Assured Guaranty Ltd. (AGO) Q2 2017 Earnings Report, Transcript and Summary

Good morning, and welcome to the Assured Guaranty Second Quarter 2017 Earnings Conference Call. All participants will in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. Please note that today's event is being recorded. I would now like to turn the conference over to Mr. Robert Tucker, Head of Investor Relations. Please go ahead.

Thank you, Operator, and thank you all for joining Assured Guaranty for our 2017 second quarter 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 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 Web site for our most recent presentations, 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, and our current financial supplement, and equity investor presentation, which are on our Web site at assuredguaranty.com. Turning to the presentation, our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty; and Rob Bailenson, our Chief Financial Officer. After their remarks, we'll 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 call. Assured Guaranty's second quarter of 2017 was another highly successful quarter. Non-GAAP operating shareholders equity per share and non-GAAP adjusted book value per share attained record levels once again. Operating income reached $141 million, and the present value of new business production or PVP totaled $70 million in the second quarter. Year-to-date, through June 30, our new business written as measured by PVP is 114% greater than through the first half of last year. In the primary U.S. municipal bond market, par volume sold was 16% below that of the second quarter of 2016 due to lower refunding volume. However, insured volume was only down 7%. Monolines insured 7% of total part issuance including more than 27% of new issue par and 58% of the transactions sold by single A issuers. Assured guarantee widen its lead by being selected to insure 62% of the insurer pars sold up from 57% in the first quarter of 2017 and 53% versus the second quarter of 2016. We insured over a billion dollars more par than we did in the first quarter for a 38% increase despite average 30 year AAA municipal interest rates that were lower in the second quarter than in the first and credit spreads than narrowed to the tightest levels since last July. Through the month of June we ensured 80% of the new issue insured part due partly to S&P placing our competitors on negative credit watch during that month, more on that in a moment. Our second quarter par volume also reflected increased demand for insurance from institutional investors in large scale transactions. We insured more than $100 million dollars in each of seven primary market transactions. These include a one of the largest insurer airport revenue transaction in years in which we insured $256 million dollars of par for the St Louis Lambert Airport. For the first half we insured a total of 12, $100 million plus transactions, the most for a first half since 2011. We supplemented our primary market performance with another strong quarter in the secondary market. In total for the first half we ensured more than $1.2 billion of secondary market par issuing 241 policies that represent a 62% sixty growth in secondary market par insured versus the first half of last year. The number of our secondary market policies written increased by only 3% which means our secondary market transactions are increasing in average size. In terms of secondary market PVP. This is the second consecutive year in which our first air production more than doubled that of the prior year first half in this important market. Our international infrastructure business continues to perform well on the heels of an outstanding first quarter, in the second quarter we completed another U.K. university accommodation transaction and as part of the European Euro Tunnel debt refinancing we demonstrate that our guarantee can be used on the international transactions to assure liquidity for debts or missed payments that may be due long into the future. This application of a financial guarantee policy for debt service liquidity purposes has been used rarely if ever in the European market and we believe that will provide a beneficial, it would be beneficial for raw idea of potential future transactions. In addition we took an important step towards consolidating our European operations in June. Assured guarantee Europe PLC or AGE. The AGM subsidiary that raises our new business in Europe acquired our other three European subsidiaries from AGC. These include AGCs long time U.K. subsidiary and the European subsidiaries we acquired from CIFG and MBIA. We put in the merge these three companies into AGE subject to regulatory a judicial approval upon the merger obligations and bonds insured by those three companies will become short obligations of AGE. And therefore receive AGE's financial translating. This will be particularly significant for holders of bonds guaranteed by the former MBIA U.K. which we renamed Assured Guarantee London because those bonds would be upgraded. Overall we believe this combination of companies would give us a simplified, more easily understandable profile in the international market while also reducing the operational costs associated with maintaining multiple companies. Additionally the both the combined companies increased economic size and investor reach one handed visibility in the market. Running out the second quarter production our structure finance team executed six aircraft residual value transactions and we see additional transaction flow in that space. We're also looking at opportunities in consumer not alone securitizations, whole business securitizations, insurance company reserve financings and other capital management solutions for financial institutions. Coming back to the rating agency activity, since our last call in June, S&P Publicly acknowledged Assured Guarantees competitive superiority by placing our two active competitors on negative credit watch. Saying that their competitive positions may be sufficiently weaker than ours to make greater ratings differentiation appropriate, S&P also observed that Assured Guarantee was the only the Monoline participating in multiple financial guarantee markets a source of the diversification that S&P now properly deems a strategic advantage. Somewhat surprisingly in late June S&P positively resolved the negative credit watch a one of those competitors by affirming its AA rating. There by a signing that grantor the same rating as assured guarantee. Despite having previously recognized our greater share of par of