AGO - Earnings call transcript Q3 2021

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Operator

Good morning, and welcome to the Assured Guaranty Limited Third Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Robert Tucker, Senior Managing Director, Investor Relations and Corporate Communications. Please go ahead.

Robert Tucker

Thank you, operator, and thank you all for joining Assured Guaranty for our third quarter 2021 financial results conference call. pursuant Litigation safe Reform made the provisions is Securities Private Act presentation to harbor the of Today's of XXXX. contain market financial may and that may results presentation forward-looking future our items about The results. our new or credit other outlooks, loss conditions, ratings, spreads, affect credit reserves, financial statements business to should revise to do reliance undue on except as we subject change information by are place to statements law. new or future not or undertake publicly any as required obligation not These them, due events, update therefore, you them

non-GAAP Information If financial you today a our for please replay filings of call to updated recent this presentations section GAAP note financial recent to equity website reading filings, the of most most references with which includes our risk We presentation, to presentation non-GAAP this Investor between call. have financial call, directly may and you're a financial the supplement SEC comparable current of our measures. are listening and this our the investor This are most along reconciliation the made to at GAAP or refer since presentation factors. the on referenced if in website statements for and measures and financial been measures assuredguaranty.com. that present measures non-GAAP our Please and also financial transcript the

today Frederico, we and and call President remarks, speakers Dominic your the Chief of are After presentation, our Bailenson, Rob Limited; to our Chief Assured open Officer Turning Guaranty to Financial the will questions. their Executive Officer.

will to Dominic. the for ask dial call over like to call you'd is now webcast As the not into enabled please turn the a question. I if Q&A,

Dominic Frederico

last of and structured In third with quarter At months. million, in everyone a This The last was Assured Thank which year's PVP. both third for the joining U.S. of infrastructure to million third quarter totaled is for well production business pace business today's markets welcome puts XXXX, our X-month distributed us you, global on generated second year-to-date our result $XXX a $XX finance PVP X Robert, highest international across outstanding successful mark, call. Guaranty's and new the quarter and our the production. decade. finance, public

loss shareholder million of September book XX, X first as XXXX, $XXX.XX, adjusted $XX.XX, the of same operating and as and basis, next Assured reduce expense per lower detail equity more of all accelerated adjusted a notes. value, of issuance debt debt shareholders' terms income, notwithstanding the year's $XX.XX operating by share $XXX In senior provide These million. voluntary service reached debt Guaranty of year's a This adjusted about Rob the of shareholders' after-tax highs record on on respectively. will recognition earned last and extinguishment. $X.X an coupon the issuance debt of redemption value million $XXX quarters, resulted later. has redemptions on from Year-to-date, in certain early equity, will

of the quarter, third part third quarter years. in a second $XXX was the volume highest issuance new billion with total During bond issue, dozen strong municipal

lead challenging, of the compressed was highest the insurance levels was bit low we and This issue X-month the at both X.X% any by bond a yields continues debt environment comparable XXXX, rate remained quarter part year. third in benchmark a $XXX Assured decade. period higher though municipal par period they of decade. than spreads the a in achieved approaching although the X we first than the credit had third historical In new share over market market pars XXXX months mark, sold XX% tightest quarters, during decade. remain par. of quarter, X highest the higher insured moved a primary months, a Guaranty and recent of sold standards in which reaching $XX.X we this X guaranteed in in X-month for interest even for environment, to market in billion continued first penetration billion market, first the For insured total trend, XX% upward Insurance the the quarter a exceeded its It record the primary of level this insured more pre-pandemic par guaranteed the first than the X quarter the the third a than insured billion transactions with At and XX% in a was $X.X months of most year. and The primary in our insured in was, as X months more XXXX. more year industry for fact, XXX insured X/X of the new for

on We to insurance have continued Guaranty's investors' larger Assured preference institutional for transactions. benefit from

