential cascade of economic hardships.
We've been impressed by the determination of our ensure issuers public officials to maintain essential services, while recognizing it prior to meet debt obligations to preserve their access to the capital markets.
As a company assured guaranty is better positioned than most to thrive in this environment.
Finishing our main product is designed to cover investors when the future is uncertain.
Credits conscious investors have driven increased demand for our yard to giving issue is a way to reduce the cost of financing when they most need to do so.
We have abundant capital liquidity supporting a 96% investment grade is your portfolio consisting of transactions carefully selected to perform better under economic stress than others in their respective sector.
Our ability as guarantor to work with issuers facing short term liquidity problems.
Well requesting reasonable amendments or waivers, we could help them a very serious financial trouble. We have now clearly demonstrated that we can be highly productive ballpark shot why prioritizing the safety of our employees like Clive.
I'll now turn the call ever to Rob.
Thank you Dominic and good morning to everyone on the call I'm very pleased with our results in progress on our strategic initiatives this quarter.
The continued market turmoil our business model.
We made significant progress all three areas of our strategic focus.
You know insurance segment, we had strong new business development, but just replenishing unearned premium reserve and offsetting scheduled amortization of the existing book of business.
Asset management segment, we launched a new liquid asset strategy and we started CLM issuance.
The end of the second quarter.
In terms of capital management. We are ahead of my plan relative to the number of cats, we purchase which helped us to propel our adjusted book value per share over $100 a record high.
Turning to second quarter 2020.
Adjusted operating income a strong coming in at $190 million $1.36 cents per share.
This can sit at the $154 million of income from our insurance segment and $9 million a lot from our asset management segment.
$26 million.
From a corporate division.
Which is where we reflect our holding company interest and other corporate expenses.
Starting with the insurance segment adjusted operating income was $154 million.
Compared to $161 million <unk> second quarter 2019.
[noise] premiums and credit derivative revenues in the second quarter 2020, $425 million compared with 11 $27 million in a second quarter 2019.
Structured finance at a premium outlets event revenues decreased the totaled $13 million.
Due to the decline in this portfolio.
The other in public finance their premium increase the second quarter 2020, compared to the second quarter 2019, teaching acceleration as well as a modest increase its schedule that are premiums, which is the result of increased premium writing the last few quarters.
In total acceleration <unk>, Jude refundings, and terminations were $32 million, the second quarter 2020, compared with $29 million in a second quarter 2019.
Also contributing to our increasing data on a premium opinions or is there what three assumption of a previously stated book of business from our larger screen sure.
This assumption resulted in a 30 million 38 million dollar commutation game.
Net investment income for the insurance segment was $18 million the second quarter 2020 <unk>.
Compared with $110 million, the second quarter 2019.
The decrease was primarily due to a large nonrecurring benefit in 2019 from the favorable settlement the troubled insurance transaction.
<unk> decreased decides that loss mitigation portfolio.
Proceeds from the settlement reinvested in lower yielding asset.
The average balance of the externally managed portfolio also decline in part because of the shift into alternative investments.
Putting short investment management fun, which recorded at fair value in a separate line item as opposed to net investment income.
Second quarter 2020 insurance segment. Adjusted operating income also include a $21 million aftertax Mark to market gain on our investment in a short investment management fun.
These investments I'm mark to market each reporting period could change the fair value recorded as a component of adjusted operating income in the line item equity in earnings of Investee.
The fair value gains on the investment in a short investment management funds in the second quarter 2020.
Driven by the overall market rebound.
As of June Thirtyth 2020.
The insurance company had authorization to invest up to $500 million in funds managed by insured investment management.
Which $354 million have been invested as of June Thirtyth 2020.
Going forward, we expect adjusted operating income will be subject to more volatility then the path as we shift investment from fixed income securities.
Our long term view of the enhance return from the assuring that the men fun remains positive.
Well its expense in insurance segment was $39 million in the second quarter 2020.
It's primarily related to economic loss development uncertain, Puerto Rico exposure.
In the second quarter 2019, we recorded a benefit that $50 million primarily related to higher projected recovery for previously charged off loans for second lien U.S. time yet.
An increase in excess spread improved performance.
And last mitigation efforts.
Not that part by economic loss development on certain Puerto Rico exposures.
The net economic development second quarter, 2020 was $34 million.
Which primarily consisted of loss development of $30 million in the U.S. public finance sector, primarily attributed to Puerto Rico suppose.
Dan economic loss development in U.S. aren't yet.
$1 million, mainly consisted of increasingly but is offset by higher projected excess spread across both hurt and second lien transact.
He asked the management segment.
Adjusted operating income was a loss of $9 million, we had previously announced our strategy to defend this in the investment focused and business model, a better short investment management platform.
