Good morning and welcome to the Assured Guaranty Ltd. First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [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.

Thank, operator. And thank you all for joining Assured Guaranty for our first quarter 2021 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 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. This 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 Ltd., 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 Dominic.

Thank you, Robert. And welcome to everyone joining today's call. I'm pleased to say that in the first quarter of 2021, we continue to benefit from the value proposition that our financial guarantee provides in challenging times, which was further recognized last year as well. Driven by our highest first quarter new business production in US public finance since we acquired AGM in 2009, Assured Guaranty generated $86 million of PVP, 69% above last year's first quarter PVP and more than in all but one first quarter since 2009. Key shareholder value measures also reached new highs at quarter-end of $79.44 for adjusted operating shareholders' equity per share and $116.56 for adjusted book value per share as we continued our successful capital management program. Additionally, adjusted operating income per share of $0.55 was 53% higher than in the first quarter of 2020. The first quarter of this year is the fourth consecutive quarter in which we saw our total net par outstanding increase, demonstrating fundamental organic growth in our core business. This is a positive sign for our efforts to restore the size of our insured portfolio and the related predictable base of future earnings embedded in our insured transactions. We generally expect to see an upward trend in our portfolio size as quarterly runoff diminishes and we continue to originate new business. The US municipal bond market was very strong in the first three months of 2021. Par volumes sold in the primary US municipal bond market reached its highest first quarter level since the Great Recession, $104.5 billion, of which industry insured par neared $8.5 billion, setting a 12-year record for first quarter insured volume. Strong demand for bond insurance led to 76% more insured par sold than in the last year's first quarter, significantly outperforming the 19%…

Thank you, Dominic. And good morning to everyone on the call. I would like to start by highlighting our two key metrics for new business production – PVP and third-party inflows of assets under management. As Dominic mentioned, first quarter US public finance PVP was our strongest first quarter since 2009 and was the largest component of our $86 million first quarter PVP. Strong PVP results over the last several quarters have helped us maintain our deferred premium revenues, our storehouse or future premium earnings at approximately $3.8 billion since the end of 2019. In the Asset Management segment, total third-party inflows of $873 million was primarily driven by CLO issuance, which helped to increase our fee earning AUM by 11% in the first quarter of 2021 from $12.9 billion to $14.4 billion. In terms of adjusted operating income, we earned $43 million or $0.55 per share in the first quarter of 2021 compared with $33 million or $0.36 per share in the first quarter of 2020. While this represents a 30% increase year-over-year, I want to highlight that our first quarter 2021 results include a one-time $13 million after-tax write-off of an intangible asset attributable to the insurance licenses of MAC, or Municipal Assurance Corp. MAC was our US muni-only insurance subsidiary until we merged it into our larger New York insurance subsidiary, Assured Guaranty Municipal Corp, or AGM, on April 1, 2021. Excluding this write-off, first quarter 2021 adjusted operating income would have been $56 million, representing an increase of 70% over first quarter 2020. The restructuring simplifies our capital and organizational structure, eliminates the cost of maintaining an additional legal entity, and is expected to increase future statutory net investment income and the regulatory dividend paying capacity of the remaining US insurance subsidiaries over the next few…

[Operator Instructions]. The first question comes from Tommy McJoynt with KBW.

Congrats on the signing of the HTA agreement yesterday. So I wanted to ask about the terms of that HTA agreement. First, the upfront cash and bond and then, clawback CVI instrument. Could you guys share your expectations on what you think the CVI instrument would add to your recovery beyond the 30% upfront on cash and bonds?

The CVI is kind of like a moving target. So, there's two assumptions that you've got to make in principle, what is going to be the continued growth in the sales tax amount, and that really is predicated on the economy, so trying to factor in an economic growth factor, and you can pick whatever number you like; and then the second thing you've got to look at is the discount rate. As we get closer to the finalization of the agreement, there is also going to be the question whether this instrument will trade. And if it trades, that gives you a little bit better valuation principle. So, it's really, in our scenarios, picking discount rates and growth of the economy as we try to evaluate in our scenario analysis. Remember, our reserves are still based on GAAP requirements, which says you've got to map out scenarios and then probably weight them. So, in our scenario model, for HTA, one of the scenarios includes the settlement, plus an assumption relative to the economic growth and discount rate on the cash flows, but there's also scenarios that obviously change the settlement, make it worse. We can't really make it better. And of course, we changed the discount rates and the growth assumptions to make the reserve model work that you've got more than one scenario in the reserve model. So, there is a lot of moving parts there. As we get further along in the year, there'll be more clarity relative to whether the instruments trade. And of course, at the time we're ready and comfortable, we'll start to disclose more of our assumptions, but at this point in time, we're not doing that.