diversified of either municipal The $X billion first this million insured business. of the U.S. at to the million our usually XX X deal uniquely and X all $XXX percentage last on deals add PVP quarter short producing rating During of year-to-date par value on transactions each our year. credits, But in category the [indiscernible] Moody's. a XXXX. more exception. ensuring September from par, XX new continued $XXX issues of or in PVP brings least AA or large insured insured just of year category with aggregated million have $XX which this than each transaction public quarter category that has we this we quarter, this more AA S&P $X third at third insured we number the third in in compared of approach to XX par Also in X quarter, in no insured to total in a XX, through we generates finance months billion with we the is

production years. Essex. was the accommodation issued million XXXX. University XXX every infrastructure been One reliable to significant third for than in in a of $XX GBP business has transaction international contributor our the quarter Our produced X million of PVP a quarter more by It of student

of and transaction the are transactions inquiries medium probability the year high for of next, the first and this pipeline we increasingly of substantial diverse. receiving a have rest We half are and

denominated longer U.K. PVP third been strong, has infrastructure alone, quarter. Finance, anticipating the GBP In a for be quarter bringing much $XX large private we and third over government us. public in put was billion the our will believe paper infrastructure years. guaranteed In million, insurance the to and XX closed Global Over accelerating. a EUR out very We the on Structured continue year-to-date the as activity a the as the spending XXX million. CLO securitization total significant term, in market $XX We to next of X CLOs has international quarter

investors, discurred capital requirements new CLOs. on be the by Our guarantees help otherwise might CLOs higher noninsured attract which

X XX on the exposure. of entities on agreed the Board insured seeing to our these debt passed We as existing portfolio was improve net restructuring exposures insight and that confirmation the portion as reduce Board's met part X% securities federal continued when been exchange there Commonwealth or par to the allocations. to coronavirus as both days Legislation new of could the AGM, infrastructure have further which are hearing, authorize with insured Overall, outlook, declined build to to exposures in help back pending has and our structured been adjustment positive $XXX center the [indiscernible] Puerto more falling from and with our rating And our relief finance investments. of AA federal a outstanding X, opportunities KBRA's XX% Rico call, at [indiscernible] complete efforts of plan restructuring [indiscernible] current investment-grade our Paris expected from Guaranty investors to by capital AA+ island half scheduled stable of subsidiaries. last Meanwhile, physical the better portfolio reconciliation benefit been Rico of new net to with our Negotiated below the in and based of the October of Assured start par On insurance have Commonwealth S&P's condition expectations November quality important our Guaranty and agreements forward consumed and affirmation the and by disaster grade U.K. below I of Commonwealth Assured has exceeded in to below issues bill. is recently our par exposure service October by remaining Oversight quarter a debt Puerto million balance more Mesa. from intended revised the applied of now. developments mentioned the are of rating issuance from Europe. and This side July bill in may affirmation broken billions have move received restructurings revenues in to relief payments. of investment followed

a AGC's noted process. stress stable to Title portfolio settlement credit July. certain of insured All movement derisking insurance Rico, analysis and the based KBRA's agreements AGC upgraded also in Puerto the outlooks. AGM By of capital resolution other of its modeling, to it Moody's Rico relative Importantly, Puerto to loss way, positive Puerto positive credit on position deemed and Rico's AGC's were the also about opinion the leverage, RBS by conservative KBRA published its have in along exposures. the with also separate strengthened ratings AGC's substantial AA+ decreased III

$X.X in the third management X. issued the CLO, very We business, of assets to X during brought to converting active asset the increase have in earning during funds new side which selling in during year months and CLOs been earnings market. launching CLOs participating resulted CLO $X.X new were the non-fee began. quarter the by the from increased we billion a of fee number Assured the fee primarily On for our These CLO earnings X equity of year. largely we assets increase first fee the billion earning remaining since of billion previously responsible held $X.X from CLO IM AUM The CLO