Sort of course, bad, including an orderly wind down of certain hedge funds and legacy opportunity fund.
Prior to the current market disruption.
We had made good progress on the wind down of legacy fun.
Without below the $541 million in the second quarter.
We expect the restructuring.
Continued throughout 2020.
But depending on the duration in market impacted the pandemic the execution of our strategy may take longer than originally anticipated.
So at the end of the second quarter 2020.
We launched a new liquid assets Brad.
But then it's a fun focused on investment in municipal securities.
In addition.
In second quarter, 2020, ATM, HTC and Mac entered into investment management agreement, but it sure in investment management can management portfolio of their general account municipal obligation and feel that.
As of June 32020 insurance subsidiaries have together allocated.
$250 million to the municipal obligation strategies and $100 million yellow strategies.
With authorization to allocate additional 200 million to see a lot of strategies.
We believe the effective a pandemic American condition.
And increased volatility may present attractive opportunities. So the alternative asset management industry that is short investment, Matt maybe able to capitalize on.
And so our long term outlook for the at the Medicine platform remains positive.
You know corporate division.
Oh This company currently have cash and investment available for liquidity needs.
Capital management activity.
Approximately $70 million.
I would 80 million reside in age yeah.
Adjusted operating loss.
For the corporate Division was a loss of $26 million, both second quarter 2020 in second quarter 2019.
Mainly can sit.
<unk> expense on the U.S. holding companies public long term debt interest inter company debt to the insurance companies, which but primarily used to fund the Blue Mountain acquisition.
It also includes board of directors and other corporate expenses.
On a consolidated basis, the effective tax rate may fluctuate from period to period based on the proportion of income different tax jurisdiction.
The second quarter 2020, the effective tax rate was 14.2% compared with 21% <unk> second quarter 2019.
Turning to our capital management strategy.
The second quarter 2020, we repurchased 6 million shares for $164 million for an average price.
Up $27.49 per share 50 ended the quarter Weve parts that purchased an additional 800000 shares for $90 million.
No yesterday repurchases as of today to over 10 million share.
Since January 2013, how successful capital management program has returned 3.5 billion dollar to shareholders, resulting in 60% reduction total shares outstanding.
As always feature share repurchases.
Contingent on available free cash our capital position and market conditions.
The cumulative effect of these you purchase it was a benefit of approximately $23.56 per share and adjusted operating shareholders equity.
And approximately $42.76 in adjusted book papers here, which helped drive these important metric to new record highs of 70 $1.34 cents and adjusted.
Operating shareholders equity per share and what the import dollar 63 cents of adjusted book value per share, which both represent record high.
I'll now turn the call over to the our operator, you gave it instructions for the humanitarian thank you.
Well now begin the question answer session.
Good question when they pass it on them long I hope that's that's right.
[laughter] at any time. The question. His name is does it give a lot of addressing your question. Please press Star then.
[noise], it's just that's so it sounds Andrew Hot they would be Gee I T. <unk> go ahead.
Hi, Tim Thanks for the question that you mentioned in your prepared remarks that the company's taking some steps to.
Proactively address situations in which municipalities aren't good financial dress I can you give some color on some of the actions you've been taking there.
Okay generally it relates to us as we talked about we went to our most vulnerable credits reach out to be issuers and talking about the financial plans for the remainder of the year to ensure the Tommy debt service payments were going to be made if not what was going to be the issue until we help so typically the only real change. It has been made any deals just.
They thought of future debt service payments the might be restructured. So you know extend out the term reduce the card payment to backend some further payments something or there's neutralizes the typical but that's been very rare.
Thanks.
Next question operator.
The next question from China, China do with KBW. Please go ahead.
Hey, good morning, guys. Thanks for taking my question I wanted to ask about.
Andrew leaving the Matt do you think that had any impact on fund raising airplanes or just a broader carrying on your profitability in that segment.
I think the market has the more significant impact on fund raising and other market timing I think we're actually are entering into a new phase in Blue Mountains. So if you're thinking about it they had been winding down their legacy bonds.
There really hasn't been any fund raising other than its yellow issuance, which is a debt excellent execution. Some equity investing so as we look to the company now what are we looking to do we're looking to significantly increase our distribution capabilities specifically in that fund raising.
Area and to to focus on the core competencies between the two organizations, where we've got credit commonality as well as market commonality and there's a real you know opportunity for us and we still feel strongly about bad as a real growth for the company and as I said it kinda shifts the makeup of our female standing from less risk just some fee bearing and then.
The market opens up we think we're going to perfect position to capitalize on those opportunities.
Got it thanks.
Let's switch gear, you've done about $300 million and buybacks here today I'm, obviously, its 500, the kind of a target number on annual basis can you give an update on on whether you might you think you can get to the 500 this year and it's one of them off around what you have available at the whole filing in the all remaining operating dividend capacity or something that's it.
