Assured Guaranty Ltd. Aktie

Good morning, and welcome to the Assured Guaranty Limited First Quarter 2026 Earnings Conference Call. My name is Ed, and I'll be the operator for today's call. [Operator Instructions]

Please note that this event is being recorded. I would now like to turn the conference over to our host, Robert Tucker, Senior Managing Director, Investor Relations and Corporate Communications. Please go ahead. .

Thank you, operator, and thank you all for joining Assured Guaranty for our first quarter 2026 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 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 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 of Assured Guaranty Limited; Rob Bailenson, our Chief Operating Officer; and Ben Rosenblum, our Chief Financial Officer. After their remarks, we'll open the call to your questions. As the webcast is not enabled for Q&A, please dial into the call if you'd 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. Assured Guaranty began 2026 with a strong first quarter. The quarter's adjusted operating income per share came in at $2.50. Our new business production generated $73 million of PVP almost twice the PVP of last year's first quarter, as we saw increases for each of our 3 financial guaranteed underwriting groups.

Rob will fill in the production details in a few minutes. We also produced $44 million of adjusted operating income in our Asset Management segment during the first quarter of 2026, nearly 4x the amount produced in the first quarter of 2025. Our pivot to increasing the proportion of alternative investments in our overall investment portfolio over the past few years has increased the all-in return of the investment portfolio. The inception to date annualized internal rate of return for all of our alternative investments was 12% at the end of the first quarter 2026. The Assured Life Re team has received positive feedback from potential customers with clear interest in our double insurance from agro as well as general market desire for fresh reinsurance capacity.

Currently, we've had positive discussions with potential partners in the U.S. MYGA market and in the U.K. PRT market, in addition to interest from other non-U.S. potential partners. We made good progress integrating our stand with experienced employees already employed by Assured Life Re. Annuity Reinsurance exemplifies the type of business opportunities we look for those which will further diversify the company, create synergies with our existing business lines, generated attractive returns, have risk profiles in line with ours and benefit from our core competencies.

Economic certainty, political and geopolitical discord and war permeate the news investors have been seeing recently. Investors understand well we find high-quality municipal bonds attractive. Our guarantee can expand the supply of high-quality bonds and in certain cases, reduce the borrowing costs and support the market value of even naturally AA-rated municipal bonds. We believe municipal bond issuance will have another strong year. We're off to a good start for 2026. I believe our financial [indiscernible] business will provide us with many insurance opportunities as we continue to expand our business in U.S. municipals, global infrastructure and structured finance.

We are also focused on building out our new annuity reinsurance business and managing our capital prudently and profitably to support the growth in these businesses while protecting our policyholders and rewarding our shareholders.

I will now turn the call over to Rob to provide more details about our production results. .

Thank you, Dominic, and good morning to everyone on the call. Assured Guaranty closed $73 million of PVP in the first quarter of 2026, compared with $39 million of PVP in the first quarter of last year. Year-over-year, total PVP and U.S. public finance PVP each nearly doubled their first quarter results, and struck finance more than doubled its PVP result. U.S. Public Finance led the way in PVP production with a 92% year-over-year increase to $48 million of PVP, and non-U.S. public financing, global structure finance contributed $8 million and $17 million of PVP, respectively.

For the first quarter of 2026, Assured Guaranty, continue to guarantee the majority of insured municipal par issued at 53%. We insured $4 billion of par in the primary and secondary markets on a close date basis. Market conditions and our mix of business allowed us to produce significantly more PBP than in first quarter 2025, while taking on less nominal exposure. In the secondary market, during the first quarter of 2026, we issued 227 policies compared to 144 policies in the first quarter of last year.

Our guarantee has been instrumental in supporting large transactions within the municipal bond market, highlighting the institutional demand for our guarantee. This interest demonstrates that institutions are increasingly acknowledging the benefits our insurance provides, including greater price stability and improved market liquidity. Our guarantee also allows issuers to attract a broader, often more diversified base of investors, reduce borrowing costs or raise more proceeds without increasing interest rate cost.

The first quarter of 2026 included 9 large transactions within short par over $100 million, including $444 million of a taxable military housing bond for Fort Carson where over 70% of the bonds had an underlying rating of AA and the balance was rated single A. $243 million of Hartford Healthcare revenue bonds issued by Connecticut's Health and Educational Facilities Authority. $201 million for the Western Maricopa Education Center District in Arizona and $102 million in taxable bonds for Brown University Health. Among AA municipal credits, during the first quarter of 2026, we insured 20 primary and 5 secondary market transactions on a closed basis, amounting to a total of nearly $900 million in insured par.

