Assured Guaranty Executive Insights: Greece Loss, Impact from Deutsche Transaction

On Friday, Assured Guaranty Ltd (NYSE:AGO) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Greece Loss

Geoffrey Dunn – Dowling Partners: On the Greece loss, you obviously took a full limit loss there. Has that already been settled with the counterparty or is there room for negotiation as that counterparty doesn’t want the long-term exposure to AGO?

Dominic J. Frederico – President and CEO: It has not been settled. There is always room for negotiation, but understand they are not going to have the long-term credit of AGO because we’re going to call the bond and settled that 100%

Geoffrey Dunn – Dowling Partners: Second on Moody’s, is there back and forth discussions going on between AGO and Moody’s or is this kind of – they’ve put out what they put out and it’s kind of a battle just to even see the capital models, etcetera. Is there other active helpful discussions, or is it kind of some of the things that we’ve seen in the past?

Dominic J. Frederico – President and CEO: Geoff, I would tell you that as Moody’s has to go through their rating process, there is a tremendous amount of dialogue as we exchange information, respond to questions and provides a more clarity. Number two, as they start to provide us capital information in terms of how they assess the risk in our portfolio. We obviously go through our own verification and make sure that we’ve got the deal structure right, the par amounts right, etcetera and that dialogue continues ad infinitum ongoing as we speak today.

Impact from Deutsche Transaction 

Brian Meredith – UBS: A couple quick questions here for you. The first one Robert, if you could just tell a little bit any P&L or balance sheet impact from the Deutsche transaction in the second quarter?

Robert A. Bailenson – CFO: That will really depend on whether we do anything with loss reserves. There was a slight change in our benefit to a large sharing at a different layer in the structure that theoretically could have some minor implications for change in the number, but historically as we enter into these negotiations Brian, we have a very conservative number book prior to engaging in detailed negotiation or settlement discussions. As those discussions progress, we typically look at what is the value with the offer on the table and begin to make sure that we are catching up all our accrual or our credit against where the negotiations are by and large at any point in time. So as these things and of course you’ve seen in the Deutsche Bank cases, will drag on for quite a long time. More around terms and conditions in the legal agreement as opposed to the financial sharing structure on losses, we continue to continue the update or revise our estimated recovery.

Brian Meredith – UBS: Any other that you’re close on?

Dominic J. Frederico – President and CEO: I’ll leave that as it is.

Brian Meredith – UBS: I am just curious, when you extended the curve a little bit here. What is that due, with respect to your capital cushion for S&P, does it matter much?

Dominic J. Frederico – President and CEO: It really doesn’t, and as you look at the results, and we kind of published them, I think it’s well covered and obviously there was a lot of public information, you can make a lot of different arguments as to the extension or not, and especially across the different aspects of RMBS. We obviously try to maintain a very conservative position, because if we don’t know, we don’t know, and obviously the recovery has taken a lot longer, than anyone ever had envisioned, especially the U.S. real estate market, and therefore we continue to monitor closely. We have a very disciplined approach to how we look at the reserve. It’s very much predicated or keyed off of early stage delinquencies, and you can kind of follow this from home, or keep squared home, as they say in the old ball game, in terms of the numbers that we put up. But relative to S&P, this is not a significant activity; because remember, they are assessing us based on their stressed loss level, and obviously that’s not affected by any changes in our reserves.