Good day, and welcome to the Assured Guaranty Limited First Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Today's presentation there will be an opportunity to ask questions. [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, Head of Investor Relations and Communications. Please go ahead, sir.

Thank you, operator. And thank you all for joining Assured Guaranty for our first quarter 2019 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 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 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 in 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, Assured Guaranty Limited; 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. In the first quarter of 2019 Assured Guaranty once again established new per share highs for shareholder equity, operating shareholder equity and adjusted book value. We continue to be the leading municipal bond insurance company and made further progress in building the markets for our financial guarantees in the international infrastructure and structured finance markets. In terms of new business production, our diversified underwriting strategy once again proved its value during the quarter. Each of our financial guaranty businesses, U.S. public finance, international infrastructure finance, and global structured finance maybe meaningful contribution. For U.S. public finance municipal bond yield decline throughout the first quarter of 2019 and fell more rapidly after the Fed announcement all to interest rate increases. Lower yields limit demand for our guarantee as some investors forgo the extra security in favor of achieving more yields. The yield decline was most pronounced at the long end of the curve with a negative effect on our premiums is greatest because they are calculated as a percentage of total debt service over the life of these transaction. Some of the yield pressure due to the strongest net quarterly inflows to the municipal bond mutual funds. So that data was first collected in 1992, possibly because people preparing their federal tax returns, we're realizing the taxes and municipal bonds, one of the few remaining tax strategies. After so many of the tax deductions were eliminated or capped by the 2017 tax law changes. Also during the quarter, credit spreads narrowed, particularly in the single rating categories where we ensure the majority of our transactions. The spread between A and AAA 30-year muni's ended the quarter at 43 basis points the tightest level in 11 years. Under these conditions insured primary…

Thank you, Dominic and good morning to everyone on the call. The Company's results were strong in the first quarter of 2019 as we once again reach record high operating shareholders equity and adjusted book value per share of $62 and $86 and $0.95 respectively. These milestones demonstrate the ongoing value created for our shareholders through various strategic initiatives. Dominic just reviewed our new business production and the progress we have made on resolving our Puerto Rico exposure. And I will cover our share repurchase program later on, but first, I'll review the first quarter 2019 operating results. In the first quarter, operating income was $86 million or $0.83 per share, compared with the $155 million or $1.33 per share in the first quarter of 2018. Lower net earned premiums from refundings and higher loss and loss adjustment expenses were the primary drivers of the variance. Net earned premiums were $118 million in the first quarter of 2019, compared with $145 million in the first quarter of 2018. As expected, after the passage of the 2017 Tax Act and consistent with the amortization of our insured portfolio is subject to call, accelerations due refundings and terminations declined to $26 million in the first quarter of 2019 compared with $52 million in the first quarter of 2018. First quarter 2019 loss and loss adjustment expenses were higher than the first quarter of 2018, mainly due to higher U.S. public finance losses offset by lower losses in RMBS. As we have said in the past loss and loss adjustment expensive reported income in any given period differs from economic loss development due to the consideration of unearned premium reserve in the calculation of loss and loss adjustment expenses under GAAP accounting rules. Total economic loss development was a benefit of $2 million…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question today comes from Geoffrey Dunn with Dowling & Partners. Please go ahead.

Thanks, good morning.

Good morning.

I guess first question, can you give any additional color on the economic development with respect to Puerto Rico in the quarter, was there any residual COFINA in it? Was there any true-up related to the PREPA RSA or is it just general exposure development that we're seeing in the $61 million?

And as you know, Geoff, we respond to all information happens in the quarter. And so in the case of the First Circuit upholding Judge Swain's ruling on special revenues, we reacted to that information because we expected that will then - any Court or Court validation to be - taking a longer time and therefore the cost timing is going out further for recoveries as well as continuing to pay losses. We adjusted our probabilities for any GO or HTA credit. On the other side, the RSA actually was benefit, and we adjusted our probabilities with respect to PREPA, but net-net, we had an increase in reserves [indiscernible] Puerto Rico.

And no COFINA in there that was done in Q4.

No there was nothing for COFINA.

Okay. And then can you give any additional color whether it be or range of percentage or anything like that in terms of what the various fees and economic opportunity and wrapping the bonds might do in terms of reducing your loss. Obviously, I don't think the par amortization - the amortization scheduled for the new bonds is out. But on the surface, you're looking at 20% plus type of hit on PREPA you put the other stuff in there, I think you said in your release, it should be a lot lower economically, but can you frame that up any better for us?

Sure. If you think about it, the way the RSA structured, Geoff, is that really providing by the surcharge in a level of debt service, so a fixed amount of payment into the new bond structure. So if you can think about the new bonds being issued, say at 5.25% on the A bonds, and like 7.5% on the B bonds and the way it's structured in these surcharges that provide cash flow to service that debt. So you'll get a given amount of par relative to an interest rate against the debt service payments that are being provided. If you then go out and ensure those bonds you lower the interest rate. Therefore, you will increase the principal amount of the par that you will receive or will be able to be serviced through the fixed charge and going through the surcharge on the electric bill. So it's a pickup of par that would then further improve your recovery against the par that retiring and then to you get paid a premium relative to the insurance and the new bonds as well. So if you think of about 50 basis points improvement in the interest rate would is that then due to a full stream of cash flow relative to the new par of debt service will be able to provide for. That's how you think about the economics being improved.