This activity highlights the value, our guarantee provides as a backstop against headline risk and unexpected fiscal stress, whether from broad economic or financial developments, natural events or other causes. For non-U.S. public finance, new business in the first quarter of 2026 included a secondary local authority transaction in the U.K., annual extensions of liquidity facilities and a primary social housing transaction in France, marking our inaugural primary market guarantee in the social housing sector within the European Union.

Our global structure finance results were produced primarily by fund finance and financial guarantees for life insurance capital management purposes. Fund Finance continues to be a strong area of focus for us. This business is typically repeatable flow business. And since the transactions have relatively short lives, we earn the premiums much more rapidly and can recycle the capital more quickly, often within 1 to 2 years.

For example, the fund finance transactions we insured in the first quarter of 2026 have maturities that range from a few months to a little over 2 years. And as we said, we expect the majority of these transactions will be renewed at maturity. As we have discussed in the past, both non-U.S. public and structured finance have expanded the application of our products into various new sectors and geographic markets, and we look to continue to develop additional product applications and new counterparty relationships in line with our strategic objective to accelerate our business growth.

For instance, in first quarter 2026, we closed a significant capital relief transaction with a major financial institution in the Asia Pacific region guaranteeing a portfolio of fund finance exposures for a counterparty that we had previously done a modest amount of business with.

In closing, we expect demand to continue for our core products and believe we have abundant opportunities to further growth and greater diversification. We are off to a promising start in the second quarter of 2026, with a good pipeline ahead. Already in the second quarter, for instance, we have insured or issued commitments for $636 million for the city of Houston's convention and entertainment facilities department, approximately $130 million of senior student housing revenue bonds from Morgan State University in Maryland, approximately $300 million for the Burbank, Glendale, Pasadena Airport Authority in California and several large global structured finance deals.

We continue to maintain that at times when challenges or uncertainty arise in the economy in financial markets. When the cost of borrowing goes up, when market execution becomes less certain, rentees are trying to better manage their capital utilization, our products can help optimize a wide variety of transactions so our clients can accomplish more with lower financing costs and obtain capital more efficiently.

I will now turn the call over to Ben to discuss our financial results.

Thank you, Dominic and Rob, and good morning. I am pleased to report first quarter 2026 adjusted operating income of $115 million or $2.50 per share. This quarter's results include 2 noteworthy items. First, a $21 million after-tax benefit attributable to the recognition of carried interest from a sound point fund that sold its single underlying asset, and second, a $33 million onetime tax benefit due to changes in the U.K.'s Pillar 2 global minimum tax legislation enacted in the first quarter that reduced the company's global minimum tax accrual.

This compares to adjusted operating income of $162 million or $3.18 per share in the first quarter of 2025, which included an $82 million after-tax benefit related to the resolution of the LBI litigation. Recent new business production has contributed to a steady stream of scheduled net earned premiums and credit derivative revenues which were $90 million in the first quarter of 2026, compared with $89 million in the first quarter of 2025. Our deferred premium revenue held steady compared to last quarter at $3.8 billion. In addition, Alternative investments remain an important part of our overall investment strategy.

We have an inception to date IRR of approximately 12% on the alternative investment portfolio, which compares to an average yield of 4.2% over the past 3 years in our fixed maturity portfolio. As of March 31, 2026, our alternative investments had a fair value of $965 million. This portfolio generated $35 million in pretax adjusted operating income in the first quarter of 2026 compared with $53 million in the first quarter of 2025.

Other than the CLO investments, which experienced a decline in value quarter-over-quarter, our remaining alternative investments performed well and delivered relatively consistent results. The remainder of the available for sale and short-term investment portfolio also performed well, generating $82 million of net investment income in the first quarter of 2026, up from $75 million in the first quarter of 2025 as we shifted that portfolio towards higher-yielding corporate securities.

Turning to our below investment grade exposures. Economic loss development was $44 million in the first quarter of 2026, primarily attributable to Brightline and PREPA. However, loss expense included in adjusted operating income was primarily related to PREPA as the bright line losses are well within our unearned premium reserve and therefore, have not yet been recognized.

