Good morning, and welcome to the Assured Guaranty conference call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Robert Tucker. Please go ahead.

Thank you, operator, and thank you, all, for joining Assured Guaranty for our first 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 a replay of this call or if you're reading the transcript of the call, please note that our statements made today may have been updated since this call. Please refer to the investor information section of our website for our 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'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 first quarter 2014 earnings call. Assured Guaranty has started the year with a solid first quarter, earning $132 million of operating income. We brought operating shareholders' equity per share to a record $34.45 and adjusted book value per share to $49.79. Additionally, we resumed buying back common shares in March, as part of our capital management strategy. Rob will bring you up-to-date on our share repurchase program in a moment. But first, I want to discuss some of the very positive recent developments at Assured Guaranty. I'll begin with the U.S. public finance sector, where we have had further success in resolving our exposures to troubled credits. Having reached a tentative settlement with Detroit last month on our limited tax general obligation bonds, after having previously achieved final or preliminary settlements with Jefferson County, Alabama; Harrisburg, Pennsylvania; and Stockton, California, we have significantly reduced the number of troubled credits in our insured portfolio. In the Detroit settlement, we succeeded in defending a key tenant of municipal finance, by requiring the city to confirm the secured status of the Detroit voter approved UTGO bonds. I don't know whether any group of uninsured creditors could have achieved the same result, which highlights a significant value bond insurance brings to the municipal market. While the Detroit bankruptcy processes is not yet over, this case should also serve as a cautionary tale for fixed income investors and reinforce the proposition that bond insurance provides significant benefit to insured bondholders. In regards to Puerto Rico, the recent $3.5 billion offering provides needed liquidity as they continue to work through their fiscal and economic challenges. They have consistently expressed their intention to meet their debt obligations and have taken positive steps to manage both their revenues and…

Thank you, Dominic, and good morning to everyone on the call. As Dominic mentioned, 2014 is off to a very good start, with $132 million in operating income, or $0.72 per share. I would like to highlight the operating income benefits of some of the developments Dominic mentioned, including $32 million related to R&W development and $12 million in commutation gains on the reassumption of seeded business, which also contributed a total of $38 million to pretax adjusted book value, and consisted of over $850 million of net par. The first quarter also includes $20 million in premium accelerations, which vary from period-to-period. Economic loss development was $12 million in the first quarter of 2014, which was primarily due to our Detroit exposures and the effect of changes in risk free rates used to discount expected losses. This was offset in part by rep and warranty development and improvements in other structured finance obligations. The effective tax rate on operating income was slightly higher at 26.7% for the first quarter of 2014, compared with 25.8% in the first quarter of 2013, and was due to higher loss expense in nontaxable jurisdictions. When comparing operating income to the first quarter of 2013, it is important to note that 2013 included a $71 million benefit related to the R&W settlement with UBS and premium accelerations of $64 million. As of March 31, 2014, operating shareholders' equity hit a new high of $34.45 per share and ABV per share rose to $49.79. In addition to PVP and reassumptions, the biggest contributor to the quarterly increase in ABV per share was -- has been our share repurchase program. As of today, we have used $75 million of our $400 million authorization. It is our intention to fully utilize the remaining $325 million by the…

[Operator Instructions] Our first question is from Sean Dargan from Macquarie.

And to some unsolicited advice, please say that you're going to release before the open, I think the release gets out earlier the night before. When we look at the outlook for share repurchase, obviously, there is -- I think you've made it clear that there'll be no extraordinary dividend between now and September 30. Is there a possibility for that in 2015, now that you've got an upgrade from S&P? Does that change anything?

Well, I think as we look at the capital management strategy, and as Rob pointed out, it is based on a number of factors and, of course, you are pointing out to the biggest 1, which is the availability of free cash, we know and we produced and disclosed the amount of normal cash that's available through the dividend capacity of our operating subsidiaries. And that will get us, so far, in the capital management. So at some point in time, if we're going to enhance that, based on, once again, our view of the ratings stability on the financial side position of the company, we're going to need to enhance it in some way, shape or form, and one of the tools to enhance would be special dividend. So we view that as an opportunity that's going to have to be realized or used. But, obviously, as we look at the timing of it, we're being practical in what we think is going to be available to us from a New York point of view. And when that would be available, I think facts like upgrades, ratings, would definitely help on our case to the New York and to the Maryland regulators. Additionally, we'll look at other sources of potential additional free cash, which would include potentially taking on additional debt. So all of those things will be evaluated as we look to buy back, capital management view, the available cash generated from operating subsidiary dividend capacity, and enhance it where necessary by all other transactions that could theoretically be available to us, including a special dividend.