Yes.
Rob you want to Guy.
Well as we always said.
We can only get you about $250 million to $300 million.
Without special dividends or other sources of financing.
Yeah, Let me just say that you know given.
Given the activity that we have seen to date, we have already bought back.
More than we would have planned for this year as planned.
So we're up to over 10 million shares that we bought back settings, you folks on the percentage of shares that we actually bought back but your question without a special dividend or other sources of financing.
We could only buyback you know the limited about more shares over the next quarter.
You want anything anything any any sense of what I did want to make any sense and special thing anything or.
Yeah.
[music].
All right I couldn't hear the question.
Well, what they're saying if you did would you consider someone's other sources of financing or they're not something that you're not really didn't get me.
We're always evaluating our financing options. So yes, we could we will consider it and we will evaluate it into our current plan.
Okay. Thanks, and then just last one on it was the recent coordinate really not allowed.
You're getting towards so, let's see claims against the banks true and writing in Puerto Rico, and well get any impact on that in your and your report this quarter and just how should we think that potential recoveries from though.
We're not a part of the litigation obviously, we didn't have any impact on often interest payments for that judgment and obviously, we would expect there's going to go through an appeal process will continue to evaluate it was up and moves along the courts.
Okay. Thank you.
Your next question.
He is found Jeffrey Donnelly Dally. Please go ahead.
Thanks, Good morning.
Uh huh.
I'm not sure I'm completely following the commitment to the asset management business in terms of funds from insurance can can you review that again like you mentioned the 354 out of 500 and then the the 250 to 100 and traditional to Wonder offers they should can you split that out a little bit more often than what you're doing.
Yeah, I'll, let rob whoever the numbers, but.
The big take where you got to think about job.
As we look at our portfolios, we look at the changing capital charges to the portfolio from the unsecured revisions last year. Obviously, we wanted to start investing more up and down the spectrum of credit and probably wider in terms of asset class.
The same time, we said well we're going to do that we get obviously pay a third party, where we can do it internally if we do it internally when it'd be great that would also lead to us driving the opportunity to develop new business, a new revenue stream and lower the beta the risk in the overall organization by looking at the end.
So the two or Marty together, it's kind of a cohesive look at the opportunity that we seek to increase yields across our investment portfolio principally based on U.S.P. job jobs changes in the same time, I'm driving new business opportunity into enterprise within the organization, Rob can give you the numbers as Calvin <unk> billion dollar commitment breaks down.
I'm a second.
As you can imagine there's been power outages in New York and genetic it's kinda minutes piece meal. Some of the stuck together, we've got people with different people thousands et cetera people on phones as opposed to zero. So it's down a little different go putting stuff together and making sure. We can presenters earnings call kind of cohesively I think we're doing it in a job.
I was with Johnson Mr. bouncing to rebound nation, we have so I said, we funded $354 million from a gas.
We have.
Quadrant 50 million funded in the Muni time with yellow.
Seal up on to funded up 100 million get to get to about seven now for we've got authorized 500 million dollar it yet, but you didn't say investment subsidiaries.
And we've been off $250 million for the Muni fund as well that $300 million for additional CLL.
No activity in and I imagine, it's kinda give one 1 million once all the one thing well one thing tempting.
So we're going to jump the two components right. One is a 500 million documented day gas you dedicated and subsidiary owned by a German agency that then gets invested in does fund and new bonds that are being developed in authorize the Blue Mountain re 65, that's committed already so there's still some dry powder there.
The rest we're doing is on the balance sheets of age you see an age yeah in terms of I am a investment management agreements, where they're going up a municipal portfolio, let's see all IP portfolio and kind of the opportunities municipal portfolio. So that's kind of how it breaks down.
And then it feel okay.
Tend to feel out debt that I referenced in the I imagine its <unk> investment grade debt.
Okay. So.
354 funded up really what was the original 500 million commitment, but I think you got shared with us.
250 out of another 500.
Million authorized that's funded into Muni funds and 100 million funded in the yellow out about 300 authorization. Yeah, you mentioned that no one or two or out of the directly out of.
Yeah, I bought the rise so to 50 per Muni 300 for see allowed that and and what was that was authorized when we have funded to 50 per muni and 100 for investment grade seal huh.
Okay and the differences the 354, it's coming out of a gap and in 250 or the up to 50 authorize through how did authorize is coming directly from them.
Yeah subsidiary balance sheets, that's kinda Dallas separate I am I right.
Gotcha, Okay. Thank you.
Yes, [laughter] I've a question, yes, that's a then one.
[noise] [noise]. The next question, it's Tom Tom So much <unk> lung talk.
This means that huh.
Hey, guys. Thanks for taking my question.
Wisdom.
