Good morning and welcome to the Assured Guaranty Limited First Quarter Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Robert Tucker, Senior Managing Director of Investor Relations and Communications. Please go ahead.

Thank you, operator and thank you all for joining Assured Guaranty for our first quarter 2020 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 to the 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 are listening to a replay of this call, or if you are 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 and our current financial supplement and equity investor presentation which are on our website at assuredguaranty.com. Turning to the presentation, our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Limited; and Rob Bailenson, our Chief Financial Officer. After their remarks, we will open the call to your questions. As the webcast is not enabled for Q&A, please dial into the call if you would like to ask a question. I will now turn the call over to Dom.

Thank you, Robert and welcome to everyone joining today’s call. First, I would like to extend our heartfelt sympathies to all those affected by this horrible pandemic and also our thanks and admiration for the courage of the healthcare providers, first responders and other essential service providers on the frontline. We are all grateful for their dedication and hard work. I am also proud of the way Assured Guaranty’s people have stepped up to keep our operations running without interruption, almost entirely from their homes by implementing the remote technology and business continuity plans we put in place and have tested regularly for many years. We have continued to write new business in both the new issuance secondary markets. We will continue to provide value for shareholders, issuers and policyholders at a time when bond insurance has never been more important than its support of the efficient function of markets. During the first quarter, Assured Guaranty’s overall insurance production was very good even though market turbulence limited market production. PVP of $51 million was 21% higher than in the first quarter of 2019 propelled by a 39% increase in public finance PVP worldwide. U.S. municipal market environment during the first quarter was bifurcated by the market reaction to the pandemic. Until the end of February, the economy was strong, interest rates were at near our historic close and credit spreads were extremely tight. For example, yields on 30-year municipal bonds fell to a record low of 1.38% on March 9. There was robust demand and strong liquidity in the municipal bond market, because long-term municipal mutual funds took in $114 billion of net inflows during the 14 months leading up to March 2020. Then from February 24 through March 23, major equity indices collapsed by more than 30% and during…

Thank you, Dominic and good morning to everyone on the call. I would like to pickup what Dominic left off and reemphasized the strength of our balance sheet, capital position and business models, all of which enable us to withstand the turbulence in global markets caused by this pandemic. Even in this environment, we managed to achieve record per share highs as well as adjusted operating shareholders’ equity of $67.25 per share or $6.1 billion and adjusted book value per share of $98.02 per share or $8.8 billion. Our financial strength and stability are supported by the quality of our invested assets in insured portfolio. The investment portfolio in cash are valued at $9.8 billion has an average rating of AA- and generates a stable stream of investment income. In our insured portfolio, over 96% of par outstanding is investment grade and with deferred premium revenue – I had little phone trouble – in our insured portfolio, over 96% of par outstanding is investment grade and with deferred premium revenue of $3.8 billion, it will generate a long-term stream of future earnings. Turning now to the quarter, our consolidated adjusted operating income was $33 million in the first quarter of 2020, which consists primarily of an $85 million gain from our insurance segment, a $9 million of loss from our new asset management segment into $39 million loss from our corporate division which is where we would – we track our holding company results. Starting with the insurance segment, the adjusted operating income was $85 million to $111 million in the first quarter of 2019. Part of the change in the insurance segment adjusted operating income is attributable to an $8 million after-tax mark-to-market loss on our investments in insured investment management funds. These investments are mark-to-market each reporting period…

Thank you, sir. [Operator Instructions] Today’s first question comes from Tommy McJoynt with KBW. Please go ahead.

Hey, good morning guys. Thanks for taking my question. I hope everyone is doing well. When you think about the potential for municipalities to get downgraded on a net basis, do you kind of view that positively because of the future opportunities that it creates for AGO’s guarantee in the sense that it’s more valuable or does this strain on the cleanly insured portfolio outweighed that?