Assured and AUM the earning CLO is funds IM fee our CLO held virtually all equity shared have now. We by legacy XX% of of

are market this in in adding CLO the total that basis. were through refinanced strong After the a a third or in these the in year to of CLOs through United end, CLOs on X a We U.S. or October, new and closed Europe reset States CLOs CLO United to States. of refinanced Four the X transactions managed we expect third up the quarter. X the the in We reset quarter year-end. remain quarter, sub-advisory for

addition, in In Europe. the X CLO warehouses, U.S. have currently in and open we X X

short-item I year. of to CLOs funds ongoing finish successful planning Those additional open a CLO for in end are this to overall We performed U.S. Assured the Guaranty and look have X well. year. before forward the the warehouse

company will markets, continue for we to to as our of protect our success clients strength. and policyholders and shareholders. come our our be create years a source investors strongly value model, our proposition that investors value the of financial Our recognize Those track financial and for resilience is record great a understand severe our business built in disruption withstand results of our to and number appreciate recent that our the proves suggest

Now I'll turn the call Rob. over to

Rob Bailenson

you, and morning on Dominic, call. everyone good the to Thank

This proceeds U.S. After quarter, to proceeds progress X.XX% of Holdings rate the of report XX-year another at senior million obligations, of continue of had in X.X%. of AG great remaining million these notes X.X%, am strategies. XXXX. ranging of an we redeem approximately that and to XX-year I issuing $XXX make debt a used due $XXX redemptions in as with senior part May, including well debt million benefits debt attractive rate XX acquisition, pleased These of of to of AG issued $XXX notes The $XXX management our U.S. capital X% corporate and in long-dated on we as at were were company. Most refinancings senior August million of offerings designated to terms purposes, in remaining included coupons years, assumed of for the to the million debt notes share as several FSAH general from the XXXX $XXX repurchases. X.X%

X.XX% First, the in which redeemed the debt next result a coupon on $X.X annual we savings maturity reduced date. debt average will million from to X.XX% into

amount after will the savings the of the such and savings time. interest annual depend on decisions make environment continual expect we interest We though rate the at refinancing that,

FSA to adjustments flexibility an favorable to strategic million we or XXXX. the noncash the million loss continue was for operating accelerated of repurchases acquisition. notes. in proceeds income of It $XX for share Second, merely operating loss The priorities, since largest increase to years. on The consisting of acceleration the our to interest to these $XXX another million we're benefit were on that affecting extinguishment in of share. share. a after-tax a was first, exposures as of coverage Despite the These we and benefit provide in quarter senior this per significantly execute interest ratios. insurance $XXX need $X.XX charged-off had a related the interest million that basis, extinguishment amortization adjusted The debt which expense XXXX, our redemptions that $XXX components: a a purchase $XX $XX first refinancing debt of $X.XX resulted economic significantly $XXX leverage a on lien to third a adjustments the $XX of recoveries debt U.S. timing of component or loss And excess reduced pretax the was our was development, A from part million XXXX important X on due segment, deferred of income debt million. scheduled expense. principal redemptions XXXX the XX million lastly, slowly million, that borrowed primarily and quarter million million fair to to in third used up been for third is quarter expense. million holders higher $XX to of into other the redeemed higher adjusted redemption in from of balances. $XXX or million note was amortize this of from however, in those expense RMBS debt benefit The without the U.S. loans recorded XXXX loss mainly second, $XXX XXXX. reduced second debt into quarter amortizing debt of per is third $XXX including attributable of value AG copayment May charge, operating of In originally unamortized And benefit X% million at $XXX will adjusted lien income by XXXX, was

item portfolio mainly the quarter of XXXX. components support income an due Assured The $XX $XX investment across third changes economic rates due the increase IM XXXX. of transactions the third IM, quarter In short million, million XXXX. million, have to generated mechanics Assured the $XXX attributable including Since a to the of $XXX all transactions have of million discount asset Other that performance which addition, increase the an The subsidiaries was the not value The invested mainly million the generated $XX segment of Rico now of third net significant refinement day in establishment agreements. quarter was compared there Puerto on in of XXXX. of million was of quarter with finance inception $XXX produced portfolio, performed funds, investment in and third benefit terms of in also a of of insurance the a Insurance certain in public return alternative well $XX fund, million from the which XXXX in total development a to XX%. almost quarter collectively in third the