I've been a and investor.
And mr. since the financial crisis and [noise].
[laughter] seems that you.
Page one night flight after another.
And Ah I would just.
Appreciate it could frame.
Why in the market seems to believe.
But the existential threat upstate bankruptcies.
It's going to wipe out the value that is clearly here.
And it would make it otherwise the disconnects from.
Equity in.
[noise] adjusted book value don't make any sense is there a way you can frame why you're so confident.
That the.
State.
I guess stress.
There's not going to lead the that outcome.
Well I'll do my best thing I share. Your frustration is the largest individual shareholder myself in terms of the a current valuation of the stock, which I agree. It makes no sense. So if you think about it as our portfolio shrinks. It gets more granular exposure to the large states becomes smaller and smaller that's.
We talked about in new Jersey's case, there's substantial amortization over the next five years that'll significantly decrease the amount of money, we haven't really as new Jersey facilities are authorization.
So we think about it if there is anything there is no ability today for state bankruptcy. If you really tried to authorize the state bankruptcy you'd have to go against the U.S. Constitution, which means the constitutional amendment.
We can all talk about the political you know kind of up people know something like that but more importantly, it's the credibility and you know efficiency of the capital markets in the United States.
States have to borrow money all the time, you know their whole bunch of concept looks at potential future revenues against Karen.
Supported needs and therefore, the old concept of municipal borrowing that you'd be share rose special focus in terms of tax exemption et cetera. So we believe that there will never be the authorization of state plans as you go all said well they carved up with a really good but understand Puerto Rico's not done yet there's going to be a lot of constitutional just to that.
The U.S. constitution as well the Puerto Rico Constitution, there was a clause in the U.S. constitution hold the takings clause that says you basically can't take away legal right that was agreed and granted I mean, obviously have stayed bankruptcy retroactively would be taking away legal right. So we firmly believe in that it would destroy the financial markets a return everything upside down route.
The price that you would want to get some municipal bond and such bankruptcies were allowed to happen.
So the practicality of it is it's very impossible to get there, but as we shrink our overall exposures the various state it becomes less and less of an issue of shorts bid on a definite track to continue to lower limits for a bike credit we have a great credit.
Operation in the company, our credit Committee run by Steve done Roma looks it limits every two years and typically the Directionally then that the limits of keep coming down which has been a very effective way to us managing risk as I've always said the easiest way for the like the company's just lower your limits and yet as we see opportunities across a broader spectrum of issuers, we think there's great opportunity relative to the.
Growth in the business and at the same tower is managing we don't see the Armageddon scenario. We can all these create worst case scenarios it wouldn't having a major impact when you think about the overall effective the U.S. economy as well as a whole to be U.S. financial targets for the ability to the U.S. to raise money you offshore for overseas all those things would fall.
Apart so at the end today people can think you know that doesn't disrupt seem to scenario, but it really practically can't happen there will be tremendous challenges and as I said, we've got to conclude the U.S. constitution depend to protect us as well.
Let me also Matt you know muti credit spreads are very very tight so the market is perceiving much less rent, which would mean that age you haven't completely undervalued.
People are buying muni bonds.
With that historically tight credit spreads.
No and Oh listen I see the disconnect in the.
Then the inconsistency in the markets and obviously, the and and that's very helpful. Appreciate your drugs Smith.
Both of you, but because.
It makes no sense and obviously it goes back to be.
Comment around or the ability to repurchase shares here because it or is that the.
Assuming the Armageddon scenario it doesn't play out, which obviously is a very good but then the accretion is.
At least in that 10 years, but I've been invested has never been more compelling than it is today.
And so we are fortunate and recognize it in and you know the one thing you got to understand as [noise].
They rely on the markets to fund capital improvements to meet certain short term obligations. Our revenue claim on them as mostly perpetual so at the end today, we have a lean forever in a day relative to our recovery so without some constitutional amendment, which once again would be challenged in the courts, because there is backlog the constitution.
Thank you.
You just really can't get there and as I said, the destruction moves and if the markets would be overwhelming the United States like saying, but the U.S. default under one of the Treasury notes to see what happens to be what's your ability to borrow trillions of dollars. They just can't happen as Ralph points out of which is a very good play look where yields are in the municipal space look where spreads are if you ever.
He really everybody really felt there was such a credit concern, Illinois, just got off some additional debt not very high prices. So again today.
I was being applied them sure does he is asking about being applied to the overall market and with the dislocation between value in price you can't engineer a lost that large so we never really significantly impact that delta.
Thanks, I appreciate you addressed.
No problem.
This concludes kinda question and answer [laughter] I would like Kinda conference tobaccos academic takeaway for any closing remarks.
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 a call. Thank you very much.
The conference call. That's now concluded I guess I can be because it's just in case you may now disconnect.
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