In terms of capital management, in the first quarter of 2026, we repurchased 882,000 shares for $75 million at an average price of $85.58 per share and also returned $18 million in dividends to our shareholders. After over 13 years of consistent share repurchases, we have now bought back 81% of the shares that are outstanding at the start of the program. And in that time, we have returned $6 billion to the shareholders under the program. During that same period, we increased our quarterly dividends per share from $0.10 per share to $0.38 per share which amounted to $929 million of additional distributions to shareholders.

As always, we actively assess the various opportunities to deploy our capital effectively and aim to invest in those that we believe provide the most attractive returns. At this time, we have decided to reduce our share repurchases over the next 3 months to a target of $30 million in order to use a portion of available capital to support our growth opportunities in our financial guarantee insurance and our new annuity reinsurance businesses in addition to other strategic considerations. We are excited to grow this platform, and we are advancing several promising opportunities for new business. Our holding company liquidity as of today is approximately $153 million of which $56 million is at AGL.

As of the end of the first quarter of 2026, we had reached record per share valuations of $128.61 for adjusted operating shareholders' equity and $188.74 for adjusted book value. reflecting the successful execution of our key strategic initiatives.

I will now turn the call over to our operator to give you instructions for the Q&A period.

[Operator Instructions] The first question comes from the line of Marisa Lobo.

With about $600 billion -- I'm sorry, could you hear me?

Yes.

With about $600 billion of projected you need supply in '26 and if penetration rates hold, what is your target for 2026 new issue in short par? And is the pricing environment supportive to translate into higher growth premiums?

With the market issuance, we would reject our penetration would probably be a consistent because of the credit conditions that exist in terms of spreads and rates. But we think the volume alone will give us a growth opportunity as well as we have some large deals that we know that are in the pipeline that will also help the year. So we expect a strong year apples-to-apples. And in terms of return, obviously, now we have a very sophisticated ROE model. We calculate on every risk that we write, we have a review function now over the whole process to make sure the ROEs are in line with our cost of capital so that we're not leading at all the value of the company or the opportunities that we see that we're being selective in terms of our underwriting choices as well as the pricing that we're looking for in terms of spread and return. But like I said, volume will help our volume this year. .

And we're seeing more [indiscernible] issuance as well as more infrastructure transactions, and also in health care, which is giving us a significant amount -- significantly amount more premium on those transactions. .

Remember, we're the slave to large deals, the large deals have their own time frame in terms of closing. We've many quarters where we expected a number of X. And because 2 deals didn't close at the end of the quarter and well into the next quarter, you have a very different volume structure. But as I said, if we look at over the year, apples-to-apples, we expect the year to be a strong year relative to public finance and [indiscernible] return hurdles from the same but to profitability. .

Okay. Great. And how are you incorporating AI into your processes? And where do you see the biggest opportunity for it to improve your credit selection?

That probably has to most discussions we're having in the organization. So obviously, AI represents a great opportunity for us in terms of being able to do the work we do, which is you appreciate, fairly repetitive on a credit-by-credit basis on a surveillance basis, on a review of the portfolio basis. A lot of those functions can be machine learned, and we're obviously applying it in every facet of our business. And most importantly, you've seen the activity in the secondary market, where we continue to push those numbers up significantly, utilizing artificial intelligence as part of the process. pBut remember, the even being also look at it to approve it. But at the end of the day, the compilation, the accessibility of the data, molding the data into a format that we've got our process for [indiscernible] and surveillance. It's critical to us. .

So we think as a company that does a lot of repeat functionality, we should be most benefited by the use of AI, and we've got Lilly, an AI committee that looks at everything. We're applying applications kind of across the board in areas you would even think of. like financial reporting, [indiscernible]. So there's a lot of implications or opportunities that we're applying it to and we think it's a critical tool for us to use in the future relative to how we want to manage the company in the business. .

Marissa, we're actually -- that's why you see the velocity of our secondary market transactions go much more quickly because it's -- we're actually using AI to interact with our clients much more quickly. In addition, we're -- our credit reports are being done using AI, but an individual actually views it, but it takes less time for an analyst to actually write them. .

That's great. And just moving, if I could, to the loss development. on Brightline, with the going concern audit opinion that was just issued and the interest payment grace period expiring. Can you talk to us, is there any -- have they been approached for any forbearance or restructuring. What scenario might it move to big category 3 here? .