Now that we have made some good progress on Puerto Rico, what are your latest level of thoughts on your interest in consolidating the rest of the remaining run-off books of business available? And when we think about those opportunities, could you discuss whether you think you'd be able to structure any transactions using capital at the opco level rather than at the holdco level? Obviously, there's a lot of capital trapped there at the operating company level, so it could be an efficient use of capital there. Any thoughts on that?

Let me answer them in the order that you gave us. So, number one, does this open up the door for some more consolidation? And the answer is probably yes. It clears one of the hurdles. But there are still remaining hurdles, right. Valuation is one. Acceptance of other terms and conditions. What do we like in the portfolio, whether we'll see competition from third parties that basically kind of change our return assumption. So, there is a lot of factors, but this does clear one of the remaining hurdles or should go a long way to clearing the remaining hurdle of Puerto Rico exposure. Question number two, remind me again what that was?

Just whether you could structure anything using capital at the operating company level rather than at holdco?

Our goal is to use, in every case we can, trapped capital from the operating companies because that obviously makes the most sense. As you're well aware, free capital at the holding company gives us a lot of flexibility for a multitude of purposes, including our dedication to capital management. So where possible, we will definitely use existing operating income – existing operating capital that's trapped in the operating companies.

And just to sum it up, if you can kind of rank order your interest in terms of capital allocation between buybacks and consolidating the run-off businesses and perhaps growing the asset management business, how would you rank those?

Well, I think it's like which of your children do you like the most. But at the end of the day, I'd still say the most attractive of the three is capital management because it's got the biggest return. Where we still trade at the discounts we are at is just spectacular opportunity for us to continue to retire that stock.

The next question comes from Brian Meredith with UBS.

Congrats on everything. I guess my one big question here is, one, Dominic or Rob, does the MAC consolidation at all free up any dividend capacity? And then two, as an add on to that, do we need to see the court finalization or court agreement in order to kind of go and get a special dividend?

I'll take the first part with MAC. By taking out that trapped capital that was underneath our insurance companies and consolidating and merging that within AGM, you are now going to increase investment income at our two main operating subsidiaries. So, we do expect it to increase our dividend capacity this year modestly and next year more significantly because there are different rules regarding how much you could dividend out between Maryland and New York, but it will increase our dividend capacity, Brian.

Just with respect to asking for a special dividend, would you want to wait until you get a final agreement from the courts on Puerto Rico before you do that? Do you think you're at point now that you can go ask the regulators one?

Well, let's go through the facts. So, factual number one is, we still believe capital management is most accretive transaction we can do. Number two, to get to our typical target of capital management, we need a special dividend. Number three, we've had some impediments to request or to get a special dividend granted or even considered, and the two being COVID and, of course, Puerto Rico. As we resolve those through this year, I think it does create an environment where that conversation is going to be held with the regulators that were responsible too.

The next question comes from Geoffrey Dunn with Dowling & Partners.

With respect to both the GO PBA as well as the HTA CCDA transport agreements, am I right that unlike past deals here, the recovery is solely the new bond and the CVIs? There is no other bond insurer considerations that we should be factoring into the ultimate estimate recovers?

But you're leaving out one little piece, which is called cash. Remember cash is king. So, at the end of the day, there is a cash component to these settlements. Now, I think what you're referring to is opportunities that we have to basically make the settlement better by wrapping the bonds, you get a higher value from them. And at this point in time, we've not considered that fully at all. So, we're just allowing the settlement and the estimates of recoveries to take place based on what's actually at current in the documents that's available to everyone to read.

Within the GOs, are you able to help us narrow down – I don't know if this is publicly available information or not, but narrow down, where in that recovery range of the deal your bonds fall?

That's not that easy to figure out, right. Obviously, we have a good idea. We have the ability to see that. It's not been publicly disclosed. Remember, the problem we have with some of the statistics you're seeing is they include all creditors, not just bond holders or secured creditors. They obviously don't include the CVI in a lot of the published reports. So, they're only looking at cash and bonds, and in some cases, they're just looking at new bonds. Because if you look at from the Puerto Rican government point of view, they said I have so much debt for so much bonds and who do I want to convince or tell people I've got – I now have new debt with new debt requirements, and I'm comparing the old bonds to the new bonds and kind of ignoring where cash and CVI falls out. So, the numbers do substantially move about. As we've said, we're very comfortable with the settlements and I think that should give the market a pretty good indication of what we believe is our recovery rates.

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

Thank you, operator. And 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 very much.

This concludes today's conference call. Thank you all for attending. You may now disconnect your lines. Have a great day.