premiums written, better pricing power and operational results and a more diversified products strategy, however, at the same time S&P did downgrade the other competitor single A which prompted that company to seize running new the business for the time being. This means we are the only active guarantor with stable double AA category ratings from two different rating agencies with a diversified business model, superior claims paying ability and operating results as well as having access to the capital markets. As of the also affirmed this AA financial strength rating with stable outlook on all these Assured Guarantees principal subsidiaries. S&P followed up in July with its full annual review in which it cited our very strong capital adequacy, market leadership in terms of par insured premiums written, well diversified underwriting strategy, proven track record of credit discipline and strong operating performance. The S&P affirmation followed call bond rating agencies affirmation of AGM AA plus stable rating last December and last month Croll affirmed its AA plus stable rating on Mac. As per Moody's they published their semiannual update on April 28 with no change in our ratings or Outlooks. They have also notified us that they will not withdrawal the AGC rating as we requested. Moody's continues to impose an unfair and uninformed at the rating on AGC. That is based primarily on subjective, qualitative factors that have little or no reflection on a guarantor's financial strength or ability to pay claims. The rating also fails to reflect AGC substantial leverage improvement since Moody's first applied its current rating in January of 2013. Parks closure has declined 51% including a 42% decline in below the great exposure while claims paying resources were reasonably constant going from $3.8 billion to $3.6 billion and AGC has seen strong financial results since then with operating earnings of $1.3 billion so, with exposures have the low investment grade declining by similar amount and generating an income of $1.3 billion how can Moody's not see a reason for changing the rating for AGC and it becomes rather obvious why we requested them to drop the rating. Regarding better agency behavior all three rating agencies have previously said that our exposure to Puerto Rico credits is unlikely to result in the change in our ratings. Even under severe loss assumptions as I previously noted we estimate our year end 2016 excess capital under the S&P capital adequacy model to be $2.8 billion. And our current investment portfolio annually generates income approximately equal to the average annual debt service due on all of our Puerto Rico credits over the next ten years. In its recent annual review S&P wrote that Assured Guarantees current capital position could observe losses of roughly $2.3 billion on our exposure to Puerto Rico issuers and without accounting for any other factors there would mean though change in our capital adequacy or financial risk profile which implies that there should be no change in our rating. We were consciously over the last three years to help Puerto Rico right itself while two administrations have repeatedly ignore the law and play short term political considerations ahead of long term economic health of the Commonwealth and its citizens. Now we are forced to take the necessary legal actions to restore all of our rights under the U.S. and Puerto Rico constitutions and laws including PROMESA. Puerto Rico's Financial Management and Oversight Board has compounded the Commonwealth disregard for the rule of law by asserting its certification of a fiscal plan that fail to comply with PROMESA and by forcing most Puerto Rico debt in the bankruptcy like proceedings that Congress intended only as a last resort after every effort to reach negotiated settlements had been made. Senators Cotton of Arkansas and Tillis of North Carolina wrote to Oversight Board Chairman Carrion on April 7 about numerous non-compliance concerns including the fiscal plans failure to comply with lawful priorities and liens established by the Puerto Rico's constitution, its failure to differentiate between non-essential, essential spending, its elevation of all non-debt spending above that service and its unexplained economic assumptions as well as complaint to the Commonwealth and oversight board had not responded to creditors attempts to initiate credit negotiations. Unsatisfied with the Board's Response, Senator Cotton followed up again that the fiscal planes failure to respect relative lawful leads and priorities create a dangerous precedent that could barely destabilize the municipal bond market. As you know we've been making a similar point for a long time, Senator Cotton also noted that according to a Wall Street Journal, mutual fund investors nationwide stand to lose $5.4 billion as a result of what he calls the Board bizarre interpretation of PROMESA. He is right in that characterization under this fiscal plan, the government intends to make payment 100% of government employment or bonuses yet not pay secured creditors contradicting the governor's claim that he will reduce the size of the Island's government. Approximately 25% of the non-farm workforce in Puerto Rico are government employees compared with 50% for the United States, clearly an unsustainable total and a huge economic burden for the Puerto Rico economy. In this fiscal plan, every expense is deemed essential except paying debt service, yet as part of PROMESA, the government must be able to demonstrate the ability to access the capital markets and who would lend to it, whether to exhibit this level of disregard for the law and creditor rights. As I said in our last call or our last call, we filed an advisory complaint challenging the legality of the fiscal plan because it violates various sections of PROMESA and the contracts taking an due process clauses of the U.S. Constitution and therefore should not be the basis for any point of adjustment under the bankruptcy like provisions of PROMESA's Title 3. Other members of Congress are equally astonished by the oversight board's defines of the very law that created it, Congressman Bishop Chairman to House of Natural Resources Committee questioned the oversight board for failing to approve the previously negotiated PREPA Restructuring Support Agreement even before the board outright rejected at the end of June. As you have observed the June 15th letter to the Oversight Board chairman, the board will be defying the intent of Congress if it did not certified the PREPA RSA under Title 6 of PROMESA which was intended to encourage