Well, there's a lot of activity on Brightline, as you can appreciate in a lot of words in the marketplace in terms of the operations of the organization. However, if you look at our structure in terms of capital, the capital stack is roughly $7 billion. We're half of the top $2.4 billion. So you say yourself as a company worth at least $2.4 billion and the answer is on only comes back, absolutely. We don't see this as a loss situation, but obviously, we have to compare ourselves to what the rating agencies think in terms of what the capital they're going to access, how the regulators view it. As you know, our accounting model requires us to consider all possible scenarios and probably wait things. We got to put a scenario out there. There's got some loss content in it. But at the end of the day, we believe in the structure, we believe in our credit underwriting, we stand back on our historical results.

And time is on our side. Remember, in our portfolio, there's not any loss that would be significant to us in terms of in terms of principal and interest only when due. Theres' no acceleration. This, I think, has a $58 million payment annually to about $20 million -- so at the end of the day, it's not free cash flow. And as I said, I don't mind owning a railroad for $2.4 billion.

Your next question comes from the line of ommy McJoynt at KBW.

For investors that have become accustomed to AGO buying back roughly $500 million of stock and 10 in the last 12 years, was the slower pace of buybacks year-to-date and the message of a slowdown in buybacks for the next 3 months, is that meant to signal just a temporary slowdown here? Or is this a true change in the way you guys think about capital distribution? .

Well, when you say temporary, Tommy, that's a good question. I would say we look at the capital management, it's still a critical issue, still a critical strategic objective in the company. It's what we pay the most attention to. But at the end of the day, we front the company significantly. We've got to look at how we manage that remaining capital, where the opportunities lie. As we talked about in the life business, for instance, theoretically based on its growth pattern, it could absorb or need somewhere between $50 million and $150 million of capital to continue to exercise its growth program over the next 18 months. And we want to make sure we have plenty of capital for that as well as still having enough cushion to protect ourselves from some -- myoptic views of loss activities essentially a bright line in terms of what the capital charges are coming out of the rating agencies for that.

So we have to protect the company relative to trading. We've got to provide the opportunity to grow the business. We've done a tremendous job, and I think we're going to have the credit we deserve for the capital management we've done as Ben talked about $6 billion, 81% of the outstanding. Well, that's liquidating the company. We want to grow the company. we think we've got great opportunities to grow the company. But at the same token, if we can't use the capital, if we see the tie capital continues to build as it has in the past, we will be aggressive in our capital management, and of course, we'll protect our stock as well.

Got it. And then I think we've talked about this in the past, but I just want to confirm that -- when you think about your sort of first order or second order exposure to the Middle East crisis, I assume you think it's pretty minimal. But perhaps thinking of second order impacts around just the level of heightened risk globally. Have you guys seen an uptick in terms of like the pipeline or demand for sort of risk mitigation strategies from AG specifically over the past few months that you can pinpoint to the crisis in the Middle East? .

No, we haven't, Tommy, Thank God. If you noticed, and I've been in this business in this position for a long time, I've seen probably 4 or 5 recessions, maybe 3 or 4 more global crisis, and at the end of the day, look at the results that Assured's put up, never had a loss in order to buy back the amount of stock and pay the dividends we had, we had to be usually profitable. I see nothing affects that going forward. We haven't seen the demand, as you're saying, in terms of people running for the exits. Our basic policy today where our growth engine is fund finance, which is a very safe, highly rated book of business. We do capital arbitrage, but the volatility in the market does allow us to open up more portals of business opportunity because of spread -- widening spreads increasing, which gives us more opportunity to make money and be looking at more deals, but we don't see the panic at all. And as I said, in our life history, it really has never had an effect because the portfolio is so well written and so well protected from a credit point of view. .

And Tommy, we're seeing the increase in structure fans globally and international infrastructure due to regulatory requirements on banks becoming -- we're part of their solution when it comes to capital -- their capital management and capital efficiency and risk management, so that's where we're opening up and they're looking at our financial guarantee as a solution to helping their regulatory capital.

Yes. I think what that says about the company, right? We're opening up more counterplay relationships against banks across the world globe but providing us significant lines of credit capacity that they're going to absorb in terms of insurance -- credit risk, why would that be? Because we realized the strength of the company, the strength of the financial ratings, the ability to provide this capital arbitrage in spite of the market and the results that we've been able to generate in the past. So I think that alone would indicate the confidence that the market has in us and continues to provide us those opportunities. .

I also just want to add that in these banks core lending portfolios. It's not anything that they're risks that they're concerned about is the core lending they want to service their clients even further.