And just on the $23 million of gross total net -- or I guess, net economic loss development and public finance, can you give us any color as to what that was attributable to?

Yes. Most of that was attributable to developments in Detroit. As Dominic mentioned, we have agreed to some terms with the bankruptcy judge and we have now booked up, based on our probably weighted scenarios to developments related to Detroit.

Additionally, we did have the change in the risk free rate, which caused us to increase loss reserves across a lot of these exposures, and that discount rate changes for GAAP purposes, we have to change, then the expected cash flows, which has an effect on the reserves.

And that risk free rate was primarily in structured finance. But that was about $27 million.

And how often do you revisit the discount rate?

It has to be revisited every quarter.

Our next question is from Brian Meredith of UBS.

A couple of questions for you, Dominic. The first one, any updates or anything you can tell us about Moody's, and potentially what their thoughts are? And do you think there's a possibility for an upgrade there?

Brian, I have a crystal ball before it gets really dark, when I put Moody's into the equation. All we know is you would know publicly, they have announced that they're looking at their methodology for rating financial guarantees and we're supposed to or going to publish a draft or comment in some part of this near future, and we have no expectations beyond that.

And the next question. I'm just curious, with the ratings upgrade from S&P, does that increase the possibility at all that maybe you could find some portfolios in some of the other bond insurers moving your way?

Well, I think it makes the argument stronger because, obviously, from the standpoint of the issuers, they stand to get a more significant uptick from the higher rating being put on to the security. Two, it creates a greater spread for us, as we look at the value of our guarantee against the typical issuer in the marketplace. So I think it has 2 potential benefits there.

Got you. Any activity there?

Yes. We're always seeking activity, Brian, you know that. We're not wallflowers by any stretch of the imagination. So you understand that we try to talk to everybody we possibly can. We think it is a reasonable transaction that could benefit both parties, in terms of freeing up cash for some of the existing guarantors in the marketplace by providing them capital to parts of the organization where maybe they need it. At the same time, we lower their risk and risk exposure, which further reduces their demand for capital, and there from issuer or from the issuer in our investor side, obviously, there is an upgrade to their outstanding securities.

Got you. And then I'm just curious, with the ratings upgrade, have you seen any increase in the return on allocated capital you're seeing under your deals right now? Or the spreads that you're achieving in the marketplace?

Well, I'd say, it's a little too early to tell. Obviously, there's a lot of information in the market, both positive and, in some cases, negative, when you think about Puerto Rico. The guarantee or the upgrade came late in the quarter. So we expect that to really benefit future quarters. And as I said, as we continue to demonstrate the value of insurance, buyers protecting bondholders, negotiating on behalf of bondholders are simply paying principal and interest rate when due, I think all that continues to add to a very positive developing story for us.

[Operator Instructions] Our next question is from Larry Vitale from Moore Capital.

The unencumbered assets at AG Re have fallen now for, what, 4 quarters in a row, went from by the number 8, $238 million in Q4, down to $201 million here at Q1. What's the reason for the decline?

Good question, Larry. As we said, AG Re has been the sole source of our share repurchase, as well as our equity dividend. So at this point, during the quarter, we did purchase a $75 million worth of our stock, AG Re was the sole source of that. And now, as I said in my commentary, we now have access to additional capital in the U.S. operations.

So where -- was there a portion of the decline that was explained by an increase in reserves seeded to Bermuda?

Primarily, it was...

Because it would have to be collateralized, right?

Yes, that -- most of that was all done. Primarily that was due to the share repurchase and the source of that share repurchase came from AG Re. But, as you know, we are scheduled for contingency reserve recapture at the end of -- in the middle of summer, which would recapture $244 million of approximately back to the U.S., which would free up more assets at AG Re.

That was my next question, which you answered. that's all I have for today.

Our next question is from Sam Palmer from Ascend Capital.

Actually it's Jim Solman [ph] here for -- with Sam. It sounds like you just flat out the opportunity for special dividends, up from these subs. Is that a real option? And if so, could you potentially tell us approximately what sort of size you're thinking about and what the timing might be?