conceptual agreement on debt restructuring. Congressman Bishop wrote that the decision to implement the RSA had already been made by Congress with the passage of PROMESA and that the oversight board's dilatory tactics run countered to plain language of PROMESA. He wrote that subjecting the RSA to the fiscal plan was outside the scope of the board's powers and a violation of PROMESA that could result in severe adverse effects for the Island. This is from the chair of the House committee responsible for PROMESA but the oversight board ignored his admonishment and continued to act legally in violation of Puerto Rican and U.S. laws including PROMESA. The RSA has been arduously negotiated among numerous parties beginning more than three years ago, during that period Assured Guarantee and other creditors provided forbearance and hundreds of millions of dollars of liquidity to stay well by the Electric Utility. We know other creditors are willing to forego our rights to place PREPA in the receivership in the interest of finding the solution that best serve the needs of PREPA, Puerto Rico residents, the Commonwealth and the creditors, the success of that conceptual resolution would have provided a roadmap that other Puerto Rican issuers could follow to avoid expensive and time consuming litigation and help Puerto Rico regain access to the capital markets but now by rejecting the RSA and forcing PREPA in the Title 3, the oversight board has recklessly squandered approximately $18 billion spent by the Commonwealth and million more spent by the creditors to successfully negotiate the RSA. Given this outcome, Puerto Rico and its citizens would have been better off if PREPA had been placed in receivership years ago which would have removed the political interference and allow us to focus on making the operational changes it so urgently needs, for example by adjusting rise the levels over now PREPA to cover its debt and other expenses and modernize and right size its operations. These are rate increases that PREPA is legally obligated to charge and collect and that rate payers can afford because the rates have declined significantly over the last few years. From an average rate of approximately $0.26 per kilowatt hour in 2014 with a high of $0.29 in February of that year the electricity rates charged by PREPA gone to an average of approximately $0.18 per kilowatt hour in 2016 with a low of $0.17 in March of 2016. This occurred because savings from lower fuel costs were passed directly through the consumers in the form of lower electricity rates with no attempt to apply any portion of the savings to pay debt service, improve liquidity or invest in the modernization of power generation and distribution. Additionally, beginning in 2015, a portion of the rate decline was attributable to re-landing arrangements agreed to by Assured Guarantee another forbearing PREPA creditors, which enable PREPA to defer bond payments and thereby effectively further subsidizing electricity rates where there have been assertions that Puerto Rico has had high electricity rates, PREPA's rates were 25% below electricity rates charged by various utilities another U.S. and Caribbean Islands from 2008 to 2014. We previously saw the judgment compelling the oversight board to certify the PREPA RSA for implementation under Title 6 as PROMESA required it to do so. The board has given us no choice, but to also seek relief from the automatic stay to permit appointment of a receiver to insure the lien provided to creditors as part of the collateral package produces net revenue sufficient to pay debt service. Additionally, PREPA is violating the special revenue protections of the bankruptcy code by failing to remit special revenue bond collateral for the timely payment of debt service. There is a similar situation at the highways and transportation authority, we therefore saw the judgment that would halt and reverse the diversion of special revenues pledges collateral for the HTA bonds to other Commonwealth expenses. Under the HCA bond resolution, HCA pledged its special revenues as the security for the payment of the HCA bonds subject only to a valid claim of claw back under Puerto Rico law, a valid claim of claw back is triggered only if there has been first of application of all available resources to pay the GEO bond debt service and there is still a shortfall to GEO bond payments, to-date the Commonwealth has not satisfied the preconditions to a valid claw back in addition even assuming the preconditions for a valid claw back have been met making the constitutionally protected GEO payments is the only legal use of claw back bonds, they cannot be used to pay any other expenses. For Puerto Rico, it's illegal behavior has caused many other creditors to press their cases in court elected and appointed Puerto Rican officials abetted by the oversight board continue to disregard the laws and constitutions of Puerto Rico in the United States and in ventured pledges, further the Governor's oath of office included his pledge to quote preserve and defend the Constitution of the United States and the Constitution and laws of the Commonwealth of Puerto Rico why should we conclude at this point about his integrity and honesty related to his oath of office in light of his behavior, behavior that will subject Puerto Rico to a multitude of judicial proceedings that will further waste precious time and resources and distract the island from developing plans and strategies to right size the government and grow the economy. With every new violation of the law the commonwealth and the oversized board further destroyed their credibility making the possibility of future access to the capital markets let alone statehood increasingly remote. With our 30 years of reliable strength and performance we are the premier financial guarantor. Today we remain the insurer of choice in US public finance our international business has solid traction and we have a broad range of opportunities in structured finance. We have more than enough capital to support these financial guarantee and businesses and plan to deploy a portion of the excess capital in an alternative investment that benefit from our core competencies and credit expertise and have the risk profiles in line with ours. And we will continue returning our excess capital to shareholders through dividends and share repurchases. As we pursue these strategies our foremost priority will be as it always has been to protect our policyholders with uncompromised financial strength and reward our shareholders. I will now turn the call over to Rob.