And then if I could just sneak one last modeling 1 in. Looking at the investment portfolio, excluding the alternative investments, -- what was your new money yield in the quarter relative to the effective yield on the portfolio?

So I'm going to spend the number right in front of me, but I'm going to say we're probably -- the new money yield is probably somewhere a little north of 4%. It's probably 4.4 or so. may be off 10 or 15 basis points there.

Your next question comes from the line of Geoffrey Dunn at Dowling & Partners. .

Dominic, I know you don't put hard numbers on this, but can you talk about how you think about the level of excess capital in the company or alternatively, the ROE drag from the excess capital in the company. Last time I heard a number, it was north of $2 billion. And so outside looking in, it seems like you have enough money for all of the above to keep an aggressive buyback plan in place as well as consider new alternatives. So -- can you maybe flesh that out a little bit more? And then also, as you pointed out, you bought back over 80% of the company over the last 12 years. How much is the flow of the stock coming into as a factor with your buyback appetite going forward? .

Yes. I don't think [indiscernible] the problems, Dave. So that could be a problem down the road. But today, it's not been a problem. So let's talk about capital. So right now, our capital is predominantly equity capital. As we look to the future and see growth opportunities, that mix of capital has to be looked at and examined, can we bring in more soft capital facilities to let the hard equity capital be aggressively managed from the standpoint of shareholder buybacks or other opportunities. The soft capital also will provide us opportunities to allocate some of that for growth.

And right now, we're saying to ourselves, we strength the company significantly. Some of the triggers to now exist on the overall balance sheet or portfolio after we examine more closely in the export soft capital could be a definite wave of the future as well as when we look at the capital, we have a rating agency. We have regulatory when companies come to us for large deals, they look at our balance sheet and the size of that balance sheet also gives them the confidence to write a $2 billion deal, a $2.5 billion deal. So we need to maintain certain size of asset as well for certain sides of the balance sheet to make sure that the issuer has full confidence in our ability to execute on the transaction and obviously provide the value that we expect in terms of the loss cost, liquidity and protection for the open investor.

So I think we're going to look at all aspects of the capital and say, are we still a capital management company? Absolutely. And we certainly use buybacks as the capital managed? Absolutely. As we look at the composition of capital, we're going to change the compensation? Absolutely. Do we think we have tremendous type of growth opportunities? Absolutely. So we're trying to balance all those balls in the air, then we're doing a pretty good job. And you'll see it by the end of the year, whether we've been able to meet the promise or not.

I think it's important, Jeff, that the large deals are really get paid. We get paid both on an absolute premium dollar basis, typically, and we get paid on a high return basis. And those are the deals we really need to capture to really grow ROE. Rob ticked off. We had a bunch of deals -- in the first quarter, there were over $100 million to part. These are the deals we're obviously going after. We need big deals, and we need -- and those are the ones that are really going to drive the higher returns that we're looking forward to. .

And don't forget, Jeff, those significantly large fund finance deals earn very, very quickly. So that PVP that comes in in structured finance will earn over the next year .

And also releases the capital every capital exactly. We've got a lot of things to consider, Jeff. As you appreciate, there's kind of a new wave of opportunity, new wave of businesses that we are looking at and all that needs some capital. And as I said, we've got to look at the mix of our capital and move to more soft facilities as opposed to hard cash equity in terms of how we meet some of these requirements and still provide ourselves the ability and the capability to do capital management through share repurchases. .

The magic number has been $500 million for buyback. When you think deploying the business plan for this year, do you anticipate deploying $500-plus million into non-FG, whether it be buyback or annuity RE or anything like that? I'm just curious in terms of the excess capital deployment. Is it just where it's going changes, but your target amounts don't .

Well, we have the balances what's running off in the portfolio from the standpoint of capital requirements were we putting on in terms of new business. And that delta can go anywhere from flat to maybe plus $200 million, depending on the type of business and the way you write the business. So you got that issue. But then we also make money. So that increases the capital. So we look at the balance of the two and then look at the new business I've talked about in the life business, we think, and we're pretty optimistic in terms of what we see in activity that, that could also require us to put out maybe anywhere between $50 million or $100 million of capital for that growth For the next few years. .

Yes, I think we told -- we told you guys we joined the life business. If we're looking at the Life business, we think, roughly 2, 3 years, we'll get to some kind of steady-state equilibrium we could probably be printing a 10% to 12% returns. And again, we are very focused, as Dominic mentioned earlier, on ROE, this is an area we're 100% focused on. We know we can do better. We are doing better, and we're seeing that, but we do need the capital to use to grow that ROE.