Well, as we look at capital management, available cash to provide the, basically, resources for the capital management, operating dividend, normal dividend capacity is a principal source. If we decide to enhance that, obviously, we're going to have to seek other sources. I think we've talked on our last call, where we think there would be an opportunity for special dividend is down the road. We think the regulators are still going to be very conservative in looking at the economic recovery, very conservative looking at the stability of our ratings, as well as the continued run-off of the troubled part of our portfolio. So that's a tool, without question. But it's a tool that we don't expect to utilize in the near term.

Our next question is from Darren Marcus from MKM Partners.

You guys mentioned debt, potentially floating debt for -- to be used for repurchases. So I was wondering, is there some, again, can you give us a ballpark? Or is there some debt-to-capital ratio that you guys couldn't exceed or don't want to exceed?

Well, as you know, Darren, the rating agency do specify debt percentage of the capital. We're well within those guidelines and obviously anything we would consider would keep us within those guidelines. Remember, one of the principal objectives of the company is to maintain strong ratings. Obviously, we don't want to run afoul of any rating agency, especially now that we're -- got our first upgrade and, obviously, in a number of years. I would hope to see that continue as trouble parts of the credits run-off and the RMBS runs down and structure longer -- no longer becomes a bad word in the marketplace. So any debt that we would consider, as I said, it's just another tool to consider to enhance free available cash to try to enhance capital management. So at this point in time, a consideration, we evaluate a lot of different components of alternative strategies, of which that is one, but whatever we would do, if we would do it, it would still be within every guideline that we would come across. And I think the tightest ones would be the rating agencies, but we have reasonable amount of room there anyway.

And then one more, if I could. I'm guessing you guys has spent a lot of time thinking about new business opportunities outside of traditional financial guaranty. So I am thinking about your share repurchase program going forward, should I be considering the possibility that you guys would get involved in other business that could consume some of your, otherwise, free capital? Maybe something like asset management or specialty financing or something along those lines?

Well, yes, that's a good point. But I would say it a different way. It wouldn't really affect excess capital per se. We believe we have significant excess capital. Obviously, we're constrained by some external sources that view our capital maybe differently than we do. So were try to manage with all those capital constraints, but there's a concept called free capital. But there's also a concept called free cash flow. And there's going to be a huge mismatch. So we're going to have excess capital, which we would consider not necessarily to maintain the ratings, yet we don't have that physical ability to move it out of the company to use for, the sake of argument, share repurchasing. So now you're stuck with the problem saying, well. I've got capital, I need to put it to work, at least to get an earning on it. So that you would see potentially, some diversification, more in the investment side than the business side. We like to stick to our core, in terms of what we know. Obviously, we have a restriction in terms of financial guarantors, model lines, it's there for a reason. So as we look at it, we will continue look at investment opportunities to utilize capital that although is free or unencumbered does not represent capital that can be easily transferred out of the company because of dividend restrictions, regulatory requirements, et cetera.

Our next question is from Geoffrey Dunn from Dowling & Partners. Geoffrey M. Dunn - Dowling & Partners Securities, LLC: So I'm going to go. I was a little surprised to hear you mentioned, I think, it was insurance in the future flow as emerging opportunities and structured finance. I guess I can't really say insurance was -- resonates well with the -- some of that triple X deals we've seen in the past. I was hoping you can maybe give a little more detail on what specific type of opportunities you see in those 2 areas? And why are -- maybe those the 2 areas that we're seeing first recover on the structure side?

Well, Geoff, if -- hopefully both of those are risks that we have written historically in the company's going back in number of years. The future flow transactions have been a part of structured finance. And although we have not been active in our market for quite a while because the market hasn't really requested any of our benefit and we're now seeing opportunities. And as you understand, the future flow transactions are basically cash flow outside of the country that's lower rated, that provides then the opportunity to, in effect, advance those funds. The insurance stuff, which is once again, life for insurance is you can appreciate, is now done on a totally different structure. There is no asset management risk taken by us as the guarantor. So we believe that lessons learned were good lessons learned, we restructured the way those transactions are now built and therefore there is no asset management risk that's obviously, part of the [indiscernible] and Ballantyne issues. So in both cases, business we've done. In one case, we believe business, we've significantly enhance from the risk point of view and a both good returns and could use of capital in the structure finance area. Geoffrey M. Dunn - Dowling & Partners Securities, LLC: That's great on the life insurance. And on the future flow, that's the same old like gas oil type of deals?

No, it's really remains as around the country, it's the diversified payments, right -- structure. We do a lot of those back in the days, especially in AGC.

This concludes our question-and-answer session. I'd like to turn the conference back over to Robert Tucker for any 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.

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