I guess a pointed question, do you think this could be a single-digit relative write-off for you? I guess there is no comment.

And remember, as we look at this much like COFINA we have the option, so is that our option that we're going to look at - with the government is the time with other covenants or requirements made through the operational kind of independents in the operational efficiency of the utility. So we can always do and I am sure to do and insurance going to be our choice much like COFINA where we still hold those bonds and we still have the option of ensuring them to further improve the economics are not depending on how we feel about the government's behavior.

Okay. And then just a quick number question, Rob, do you have the breakout of primary versus secondary for our intensity?

Yes, I knew you are going to ask that. You are consistent, Geoffrey. So primary, we had 10.1 million PVP for about 1.678 billion of par and in secondary, we had 21.5 million of PVP for $338 million of par.

All right. Thank you.

Thank you.

And our next question comes from [indiscernible]. Please go ahead.

Hi, gentlemen. Thank you for taking my question. Dominic, I wanted to thank you again for your comments about GO issuance post 2012, it's about time that someone stood up for the rights of municipal bond holders and I very much appreciate your comments about the validity and clawback attempt on GO issues? So thank you for that. My question has to do with getting over the hurdle with PREPA and combining your interest with MBIA, currently MBIA as you know trades at about 35% of adjusted book value, have you given any consideration to partnering or making some kind of acquisition where you can control the outcome of PREPA by controlling MBIA's holding?

Well as you know, our goal is to combine or consolidate the entire remaining financial guaranty industry, which we've done in a very accretive way to the ultimate book value and bottom line of the Company as well as continue to improve the perception of our insurance policy by improving the rating on those specific bonds that we wind up acquiring through the acquisition of the company and for the insurance that they provide. As you know, we look at everybody, all the time, we continue to evaluate opportunities as we move along resolving more Puerto Rico's exposures, which tends to be one of the bigger - when you think of us in the acquisition world, Number one, we have to look at is, what is the capital structure of the target. There are there miles at the table, two miles just equity they're surplus notes is a preferred stock is a deferred payment obligations. So as always the complex kind of view of the equity side and then number two, we re-underwrite every credit on the portfolio and charge what we determined to be reasonable relative to today's both market conditions and capital charges. Puerto Rico tend to be one of the more contentious credits that you would look at in anybody's portfolio. So as those get revolved it simplifies the underwriting side of our acquisition opportunity we self to deal with the capital side. So as we move along, Puerto Rico, and hopefully will be more activity as we go through the year, I think it does provide a greater opportunity for Assured to continue its consolidation strategy. More importantly, as those companies start to reach kind of the final conclusion of whatever they're dealing with in their capital structure and portfolio it then becomes a good opportunity for them to either reload their business purpose and in effect go onto their new direction or liquidate the company and basically payout to shareholders. So we think Puerto Rico in a lot of ways, is a good accelerant to further opportunities relative to our consolidation goals.

Thank you. I appreciate that.

You're welcome.

And our next question comes from Bose George with KBW. Please go ahead.

Yes, good morning. Just one more on the PREPA RSA, do you think there is a roadmap to get from the current level to the 67%, that's needed if MBIA does not join in?

Well, you need 67% and that's currently written in the RSA agreement, doesn't mean has to stay there. So that's number one. Number two, they have voting rights to anywhere between 13% and 17% the number continues to move. So you think about that still leaves 83% out there or 87% depending on your perspective and you need 67% and we've got I think something around 50% now. So your guess is good as mine, but I'm sure the government will go back and do whatever is necessary to trying to force is going to get into the necessary threshold or change of the threshold, one of the two. Remember, in the Title VI, it's the different voting or requirement that in the Title III. So that one thing you have to your lines for the plant adjustment requires a different voting calculation in the Title VI does.

So under Title III it could end up being just a lower number that's required to get it over…?

Remember Title III has to have a qualifying quorum to vote and then you need the majority of qualifying quorum, right. So it's a different treasurer, I think the 67% you need is the quorum for a vote. And then majority of the vote of the 67% or whatever the number is above the 67% that is Title III. Title VI on the voluntary restructuring is what they implied or what they provided for in the RSA that doesn't mean that can be change.

Okay, great. That's helpful, thanks. And then if you just going back to the Jeff's question just on the potential quantifying the benefit, can you just repeat your answer the 50 basis points in time, so we look at that…?

You guys [indiscernible] you can figure out what the - if you have a given fixed amount of debt service and you lower the interest rate take a number of 50 basis points, 75 basis points, how much additional par could be serviced by the level payment debt service.

Okay. So look at the duration and sort of present value that and sort of look at the benefit that way.

Right and then figure out what the enhancement to par insured over the par value of the bonds against the original $0.67 and $0.10 on the B bonds and therefore you can calculate what the ultimate recoveries.

Yes. As well as the premium that's going to be charging in the transaction.

On top of that, yes. Okay, that's great. Thank you.

You're welcome.

Ladies and gentlemen, this will conclude the call. I'd like to turn the conference back over to Robert Tucker for any closing remarks.

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

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time and have a nice day.