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

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

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, and welcome to the Assured Guaranty Limited Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Becky, and I will be the operator for the call today. [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference over to our host, Robert Tucker, Senior Managing Director, Investor Relations and Corporate Communications. Please go ahead.

Thank you, operator, and thank you all for joining Assured Guaranty for our Full Year and Fourth Quarter 2025 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 and 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 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; Rob Bailenson, our Chief Operating Officer; and Benjamin Rosenblum, our Chief Financial Officer. After their remarks, we will 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. We significantly advanced Assured Guaranty's key business strategies in 2025, positioning us for sustainable long-term growth. Among this year's most important accomplishments, we again brought our key shareholder value metrics at year-end 2025 to new per share highs of $186.43 for adjusted book value, $126.78 for adjusted operating shareholders' equity, and $125.32 for shareholders' equity.

We earned adjusted operating income per share of $9.08 compared with $7.10 in 2024 and created significant future earnings from financial guarantee originations. Our present value of new business production, or PVP, totaled $286 million with meaningful contributions from each of our 3 financial guarantee underwriting groups. We continue to be the leader in the new insurance market for U.S. municipal bond insurance and our strategic efforts to expand our U.S. municipal secondary market business saw a great success as we more than tripled our secondary market par insured over last year's performance. Rob will provide details on our financial guarantee production in a few minutes.

In our capital management program, we repurchased 12% of the common shares that were outstanding on December 31, 2024, while meeting our 2025 target of repurchasing $500 million of our shares. We also distributed $69 million to shareholders through dividends. And last week, we announced that we have increased our current quarterly dividend per share by 12% compared to November of 2025 amount, representing 14 years in a row of dividend growth.

Our alternative investments continue to perform well, including funds managed by Sound Point Capital Management and Assured Healthcare Partners. Alternative investments have provided an annualized inception-to-date internal rate of return of 13% through year-end 2025.

As we mentioned on prior calls, we successfully defended our legal rights and litigation with Lehman Brothers International, resulting in a pretax gain of approximately $103 million in the first quarter of 2025. We also reached successful resolutions of several other loss mitigation situations that were accretive to our financial results. Ben will discuss these further in a few minutes.

Lastly, during 2025, we completed substantially all the work required to leverage our decades of experience in life insurance securitizations and investment management to enter the life and annuity reinsurance business. In January of 2026, we acquired Warwick Re Limited, which we have renamed Assured Life Reinsurance Limited or Assured Life Re for short. This acquisition further diversifies our revenue sources and has the potential for significant synergies with our financial guarantee and investment activities.

Assured Life Re's primary business focus will be reinsuring fixed-term annuities, specifically multiyear guaranteed annuities known as MYGAs and pension risk transfer annuities. The Assured Life Re platform combines Assured Guaranty's core strength in credit and structured finance, management of our multibillion-dollar investment portfolio and our 20-year track record of providing financial guarantee services to the life insurance sector with the operational infrastructure and experienced life reinsurance professionals of Warwick Re.

We believe we are well positioned for growth in 2026 and beyond. Since we commenced operations in 1985, the value and reliability of our guarantee and the resilience of our business model have been repeatedly demonstrated, especially during financial crises, global pandemic and during other periods when it was difficult to foresee the direction of economic conditions. I will now turn the call over to Rob to provide more details on our financial guarantee production results.

Thank you, Dominic. In 2025, we generated our $286 million of PVP through transactions that, in aggregate, were of higher credit quality than in recent years. Municipal bond insurance remained in strong demand during 2025 as the U.S. municipal market experienced a second consecutive year of record issuance. In U.S. public finance, we originated $206 million in PVP, finishing the second half of the year strongly with $132 million in PVP, a 19% increase over the second half of 2024.

In looking at 2025, PVP was limited by the mix of business that came to market which resulted in our ensuring fewer large transactions in the BBB category than 2024. As a result, the municipal par we insured was weighted more heavily toward higher credit quality transactions with lower capital charges, and these higher rated deals produced less premium.

Overall, we guaranteed over $27 billion of municipal par, 16% more than in 2024 across more than 1,500 primary and secondary market policies. For insured new issue municipal par sold in 2025, Assured Guaranty achieved a 15-year high, [ reaping ] more than $25 billion and led the bond insurance industry with 58% of new issue insured par sold. Our new issued deal count grew 15% year-over-year to more than 900 transactions.