Well, it’s a good question. So, you hate to say it, but typically market disruptions are normally a very – created very highly incentivized marketplace for us, because as you say, anytime you have got issues relative to credit performance, which is reflective of credit downgrades the desire or the attractiveness of our insurance obviously increases both in value and visibility. And therefore we expect to see more demand. And if you have read any of the recent articles I am not giving you Mike, but if you have read some of the recent articles there has been a consistent revised improved forecast for insurance penetration. So we have been averaging around say 6%. I have seen articles and that referred to a potential penetration throughout the remainder of the year, obviously once markets recover like at the 10% level obviously in the same token as spreads widen and rates increase, we get paid based on that service. So not only we see more demand for your product, you get to charge more premium, but typically in this environment it really is a benefit even though it's off of a negative situation the other thing I would say is remember downgrades within the investment grade classes are not significant capital users it's only after a issuer gets downgraded below investment grade that there's a significant bump in capital and even that in percentage terms so based on excess capital position and as SAP noted in their report they even believe that there will believe that there will be some downgrades that shouldn’t have any impact whatsoever on the performance of our portfolio or our rating so you're right, in a way, disruption causes opportunity, disruption will cause increased demand, better our pricing so and they also increase in rates increases the return on our portfolio so we get benefited on both sides of the balance sheet and much like in 2008, 2009 as you can see based on the numbers I have quoted in my speech our performance is spectacular during those periods as well much in the asset management area as well when you had capital and there is opportunity you guys take advantage of the dislocation in prices.

Got it. Thank you. And does your outlook anticipate some sort of funding help from the federal government like you mentioned a major infrastructure bill or is that kind of – wouldn’t that be kind of icing on the cake?

Well, we don’t count on that relative to what we look at but it is unique and that as you think about it in 08,09 the governments response was typically to the financial institutions and large corporations and at that time we had tremendous amount of consumer exposure through our RMBS and other exposures we look at us today the portfolio was a lot smaller our insured leverage is way down our structured finance I mean at a $140 plus billion back in 2009 to be under $10 billion a day really gives you the impression or gives you the specific governance of how little we have exposed but yet the government response in 2020 to their credit has been across all borders right they are going to the consumer they have gone to the municipalities they have gone to the financial markets so the amount of government aid which is significant seems to be better spread which to me will also kind of limit the depth of the down side like I said go back to 08 and 09 and look where the government provided support where it is today I think that response is obviously for us better appropriated across all exposures in the portfolio.

Thanks. And then just sneak one more in here regarding Blue Mountain obviously there was a plenty of volatility around March and April did that cause enough kind of shake out in that business where you feel like the opportunity for Blue Mountain has improved or was it not stressful enough I guess you could say?

Well you can say two things one if you look at the quarter and understand the quarter as shows some impacts of the market and the pandemic but most of the quarter changes are short falls are really timing or temporary so obviously in the asset management we have great expectations for where that is going to deliver for assured guarantee however, in the current environment they weren’t able to et as much as a legacy assets sold they weren’t able to issue as much CLO opportunity they weren’t able to raise as much funds as we talked about last year at the end of the year we had to carry expenses that although we identified to be expenses related to the run of business and therefore we will follow off we are paying some severance and some retention we couldn’t accrue that at year ends that’s going to bleed in through 2020 which we would hope we would have been able to put in 2019 all of those things though are not permitted declines the same thing with the mark to market with the accounting and I am a former accountant even though I won’t admit that in public right they are now pushing for current value and everything where current value has that one problem where you have these market disruptions you have got a price to the current value although you don’t believe that is the long term economic value though it doesn’t reflect the long term economic returns and you expect but you are stuck with the market loss so at the end of the day as I look at our results to me the delay in say recognizing refunding that catches up. We are not a consumption business in other words the sale that we missed in March does come back to us, we don’t lose it, right, people that in effect plan and budget and approve financings need to get those financings accomplished for the reasons that were originally putting in their budgets and plans. So we are very different in that regard. As I talked about on my speech, most of our 2020 earnings are already known. So in terms of protection in 2020, we are in pretty good shape, number two, our demand should increase and number three, we don’t lose clients, and most of the impairments we placed in the first quarter are really based on mark-to-market temporarily or just delayed activity that is fully expected, but doesn’t really affect the long-term economic value or returns of the company.

Right. And just in terms of the number of CLO managers that kind of surge to the competition, I am saying many of them are subscale, but did you get the sense that March and April created enough volatility that there should be more consolidation than you expected pre-COVID?

I will let Andrew answer that since he is our expert on that environment.

Okay, I think that’s a good insight. Look, there is 125 CLO managers in the world, 30 of them with more than $5 billion in AUM and those 30 control maybe 60%, 65 % of the market. And it is the case that the smaller independent managers are going to find this environment more challenging. And I do think that gives us an opportunity, an acquisition opportunity whether it’s whole businesses or CLO contracts, because we are in a stronger position just the beginning scale of our CLO business with $13 billion under management and then of course the greater stability and access to capital that we get because we are part of the Assured family. So I think you are right, I think your insight is right. And I think over the next 9 months either organically or through acquisitions, the struggles of smaller independent managers are going to create opportunities for the larger ones.

