Good morning, and welcome to the Assured Guaranty Ltd. Second Quarter 2014 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. Now I would like to turn the conference over to Robert Tucker. Mr. Tucker, please go ahead.

Thank you, operator, and thank you, all, for joining Assured Guaranty for our second quarter 2014 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, future rep and warranty settlement agreements 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 the 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 recent presentations, SEC filings, most current financial filings and for the risk factors. And turning to the presentation, our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Ltd.; and Rob Bailenson, our Chief Financial Officer. After their remarks, we will open the call to your questions. [Operator Instructions] I will now turn the call over to Dominic.

Thank you, Robert, and welcome to everyone joining today's second quarter 2014 earnings call. Assured Guaranty produced solid results in the second quarter and first half of 2014. In addition to recording $233 million of operating income year-to-date, we generated $58 million of PV premiums, which is 71% ahead of where we were at this point last year. Additionally, we continue to successfully execute our capital management strategies. In particular, we took further steps towards optimizing our capital mix, which included a very successful $500 million debt offering and additional share repurchases. From January 1, 2013, through August 1 of this year, we repurchased over 26.6 million shares, which is equivalent to 14% of our January 1, 2013, share count. Rob will give you more detail about the debt issue and our current share buyback activity. Of course, as we think about buying back shares, it's important to remember that the maintenance of our strong financial strength ratings is critical. Right now, we have more available capital than we can put to work, given the low interest rate environment. And that excess capital keeps growing through the amortization of our existing portfolio. We can, therefore, continue to buy back shares while still maintaining a very high level of capital protection for our insured portfolio. In fact, in S&P's July 2 full annual report on Assured Guaranty, the rating agency showed our capital adequacy cushion to be $1.45 billion to $1.55 billion at year end 2013, up from $450 million to $500 million a year earlier. The capital adequacy cushion is the amount of capital we would have at the end of their simulated AAA Depression test. S&P repeated that the $1.45 billion to $1.55 billion range in its July 14 Frequently Asked Questions about bond insurers' exposure in Puerto Rico,…

Thank you, Dominic, and good morning to everyone on the call. As Dominic mentioned, we accessed the capital markets in the second quarter, and I am very pleased to report that we issued $500 million of 10-year senior notes with a 5% coupon. Market support for this transaction was excellent, with bids from over 130 individual investors generating a $2.4 billion book for the offering. Our initial target was an offering of $300 million over the book that was 8x oversubscribed. We decided to increase the issuance to $500 million. This offering will lead to a reduced overall cost of capital and is another step towards achieving an optimal capital mix for our company. We also continued to repurchase common shares throughout the second quarter and into July. We repurchased 7.1 million shares in the second quarter of 2014 and an additional 5.7 million shares since June 30. This brings our total repurchases since January 2013 to 26.6 million shares for a total of $609 million. The average cost per share was $22.91. This week, our board authorized an additional $400 million of share repurchases, which brings our total current authorization to $455 million. Stock buybacks are contingent on our available free cash flow, capital position, maintenance of our ratings and other factors. Turning to our operating results. We had $101 million of operating income in the second quarter of 2014 or $0.56 per share compared with $98 million or $0.52 per share in the second quarter of 2013. The increase in operating income per share was primarily attributable to share repurchases. Operating income was up slightly and included a few notable variances in premiums and losses. Premiums earned in credit derivative revenues included $25 million of accelerations in the second quarter of 2014 compared with $60 million in the…

[Operator Instructions] And the first question comes from Sean Dargan with Macquarie.

I have a question about some of the assumptions baked into your economic loss development. Yesterday, a competitor indicated that in their probability weighted analysis, the range they are looking at for PREPA losses -- for PREPA losses severity was between 10% and 35%. Directionally, is that kind of how you're thinking about PREPA?

I'll answer that. We don't really give out that kind of information in our reserve analysis as per the GAAP requirements. You do these scenario assessments. I will say, there is a range of potential outcomes that go from a fairly optimistic, realistic, and they go into the pessimistic. So you have a wide range and I don't feel comfortable in giving you our exact percentages.

Are you in the pessimistic range now?

Remember, each of them gets a probably weighting so it really depends on how much weight we give to each of those specific additions. I think our reserve, as we've said, we added to the reserve in the current quarter as we continue to monitor the activity there. And we think it's incredibly reasonable at this time relative to all the facts that we can ascertain for the continuing developments in Puerto Rico.

Okay. And one follow-up. In regards to how you're thinking about deploying capital in the near future. I think there is a block of FG business that may be on the market that has its own Puerto Rico liabilities. I'm just wondering your thoughts on adding portfolios and what kind of return hurdles you would need to do so.

Well, as you know, our goal is to, in effect, consolidate the industry once we determine that, a, the transaction makes sense from a return point of view, and two, we're comfortable with the existing portfolio of the specific company. If there are troubled credits, obviously, in any portfolio, we would analyze. We would either set aside or attempt to get paid or set up some other vehicle to handle those specific exposures, especially in light that we believe we've got enough exposure to a given name, that's just part of a troubled credit analysis. As we look at it though, and your point is which is the better transaction, I think, you're getting at a buyback or acquisition, we'd say you've got to be cognizant of both. Remember, buyback is always going to be limited to the amount of free cash and the amount of dividend capacity coming out of the operating entities. We still believe that will leave us with excess capital within the operating groups. And this does give us an opportunity to put that capital to work at very high returns and especially given the fact that, that capital for the current period of time is still going to be retained by that specific operating entity.

