Assured Guaranty Ltd.

Good morning, everyone, and welcome to the Assured Guaranteed Limited First Quarter 2023 Earnings Conference Call. My name is Bruno, and I'll be the operator of today. All participants will be in a listen-only mode. Should you need any assistance, please signal a conference specialist by pressing star followed by zero on your telephone keypad. After today's presentation, there'll be an opportunity to ask questions. To ask a question, you may press star followed by one on your telephone keypad. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference call over to your host, Robert Tucker, Senior Managing Director, Investor Relations and Corporate Communications. Please go ahead.

Thank you, Operator, and thank you all for joining Assured Guarantee for our first quarter 2023 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 our new business and 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 due to 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 the transcript of the call, please note that our statements made today may have been updated since this call. Please refer to the investor information section of our website for our most recent presentations and SEC filings, most current financial filings, and for the risk factors. The 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 are on our website at assuredguarantee.com. Turning to the presentation, our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guarantee Limited, and Rob Balanson, our Chief Financial Officer. After the remarks, we'll open the call to your questions. As the webcast is not enabled for Q&A, please dial into the call if you'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. Assured Guarantee's new business production was outstanding in the first quarter of 2023. In terms of PVP, it was our most successful first quarter in over a decade. We closed $112 million of PVP in the quarter, up 62% from first quarter of 2022, and doubled the first quarter average for the previous 10 years. We benefited from a strong start to the year for both global structure finance, which wrote its largest amount of first quarter PVP in over a decade, and international public finance, where first quarter PVP was the best in five years. Adjusted operating income per share came in at $1.12 for the first quarter. As of March 31st, our key non-GAAP valuation measures again reached record levels on a per share basis, with adjusted operating shareholders' equity at $94.58 and adjusted book value at $143.04. Shareholders' equity per share at quarter end was $88.07 compared to $85.80 for the previous quarter. Significantly, on April 5th, we announced that we reached an agreement with SoundPoint Capital Management, which, when implemented, will combine the asset management portfolios of Assured Investment Management and SoundPoint to create what we expect to be the CLO's market's fifth-largest asset manager by AUM. Our first quarter production results showed the strategic execution of our uniquely diversified, three-pronged business approach, which includes the U.S. public finance, international infrastructure, and global structure finance markets. In the first quarter, the largest contribution to PVP came from global structured finance, which contributed $60 million of PVP, primarily from an insurance securitization and an excess of loss guarantee of a minimum amount of billed rent and a diversified portfolio of real estate properties. We were also active in whole business securitization, which is a promising new market for us. In international public finance, we generated $30 million of PVP by guaranteeing several regulated utility transactions, as well as a long-term sale and lease-back financing for the Glasgow City Council. Our U.S. public finance business was adversely affected by comparatively low new issuance volume during the first quarter of 2023. Aggregate U.S. municipal market volume was 23% below that of first quarter of 2022. However, bond insurance market penetration of 7.7% of par issued remained close to the 8% total for all of 2022. and significantly higher than the 10-year annual average of 6.4%. We continue to lead the U.S. municipal bond insurance market with 60% of insured new issues par sold in the first quarter. We guaranteed 124 transactions with $3.4 billion of aggregate insured par. We also continue to benefit from institutional investor demand for insured guarantees insurance on larger transactions. In the first quarter, we insured eight transactions with insured par of $100 million or more which totaled approximately $1.6 billion. Among AA credits, defined as those credits S&P and or Moody's rate in the AA category on an uninsured basis, Assured Guarantee insured 15 primary market transactions for a total of almost $800 million of insured part during the quarter. We think the fact that investors are willing to accept a lower yield to gain the protection of our guarantee is a testament to the breadth of benefits in our value proposition beyond simply default protection. Related to asset management in our agreement with SoundPoint, we believe the transaction, with respect to closing the third quarter, will be immediately accreted to earnings per share, return on equity, and book value per share. The combination of a short IM with SoundPoint is subject to certain consents and regulatory approval, and will create an asset management firm that is expected to have approximately $47 billion in total assets under management, with a CLO portion that would rank fifth in AUM among global CLO managers, based on year-end numbers. Under the agreement, we will own 30% of the combined entity at closing. We will contribute to SoundPoint, our Assured Investment Management business, with certain exceptions, such as Assured Healthcare Partners. After closing, we will also engage SoundPoint as the sole Alternative Investment Manager for AGM and AGC, which are committed to invest over time a total of $1 billion to alternative investment strategies managed by SoundPoint. That total of $1 billion includes alternative investments and commitments currently being managed by Assured IM, that will be transferred to SoundPoint as part of the transaction. At year-end 2022, nearly $400 million of AGM and AGC alternative investments were managed by Assured IM. To give you a further idea of the scale of this new platform, using year-end 2022 amounts, Assured IM would add approximately $15.2 billion of AUM to SoundPoint's $32 billion for a total of $47.2 billion. The CLO component's are $14.5 billion from Assured IM and $21.4 billion from SoundPoint as of year end. This arrangement should further advance our strategic diversification into the asset management business. We have said that we're looking for alternative, accretive growth strategies to maximize the value to the shareholders of our asset management business and to generate a growing earnings stream independent of our insurance premiums. We believe our arrangement with SoundPoint will accelerate the growth in our earnings from advantages, including the large-scale essential for leadership in the asset management business, proven success in managing credit-focused alternative investment strategies, well-established distribution channels, and a stable source of capital for growth opportunities in the asset management business. Our desire to enter into this transaction with SoundPoint was based on our confidence in SoundPoint's proven ability to raise LP funds and to produce attractive and AGM and AGC's capital commitments. can further strengthen SoundPoint and enhance the combined entity's profitability, as well as its ability to increase the investment returns of our insurance subsidiaries. This would further support their capacity to upstream dividends to the holding company and ultimately to the shareholders.