Thank you, Dominic, and good morning to everyone on the call. Our key financial matrix continue to demonstrate the success of our key strategic initiatives over the past several years through acquisitions re-assumptions of previous receded business lost mitigation efforts and common share repurchases we have built up our future stream of premium earnings reduced losses and increased per share results. In the second quarter of 2017, the operating income increased to a $141 million from a $136 million reported for the second quarter of 2016. As I've stated in previous quarters, we revised our calculation of non-GAAP metrics in the fourth quarter of 2016 and therefore these amounts now reflect the inclusion of gains some losses related to the effective consolidating FG VIE. However, for our internal core matrics that we use to assess financial performance we continue to remove these gains and losses. Economic loss development during the second quarter of 2017 was a loss of $47 million which was primarily due to an increase in reserves for certain Puerto Rico exposures partially offset by a benefit in US RMBS due to lower re-default assumptions and modified loans. Economic loss development for the quarter includes a $23 million loss attributable to the decrease in risk free rates. On a quarter-over-quarter comparison, loss to expense declined 30% to $64 million. This was mainly due because we had a large reserve additional on Puerto Rico credits in the second quarter of 2016 compared with second quarter 2017. This quarter, one of the main drivers of the increase in operating income was a $37 million tax benefit related to the release of reserves for uncertain tax positions following the close of IRS audit. This along with higher income in non-tax full jurisdictions reduces the effective tax rate on operating income for the second quarter of 2017 to a negative 7%. That compares with a 27% effective tax rate in the second quarter of 2016. Net premium earnings and credit-derivate revenues declined compared with the second quarter of 2016. This was due to lower refundings and terminations which were $60 million in the second quarter of 2017 compared with a $136 million in the second quarter of 2016. Scheduled premiums were consistent with second quarter 2016 as recent acquisitions and commutations of previously ceded business offset declines to the amortization of the existing portfolio. In terms of our holding companies liquidity and capital management activities we have $27 million in cash and investments at the Bermuda holding company and a $150 million at the U.S. holding companies as of July 31, 2017. In the second quarter of 2017 we repurchased 3.5 million shares for a $135 million at an average price of $39.05 per share. As of August 2, 2017 cumulative share repurchases since January 2013 represent a 40% reduction in the shares outstanding that we have and we have a $168 million of authorization remaining. These repurchases have contributed approximately $10.79 per share to operating shareholders equity and $18.23 to adjusted book value per share. I'll now turn the call over to the operator to give you the instructions for the Q&A period. Thank you.