Great. Thanks for your time.

Thank you.

Our next question comes from Josh Esterov with Credit Suisse. Please go ahead.

Hello, good morning. Appreciate you taking my question. I see some of the slide information that you published that, of the 6,500 direct U.S. public finance obligors in the insured portfolio, you expect roughly 10 to see claims in excess of recovery, but if you put the recovery portion aside for a moment, could you talk about where you see at least temporary disruption that could lead to some level of claims payments in the foreseeable future, is that still mostly limited to the transportation, student housing and some of the little pockets of exposure you mentioned earlier?

Well, as we said we were actually – we review the entire portfolio annually for every risk and of course certain risk and more attention of that, that are looked at either quarterly or monthly, some like Puerto Rico probably daily. So we are constantly calling our portfolio to understand the risks. We are constantly reaching out to the issuers to make sure we understand the company expedition. So once the pandemic hit, we immediately went back to the portfolio, basically divided it among high risk, medium risk, low risk, went out to actually speak to the high risk people, which is used to identify transportation, hotel occupancy, student housing or some of the more critical ones, healthcare. And as we looked at that portfolio and really try to ascertain first, what does the total debt service do in the next 6 to 12 months as well over the next 2 years, what is the availability of funds at the issuer either based on cash on hand or debt service reserve funds and try to map out where we thought there could be some potential request for payment and the numbers are incredibly small. These are very well-engineered, well-protected typically have the availability of debt service reserve funds. So, even as we look through the liquidity payment, so ignoring the recovery right it was an incredibly small number and something usually absorbed within the organization is available cash and cash flow. So, we continue to call that, we continue to reach out to our issuers to make sure we understand the portfolio. We try to get updates as frequently as possible, obviously, we just had our board meeting went through a full kind of dissertation with the board on each credit, each risk. So we are in very good shape.…

I appreciate that. That’s helpful color. Thank you very much. I hope everybody stay safe.

Thank you. Please everybody stay safe.

And our next question comes from Giuliano Bologna with BTIG. Please go ahead.

Hi, good morning and thanks for taking my questions. I guess starting off on the new business front, is there any way of thinking about pricing trends, obviously, as credit spreads are wider, you can usually charge more and also as there is concerns about credit, you can charge more. Is there any sense of perhaps the magnitude of the pricing changes that you might be able to capture in the near term?

We don’t really give you that number in that detail. I can tell you that pricing has improved across the board and someone might say well, hang in a second, let me go back and look at your par win in the first quarter against premium versus last year down, only because there is a little credit in last year that was significant called Chicago, it was part of their refunding that really skewed the first quarter number rate wise last year, but on average, the rate is up reasonably and I don’t want to give you a number, but it’s up significantly in the end of the first quarter and we expect that to continue to through at least the next few months and not the remainder of the year.

That makes a lot of sense. Then thinking about the investments into – the investment management funds, you have invested a $192 million so far and the target is $500 million, is there any sense of timing around those investments or how fast you continue investing?

Our Chief Investment Officer will answer that question.

Yes. The pace picked up a little bit in March and then continued in April and it was really because opportunities in the market arose. So, I don’t think we will continue at the pace that we saw in April. We do expect credit markets are going to normalize a little faster in this crisis than they did after 2008. Two reasons, first unlike 2008, the banking system is healthy. We don’t have a problem with our financial transmission system. It’s a different kind of crisis, worse in many ways, but better in that way, better and the banking system is sound. Second, the response from the public sector has been much quicker and much larger in this crisis and that’s both from the Fed and from fiscal stimulus programs. So the duration of the opportunity to make the kinds of investments that we did in April May slow. So I don’t think we will keep up that pace, but we do expect that by the end of the year or sometime in the beginning of next year we will have deployed that capital.

That’s great. Thank you for that. And then just one quick follow-up I guess switching back a little bit to the insured portfolio for a second, one of the things that’s obviously top as lot of people are asking about exposures and specifically for as an example the New York MTA came up. And I think you know what [indiscernible] missed was like probably a 7x or 8x coverage than the New York MTA from because it’s a revenue bond and you have a lot of leans on revenues, is there any sense within the transportation portfolio of what the coverages when you start looking at a lot of the revenue coverages in those deals?