fixed on alternative portfolio, to maturity and investment earnings function the investments. other to IM a As investees movements the mark-to-market equity It reminder, fluctuate from the net period. more funds income period and than will vital a of is attributable of is Assured and

generating in XXXX. account third short-term compared largest quarter investment the portion for primarily fixed due lower The maturity net XXXX quarter investment was million portfolio, investment $XX mitigation of income loss third of to income in net the the average and decrease in $XX balances with Our portfolio. million in investments

investments, ship decline. into alternative from maturity fixed maturity fixed securities we may As net investment assets income

we XX%, alternative on targeting fixed returns which are term, the long However, the the projected portfolio maturity on of investment portfolio. over over enhanced the returns exceeds

Asset segment, premiums advancing accelerations $XX great XXXX. make in refundings XXXX. strategic terms net in were And Management compared $XX In continued million have the consistent In the XXXX due quarter third to our scheduled premiums, to and relative we quarter to progress third million were of in goals. of with earned third terminations quarter

quarter, earnings issuance This $XXX we of increased with million fee CLO in the AUM CLOs. new

in results established operating of expanded expertise, assets XXXX by date, liquidate have million recorded to $XX quarter now AUM those $X and third adjusted investment And $X Assured We the the adjusted of IM's using operating funds we the continue down Asset million billion in To loss In an fund management legacy loss the of we less segment, was third Assured have quarter on and in insurance to strong have in mark-to-month IM. segment. compared wind strategies the funds. investment than Management XXXX.

with asset However, XXXX in management CLO downgrade overcollateralization pandemic and the earning quarter increased compared COVID-XX quarter mainly the the and triggered XXXX. second provisions increase of revenues deferral markets third previously management XXXX the to in fee had fees third of resulting fees. CLO in deferred third XX% CLO in of due AUM and in The recovery loan quarters XXXX, CLOs in in

Fees However, none were were continued, the of from Assured XX, XXXX and CLOs increased of IM XXXX. company's September funds billion wind-down Assured $XXX XXXX. of and The also on XXXX, the $X.X provisions, over opportunity the operating AUM division as as of consists funds to up from funds collateralization with of and expenses. IM was from therefore, U.S. $X.X September of triggering CLO mainly XX, were fees expense debt Fees as September being interest XX, XX, as million as of of XXXX, $X to XX, AUM compared September distributions corporate of deferred. investors none the decreased wind-down as holding billion corporate as September typically million

proportion fluctuates a quarter third tax of of $XXX to rate This the The third low jurisdictions, the benefit the it quarter of adjusted quarter, third resulting effective rate was XXXX XXXX overall extinguishment from benefit on on debt The release with million. charge, of reduced loss debt income quarter a loss of positions. the U.S. in in the reserve XX% quarter, uncertain income XXXX, tax tax based includes corporate In for a quarter extinguishment XXXX. also effective jurisdictions. other the the which in for period of third while compared operating compared the a to to of benefited quarter XX%, results period net different brought third income in rate the tax on from in

repurchases companies which repurchase our of needs for approximately drive of equity initiatives the $XX operating over use in $XX the repurchased year-to-date than this shareholders' Turning book This strategies, we million benefit $XXX or an of these to $XX repurchase per value of to in capital. in success our back of price million Subsequent pursuit value to our share, under highs. repurchased XXXX, adjusted per investments to to for our share was drive to of our $X equity the million. ongoing helped in reduction a $XX management these record of $XX per share book are for XXXX. operating adjusted in strategic $XXX more we at to cumulative adjusted of adjusted billion standpoint, shares total effect million, in manage share. to per shares million liquidity average program $XXX available record of September and AGL. shareholders a to the highs million a XX, currently metrics The and funds value of quarter share X.X XXXX X.X expand beginning capital have as brings new liquidity Since we our quarter and close, million resulting share. continued XX% book January have cash in $XX.XX metrics helped or this holding additional From an shares per resides shares business which per of third program, These shareholders' The for in program repurchases $XXX outstanding. in returned in