We will now begin the question-and- answer session. [Operator Instructions] And our first question comes from Brian Meredith of UBS. Please go ahead.

Yes, thanks. Dominic, I was hoping you could talk a little bit more about the market environment, post the downgrades. Are you seeing the same type of market share that you were getting -- I assume [indiscernible] getting a little bit more. And then also what are customers saying about the fact that now there's just going to be two bond insurers going forward?

Okay. Well, first downgrades, remember, we went one for two. So [indiscernible] 500 and get something into the hall of fame on that batting average, but obviously leaves the competitor in the market place. As you realized, Brian, the amount of business that was written by the former company national onto the MBIA platform didn't have a significant impact on the marketplace relative to the amount at par or number of transactions. So their downgrade, albeit taking competitor out, not a significant competitor relative to the overall market position. The reinstatement of advance rating obviously then puts them back in the market as an active writer, and principally the market has been serviced by two active writers. I don't expect any change in that environment. And if you really looked at the MBIA business, as we've said in the past, in some cases those credits would be underwriting standard, therefore, that would not present an opportunity for Assured or is well below our pricing criteria, in either case then it does represent a significant upside to our business written or market opportunities. However, having said that, you can see based on a number of factors the penetration, the single A issuer, the amount of a $100 million plus deals that we were able to execute today, our demand continues to increase irrespective of the competitive environment. And as we continue to position Assured has obviously strong and stable huge critical mass, great market reach, and service mentality, we believe that and that alone will still dictate Assured as the premier guarantor in the industry and look for a great continued positive development of business opportunity. And as you all know if we can get any help whatsoever from interest rate rise that stays permanent and is sustainable, that would even further our opportunities in the U.S. public finance market. And remember in our other two competitive marketplaces, we have no competition. We've had a great year in the international market place. We have a nice pipeline of further opportunities. We're clearly demonstrating our competitiveness in the marketplace. And people now recognize the size and strength and service mentality of our organization. And in the same token, our structured finance people continue to look for new ways to provide our underwriting discipline and risk profile to other asset classes that have created opportunity for them. So when one market we see competition, we still think we are the preferred insurer or insuring them marketplace, and the other two markets we have no competition and see further increase in opportunity, and they're having a very strong calendar year in terms of production.

Great. And then, Dominic, I'm curious, so there's still a couple of large runoff blocks out there, just kind of -- in general terms, can you say what are the kind of constraints right now preventing from those transactions happening? Is it the owners of that business? Is it talks about value business? Is it regulatory constraints? Regulators just not letting blocks go, what are the kind of biggest constraints those deals happening right now?

I started rating -- I ranked them from the top. So first and foremost is complexity of their capital structure. So if they have unpaid claim obligations, if they have surplus notes, if they have preferred stock, you know, we had a single equity holder makes it easier to negotiate a transaction obviously. So, number one is structure. Number two is the portfolio. Are we comfortable with the credits? Do the credits meet our risk profile? And is there enough money left relative to this kind of purchase price to win and in fact provide what we think is an adequate risk premium relative to those exposures? So typically, you know, credit quality becomes an issue; 38%, but some of these guys do like to survive, and therefore, there's little reluctance in an acquisition because obviously with the Assured size, financial stress and spread of services, we typical will not have incremental large expenses from many acquisitions. Therefore, it is kind of threatening to selling organization as to what happens to their employees. So, I think those three factors tend to indicate, but I would say it's the first two that probably created the greatest hurdle to transactions. That doesn't mean however Brian as you will know we are fairly aggressive in our desire to consolidate the industry, because I think we think it's a positive, right, we get to update those bond holders to the Assured Guaranty rating which is a huge benefit, it establishes that sustainability, creditability, consistent financial strength application to those holders, and therefore we think it furthers the business valuation proposition and attractiveness to other buyers of an assured product. So, we like to get that going. Of course we do make some money when we do those transactions.