Well, the transportation portfolio is one of the portions of the portfolio that benefits the most from structural protections and that’s in two regards, one cash on hand we do a current sweep of cash on hand now what the available funds are and two debt service reserves. So, as we looked at the airports, MTA, etcetera, the debt service reserves are significant, then we will pay claims or pay debt service for a minimum of 6 months, if not 12 months. Obviously, MTA is kind of a special circumstance, where the revenue box only accounted for around 50% of its total revenue relative to the ability you would expect is on paid debt service. We have a gross revenue pledge on MTA, which makes it obviously even higher protected. I think they were to go on record saying that bankruptcy is not an issue and they will continue to fund all payments.

That makes sense and I appreciate that additional color and perspective there. I will jump back into queue. Thank you.

Thanks. Good to see you and good to hear you.

And our next question today comes from Jordan Hymowitz with Philadelphia Financial. Please go ahead.

Thanks, guys. Couple of questions. You continued to buyback stock even after the quarter, can you confirm that there is nothing in terms of state authorization or anything that would prevent you from buying back that $500 million this year is needed?

Well, remember, during our buyback is composed of two portions, right, our ability to buyback with the availability of funds. One is what is created normally out of the operating companies subject to no approval process by the notification and the payment of dividends and two, to top it up to the level that we like to get to on an annual basis we typically rely on special dividend. Obviously, in today’s environment, we didn’t expect that they are going to be a little hazard to approve a special dividend. So that portion of the funding will have to be delayed at some point in time. Obviously, in my remarks we are committed to capital management. We believe the strength of the balance sheet, the granularity of the portfolio, the protections that are implied therein still provide us that opportunity and then of course add that to the significant discount that’s now currently available to us in the stock. And we did some goofy numbers so people especially the accounts like prepare the numbers, so I will give them to credit. If you look at where the prices versus where we anticipate the price to be for this relative to the stock authorization, we are going to probably still buyback more shares than we would have had in the original authorization of the share price, not reflected in the volatility in this current pandemic. So bottom line is we still do require special dividends at some level at some point in the year to top up the funding that we can accomplish it through other sources, like borrowing if you wanted to do that. So, all things are on the table for us. Obviously, let’s say we are committed to the program. We believe we are in great financial condition to allow us to do that and just a matter of getting the available funds with the holding company to basically execute the strategy where we are at today.

And second is do you still anticipate the portfolio flattening this year in terms of all the decline?

That’s a great question. Obviously, we have looked at 2020 as the year of the balance, right and obviously with the market disruption obviously there has been some delay. It really depends on when the recovery begins, when these shoppers at home are listed, when normal becomes more normal if there will ever be a normal. So, having all those caveats, but as I said, the nice thing about our situation is we typically don’t lose the customer, it just delays the customer. So, whether our hopeful balance in 2020 goes to the first or second quarter of 2021 and then I think it makes much difference. I think we see the track, we see the trend and we know that the acceleration of the amortization of the portfolio by and large has run its course. So therefore – and we know we have got good activity across all of our profit lines in the current marketplace where we are really impressed by the number of inquiries we are getting across the structured finance and international infrastructure areas. Obviously, the domestic municipal market is more or less a slow market. They are seeing a fundamental demand all the time there, but we still see an increased interest in insurance anyway because of the current volatility. So if things work out well, the recovery is deeper than what people think and markets normalize I think we will get the balance in 2020 – 2021 because of the pandemic.

I also want to add, Jordan, if you look at the last – the year end numbers our year end EPR was greater than the prior year. So, we did increase our store of earnings at the end of this year – at the end of last year.

Okay, thank you.

Thanks, Jordan.

And our next question today comes from Geoffrey Dunn with Dowling & Partners. Please go ahead.

Thanks. Good morning. Jordan basically did the punch on the buyback question, but Rob, could you just give me the breakdown of the primary, secondary new business this quarter from munis?

Sure. Secondary PVP for the first quarter was $9 million versus $22 million last year and Dominic did mention there was a significant transaction last year, which was Chicago, that’s the delta for the difference significantly and the par was $230 million for the first quarter of 2020 versus $338 million in the first quarter of 2019.

Okay, that’s all I got. Thanks.

Thank you.

And ladies and gentlemen, this concludes the question-and-answer session. I would like to turn the conference back over to the management team for any final remarks.

Thank you, operator. I would 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 very much.

Thank you. This concludes today’s conference call. You may now disconnect your lines and have a wonderful day.