I'll of authorization. turn operator the period. you Q&A have of our As now you. the we the for today, over million instructions to share Thank give call repurchase $XXX to remaining

Operator

first with & Geoffrey The Partners. Instructions] question Dunn [Operator comes Dowling from

Geoffrey Dunn

Let's see.

the there getting was maybe oversight burdens? agreeing that happened Puerto the factors First question, quarter or to board what bill to refinement? on of amended the to And end that prompted with timing, what the Rico passed the were quarter prompted the some favorable Is the respect the development, development? the and more largely clarity key your with more more it after being

Dominic Frederico

Yes, guess quarter the you're in reserve for the change talking I Rico? about Puerto

Geoffrey Dunn

Yes, finance. and for public

Dominic Frederico

Yes.

Geoff. end the finance public at was of day, the mechanical, So but the it Puerto of majority all in Rico,

how else. and for the more if and exact reserves think that's scenario set instance, wait, the we about GDBs mechanical that facts judge same the of structure now secured more probably So as about in there the became deal, anything changes were those you just subordinated of apparent the analysis the creditor. they the for of not calculation It like agreed was natures than

our have we our waiting. So still scenario we still probability modeling,

So change what the final PSA. think just going version mechanical a we reflect is is that to to potential be this of

Geoffrey Dunn

you're the support more what a well, of Okay. And year. needed getting for guess, I as -- subs to the on necessarily year out Puerto million clarity coming more Rico, your that for as Not exploring target? you're operating thoughts $XXX annual this special getting are dividend to but

Dominic Frederico

We've always of assuming where Obviously, you're seek new didn't get we'll with we as done January. said, we that get the think in then period. that Geoff, and when approval, we first bonds dividend correct think it's deal within Puerto we through settlement deal special Rico that funded the year-end the proper time we

in and dividends. able I very special to us go the think that states ask good shape for to to puts be

course our up these exposed are certain, of ago. long need conditions But think I if of think special I know. would to and make uncertainties the following them think obviously of we're it repurchase, want we're all that dividend, we strategy us that you as just and a clear what we So share opportunity pace we current -- you allows our as keep

So then our the done obligations general let's is, for let's the there. PSA and from thinking move forward get

RobBailenson

to that have benefit, in to ask will flexibility capacity a significant give we cash with year, In more our quarter, the us dividend. dividend provided the with need increase reorganization that so MAC will special of which which, for next addition our MAC unwind as addition, we the reducing stated well us last and available, of as Geoff, we and offerings, remember, flexibility increased the debt these

Geoffrey Dunn

about steady last the Puerto thoughts more we full are if to a $XXX and as then And what Rico resolution, than your one, get million when goal? annually targeting Okay.

Dominic Frederico

think capital. vision, strategic in our I to obviously, efficient managers be Geoff, of we want

extent use that to areas way most repurchase. to share So do than the put today to in opportunities we could transaction that don’t work we is the capital, obviously we see remains the can it other and accretive

share would When of continue we look to we buyback. objective, the and excess availability, at market repurchases a share accretiveness opportunities, at make strategic basically as So primary but decisions obviously, we look time. the the at ratings, those cash

Operator

next question The comes from Jordan Hymowitz of Financial. Philadelphia

Jordan Hymowitz

now growing, could marginal the a discuss they to the result? expand those profitability the up, profitable European. market a you now Question you're structure, a that of only as of your seems longer you is Puerto more melting gaining you but the a overall is no longer a no work that business, specifically you're cube not business ice is lot marginal Can share Rico And more like the as and and businesses? not company some it is blowing only growing of profitability

Dominic Frederico

I think you're right.