Yes.

But as I said, it got to be equity structure, it's got to be the risk profile, and then we work away around the rest of the issues that we face.

Got you. Thank you.

You are welcome.

Our next question comes from Geoffrey Dunn of Dowling & Partners. Please go ahead.

Thanks. Good morning guys.

Hi, Jeff.

Rob, can you talk a little bit about two expenses, you know, obviously bouncing around a little bit here. How should we think about the back half of the year in '18?

Well, I mean there was a drop in expenses quarter-over-quarter from last year to this quarter -- this quarter mainly due to a reduction in rent expense. This quarter we moved offices, so we had two rents we are paying as well as we had to accelerate lease improvements. That was primarily the drop from second quarter last year to second quarter of this year. I would tell you that the run rate I would look at is the somewhere in the mid $50 million range. So, I would say that's quite…

Per quarter?

Per quarter?

All right. And then, also can you disclose the actual secondary par on PVP in the second quarter?

Hang on a second. I think it was in my speech, right, so…

Yes, I think you gave in the first half?

Yes, first half we do 1.2 billion, 241 policies of 50%. They are looking for us.

Yes, secondary?

Yes, secondary market.

So, the secondary market was par was $512 million, almost $513 million of par and premium, you know, that's it. PVP -- did you say PVP?

Yes.

PVP is about 13.4 million.

All right. And then, Dominic, can you talk a little bit more about what's going on with the U.K., obviously you are seeing a lot of attraction, its looks like every month we are getting announcement about the some other deal. What is generating the attraction kind of all of the sudden over the last year and probably more importantly what's the potential pent-up demand for, you know, the similar transactions or off-shoots of those types of deals. Within a reasonable timeframe I called it a year or two, you know, how quickly that market truly developing right now?

Well, you know, we have a discussion on international quite frequently I should really left Mr. Bailenson answer the question; he has been the largest loudest proponent of our international company and personnel here. International is a funny business, right, these are long generating or gestating transactions, very lumpy deal flows. It's not a flow business, but remember, I am going to caution this, if you go back pre-2005, international represented about 25% to 40% of the $5 billion premium marketplace. It was huge significant, but in those days principally by very large deals like whole business securitization et cetera. As we said in the past, because of the great recession, because of the impact of our some of our other competitors, you know, there was a real lack of confidence and what a financial guarantee policy really meant in the international marketplace, and specifically U.K. We spent years rebuilding the credibility of our marketplace and our products here, and especially going around and soliciting and generating investor support. We now believe we have that the recent activity shows that we can place large deals in the market and get institutional investors to buy that paper, that has their most critical part of how this has to work for us to continue to maintain, you know, kind of an active presence here in the international markets and generate deal flow. We are now competitive relative to what is the overall total pricing on these infrastructure products with banks and other insurance companies. I have got people scribbling really fast, okay. Number two, there is a decent pipeline or refinancing opportunities, so in addition to new projects which you can imagine based on all the noised over here for Brexit et cetera are getting a little slower in the approval process there is tremendous opportunity in the refinancing markets. So, A, we have rebuilt credibility. B, we now have a mechanism that is competitive in the financial, mortgage the finance these type of projects, three we have always felt we had the most elegant solution we can match term against term. So, with the assets like whether you want debt like to be very different then the financial institutional or a bank as I said our pricing is now pretty much on par with the market and last but not least as regulations effect both insurance companies and banks and holding these types of assets we are now more elegant because we broadly distribute that exposure into the marketplace to the securities. So, we really look at it that, our time has come, we built the marketplace back consolidating our companies here actually produces a very large financially recognizable not only credible company here, which will be here a big company in the UK. All these things really matter. However, it doesn't mean we can declare victory that quickly, this is still a lumpy market. We have actually had a long talk with our operations here and we had our board meeting as, you know, this week and we really we need to look at the international specifically the U.K. operation on kind of a three year rolling average budget that kind of take out, because I will that some of the deals we close this year that looks great in terms of recorded PVP are really are really deals that we closed last year. And there are some deal that are popping upon the count that we typically take 12 to 18 months that might close in six based on the demand of the specific investor or in this case the issue are. So, the timing is the toughest par here. We think it's a good market, we think it's an active market, we think we have got tremendous opportunity we think we are competitive that necessarily does mean this become flow, but we think it will be a significant generator. So, overall production results for the company and as I said, it does differentiate us from everybody else in our marketplace.