And the next question comes from Geoffrey Dunn with Dowling & Partners. Geoffrey M. Dunn - Dowling & Partners Securities, LLC: Rob, first, could you update us on holding company liquidity as well as the U.S. holdco liquidity, please.

Sure. As of June 30, Jeff, we had $585 million at the U.S. holding companies, and we have about $46 million at AGO. Also the unencumbered assets at AG Re is sitting at about $217 million. Geoffrey M. Dunn - Dowling & Partners Securities, LLC: Okay. And then Dominic, on the municipal business, you highlighted the PVP to par ratio was 65 bps. We saw that ratio fall to a similar number a year ago, and it's solidly below kind of that 100-plus threshold that we tend to look for. What is it about last year or this year -- I think last year the answer was credit spreads, but what is it about what's going on in the second quarter business profile that, that ratio fell off so much?

Well, Geoff, a, I don't think it fell off that much. I think I've looked at it for quarter-to-quarter, it was fairly flat. I'll have to go back and look at my notes for the prior year. There always is the issue of mix of business. And I'm trying to remember last year second quarter, I don't know whether the Jeff Co sewer bond rewrite enters into that, but there will be, on especially some of these workout [indiscernible], some aberrational kind of results that will blow up in number in any given quarter. I think as we look at the 66, we think it's more than reasonable relative to spreads and interest rates and still provides an adequate return on the capital. And remember, when we look at our capital allocation, we charge each deal with capital to legal term. And obviously, in most cases, you wind up having the capital refunded to you at the call, because of the bonds are called. So we typically understate our return. And as I said at the 66, I thought it was basis point average, we were quite pleased with the return scenario. Remember, we're writing typically Category 1, Category 2, the low cap, low charge S&P risk. So it's disproportionate to a certain extent relative to a more diversified book. As we said, we averaged in A rating this quarter across the entire portfolio of new business written. And so that mix also will contribute to it as well, Geoff. Geoffrey M. Dunn - Dowling & Partners Securities, LLC: So borrowing workouts and the material change in mix, you think this is a good proxy for current market conditions?

Yes, I think we maintained discipline. I would like it to be higher and I think interest rates would move higher with wide spreads, and therefore, provide us better opportunities. But I am not just pleased at the current level of activity in the quarter, and especially in light of facing rather steep pricing competition from the competitor in the market that was literally half our premium rate.

[Operator Instructions] And we have a question from Ted Wachtell from Millennium.

I wanted to ask you about your disclosure on the Puerto Rico exposure, could you show them net versus gross and net. MBIA shows them in a gross fashion. So, a, how come you don't give us gross exposures? And b, is there any additional exposure over the net to Puerto Rico via entities that you reinsured with, who could be less than quality counterparties that we should be aware of?

Okay. So first, we do show total gross par for our Puerto Rico. We don't show it by the entities, you're right. And obviously, we can easily add that to the disclosure. More importantly, to your real question, is as we look at our reinsurance, we are very, very comfortable with the strength of the reinsurance. And specifically, to your question, at approximately $1.2 billion of reinsurance, there's $20 million of reinsurance to a seating company that I would consider -- assuming company rather, that I would consider potentially an issue. And it's $20 million part of $1.2 billion, therefore, we don't consider it significant, that's why we look at it net. Because all the people in our reinsurance battles are all very well capable of fully paying their share of losses.

Okay. You just mentioned that you could easily break that out. I would love to see you break that out going forward, the way MBIA does.

Duly noted.

And the next question comes from Larry Vitale with Moore Capital.

So I just wanted to get confirmation that the unencumbrance of the contingency reserves at both AGC and AGM took place in July.

Larry we did have a bet on whether this question was going to be asked by you. Rob won.

I said it was going to be your first question. And it's a good one. We're actively discussing this with our regulators, and we're confident that it's going to be done very shortly.

Okay. And can you remind us of the amounts? It was $125 million at AGC and $133 million at AGM?

Yes, it's going to be roughly $244 million when we get the release.

Larry, just to give you further clarification, New York sent us an email yesterday approving it, we're still waiting for the letter. So -- and we would expect that Maryland follow it, because they seem to be all working together.

We really expect it to happen very shortly, Larry. [indiscernible].

All right, that's helpful. And then I just wanted to go through the various categories of cash burn going forward with the new debt. So holdco expenses are, what, $8 million a quarter or thereabouts?

Yes, roughly.

Okay. Because that's what you've guided us to in the past. And you're paying, what, about $19 million a quarter in dividends? And then the new run rate on interest expense is $26.25 million?

I think that I'd have to check those numbers, but I think those are fairly close.

And we have a job in our Treasury Department, if you want it.

But Rob, you said -- and Dominic, you may have mentioned this as well. You said the words optimal capital structure. What is your optimal capital structure, and that's my last question.

We knew that, that question was coming, too. So you've got to look at it from a who's giving us the requirements. So obviously, the one we've pay most attention to is our own and then secondarily, S&P. When you look at S&P, we think [indiscernible] of that capital. So we think the optimal mix is 70-30, 70 equity or stat and 30 of other items, including debt, reinsurance, soft capital facilities, et cetera.

And as there are no more questions at the present time, I would like to turn the call back to management for any closing comments.

Great. Thank you, operator. I'd like to thank everyone for joining us on today's call. If you have additional questions, please feel free to give us a call. Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Have a nice day.