and return but our in the will that XX% I you're correct we the minimum targets and finance at the a said infrastructure structured business that making return you deal-by-deal although we're a across of finance, X stayed has that give all and end rates tell international the assumption lot your and exact higher the public are, guarantee, numbers, higher the As marketplace basis. make where financial fact than we look about right? a in in can't all U.S. them, return we of of aspects day, today's and And the calculate spreads international on for company you at finance and opportunities diversified business only capital public finance, the structured I U.S.

the to is excess continue challenge business to hit deal biggest Our We've premium think Plus, think also where international all growth of relative under got the still said, make religiously. to opportunities recognizing internationally. terms turning market product Continental now too production to of the and now, are on and it's terms really a well benefits U.K. investor and let’s we there's the of got of finally profitability of now reserve the the manage goals acceptance, that ground our and Europe their see rest the we're probably done really drag have the And with of se Right throughout we've the that generating own. here excess the worldwide. our value ROEs to starting and in And result business organization, hard in capital. in more now that creates of to getting on we work people Asia obviously, deals markets, have that, said is a We the to per to significantly expanding the as Far to and starts we're though got much be player I we've say, however, we And dominant of even bottom key of profitability, as as capital. East. certain curve acceptance track And true grow. I in the we're minimums, significant.

Jordan Hymowitz

profit targeting on margins equity, other double-digit repeat believe, is I that the business, you least return and higher just business your And core said a at of correct? XX%

Dominic Frederico

Correct.

Operator

next Tommy with from KBW. comes McJoynt question The

Tommy McJoynt

quick could math to capacity. on of of and thinking buybacks next back debt want the especially between taken of real just you've Just so to new takes the go bit the if the MAC, year, puts for on elaborate and the some you reorganization a dividend

now. out Just just that through could let without If of you dividend? where could you kind walk and a special shape buybacks

Dominic Frederico

Rob, take that? to do you want

RobBailenson

million. if we say another us $XXX always correctly, MAC -- generally about I $XXX to $XXX have The million dividend. give recall have is I we Tommy, we roughly million Well, -- about kind Yes. special that benefit without of a

even any -- if and be we'll transactions. that So we at dividend have special $XXX about cash-enhancing other on be don't without a depending would million depending

So for that's next where we're year. at

Tommy McJoynt

real switching that was just lower quick. over appreciation? RMBS price by driven That's The And quarter, home the in Okay. then helpful. benefit

Rob Bailenson

price Yes. The so if home. driven performance your charged loans, charged RMBS have by have previously loans that better in home you appreciation, -- yes, is previously equity transactions on your increasing, you so off it had off was home price and

our You're have the borrower we equity borrowers and with to have be have actually a out the them either surveillance when to realizes, generate borrowers or benefit remind and contract servicing that we sold is to the reach home special on that actively able telling these equity, still able I've with lean home a on group to got going our to this. in they and these we're

as they they people increase, start the we and home and this, they of sell, then benefit would also -- would as If they prepaying. charged-off so on And previously as those pay loans, prepaying loans. and their prices start get off

So primarily continued increase and continue benefits in home will yes, to price appreciation, see forward. going increased that's

Tommy McJoynt

You my when And question full part you well. profitability? year to operating segment lastly, do then the as report Management first expect of second answered Asset the its there of just

Dominic Frederico

And the we when as to be will rid those going said, finally administrative that how of Well, we the to funds I’m XXXX. legacy administer and be continue progress. this that, the make is end have funds, by we get end -- year expenses done to of we fee the substantial the and honestly, growth hope regarding turn of we sorry,

Operator

for to like our Robert to I concludes closing conference the session. would Tucker back This over turn question-and-answer remarks.

Robert Tucker

to everyone thank operator. us like call. Thank joining for today's on I'd you,

to have give you free Thank call. feel please additional much. very a If questions, us you

Operator

call. conference today's attending. all for concludes This Thank you

now lines. a You your disconnect great day. Have may

Assured Guaranty (AGO) 5 Nov 212021 Q3 Earnings call transcript