Okay. Thank you.

You are welcome.

[Operator Instructions] Our next question comes from Kevin Mead of Reorg Research. Please go ahead.

Hi, thanks for taking my call. Yesterday's 8-K filing includes the footnote indicating that assured a fake claims on Federico's COFINA bonds, can you maybe discuss when and why those claims payments were made?

Why those claims were made because they didn't make the necessary debt service requirement and our, you know guarantees is unconditional. So, if the government doesn't pay, we pay it as, you know, we do disclose our disclosure each Federico entity, the COFINA for us represents one of our smaller disclosures I think it was a $6 million payment. We have made something very small. Obviously, it's frustrating because as, you know, the COFINA revenues was there and the government just decided not to pay the bonds. But once again the litigation is something for the future, currently we have to recognize and pull our guarantee and pay the claims, and the claim is COFINA it does have seniors and juniors as part of there kind of the waterfall were in the junior side and as, you know, there is some argument going on in litigation now. So, that's how we pay that amount of claims.

Okay. Thanks.

You are welcome.

[Operator Instructions] And next we have a follow-up question from Geoffrey Dunn of Dowling & Partners. Please go ahead.

Yes, hi, since nobody else had anything; a couple of more questions. Rob, first, what was the impact from the discount rate change this quarter?

$23 million.

Negative.

Let's say negative.

And then, can you update us on any incremental developments quarter-over-quarter on the alternative investment initiatives?

Well, as we said, we think, you know, we think it's a smart move for us, we used kind of the track capital that's in our operating companies to further increase not only returns there might be able or available in our current owned portfolio but also the start to create the different business model that would take some of our capital and put under a fee base, you know, revenue approach as suppose our risk base revenue approach and we continue to go through a very detailed diligence process and we continued to work through opportunities and as we said we set out requirements for any acquisition in this area to be financial accretive to be core competency accretive, and to be socially accretive. We continued to work down those pass and look at opportunities and as we get closer to someone meeting all three criteria, and we will then make a decision, we will communicate that decision to you in the market, and we hope that you'll be as excited as we are about those opportunities. And what it means to provide a growth engine to Assured beyond finance guarantee to provide a different revenue stream to Assured that kind of looks at preserving capital, and it's really about enhancing return. We obviously generate better returns within our investment portfolio. So, as we look at Assured in total, as you will know, we look at what is accretive, what is the most accretive transaction we can do in this company, what is going to move the valuation of our company forward, which typically means increases book value, adjusted book value, or earnings per share. And that's how we're looking at the alternative investment. And I would love to tell you we're getting close to where we have typically have been pretty close on a number of occasions that we just can't pull the trigger because of the certain amount of factors, and some cases we loses competitively in the market that are not willing to pay us much as what has been demanded. We had an opportunity currently where there was a list of demands put on by the company that we are looking to be a participant and if not acquirer of, and we walked away, because that wouldn't meet our other requirements of the [indiscernible] in that case, because they wouldn't give us kind of a say at the table, and that's not how we're going to structure this area. And as I said, for us, I think it's a necessary and really opportunistic diversification strategy for the company that is necessary.

Okay, thank you.

You are welcome.

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

Thank you, Operator, and thank you all for joining us on today's call. If you have additional questions, please feel free to give us a call. Thank you very much.