Perhaps most notably, we increased our U.S. public finance secondary insured par written more than 240% year-over-year to approximately $2 billion, which generated $44 million of PVP. With over $4 trillion of municipal bonds outstanding, we are excited about the opportunity available in bonds we could ensure in the secondary market.

We have made several technological and operational process improvements over a multiyear investment period to greatly enhance the secondary market team's ability to source, evaluate and execute transactions. The modernization of our platforms, including deployment of new market analysis tools and applications and real-time data integration as well as improved workflows drove a substantial increase in our underwriting speed and capabilities, enabling faster credit assessments, quote turnaround times and deal executions.

The strong new issue market demand on larger transactions showed continuing institutional appetite for our guarantee on such transactions. In 2025, Assured Guaranty would have 51 primary market issues with approximately $100 million or more in insured par for a total of approximately $12.6 billion of insured par sold. This is our highest annual number of $100 million-plus municipal transactions in over a decade.

Two of our transactions were honored at the 2025 Bond Buyer's Deal of the Year ceremony. JFK International Airport's Terminal 6 redevelopment project, which we insured $920 million of par in November of 2024, was recognized as the Green Financing Deal of the Year. And Alaska Railroad Corporation's Cruise Port revenue bonds, where we insured $108 million in 2025 was named the Far West Region Deal of the Year.

Other large deals in 2025 included $1 billion for the Dormitory Authority of the State of New York, $844 million for the Downtown Revitalization Public Infrastructure District in Utah, $730 million for the Alabama Highway Authority, $650 million for the Massachusetts Development Finance Agency on behalf of Beth Israel Lahey Health and $600 million for the New York Transportation Development Corp.'s new Terminal 1 at JFK Airport.

Also in 2025, we saw an increase in the use of our insurance among underlying AA-rated credits, which are credits rated in the AA category before insurance by S&P or Moody's. For AA-rated credits in both the primary and secondary markets, we issued over 160 insurance policies totaling approximately $7 billion of insured par, which year-over-year represented an increase of approximately 60% for both of those metrics. While such AA transactions produce less premium per dollar of insured par, they require us to hold less capital that generate attractive returns, hence overall insured portfolio credit quality and demonstrate market confidence in the strength, reliability and durability of our guarantee as a backstop against potential issuer downgrades, headline risk and market value declines.

Turning to our other markets. Non-U.S. public finance and global structured finance originations together contributed $80 million in PVP for 2025. we closed $37 million of non-U.S. public finance PVP in 2025, including $18 million in a strong fourth quarter. The year's production results were mainly driven by several primary infrastructure finance transactions in the U.K. and the European Union as well as secondary market transactions for U.K. sub sovereign credits.

Among the insured credits were a portfolio of general obligation loans to universities in the United Kingdom, a project finance loan for our road construction project in Spain and a note issue to refinance debt in the French fiber optic sector, our first primary market execution in France since the global financial crisis. In global structured finance, we guaranteed over 40 transactions in 2025 with a total PVP of $43 million, including strong fourth quarter PVP production totaling $20 million, primarily from fund finance facilities, insurance securitizations, the upsize of a transaction providing protection on a core lending portfolio for an Australian bank and consumer receivable transactions.

We have now built Fund Finance into a high-performance flow business that includes repeatable transactions whose renewals generate future PVP. And since these are shorter duration transactions, we also benefit because we earn the premiums more rapidly and can recycle the capital more quickly. For example, the transactions we insured this year had a stated maturity within 1 to 4 years, and we will earn all the premiums during that period. This fund finance earnings time frame is 2 to 3x faster than the typical structured finance business we insure.

Looking toward par and PVP production in 2026, we have a robust transaction pipeline and are expecting strong results from each of our 3 financial guarantee product lines. Thus far in 2026, we have already closed several large transactions. We believe we have significant short-term and long-term opportunities for growth across our financial guarantee markets.

In the U.S. public finance market, we continue to be the premier insurer of new issue municipal bonds and have developed more efficient and broader capabilities to serve the enormous secondary municipal market. In structured finance, our fund finance business provides us with a stream of shorter duration transactions that are repeatable and complement the often larger and longer duration transactions that have been typical in that sector. We have also seen expanding business opportunities in Europe and Australia across both public and structured finance.

Most important of all, we have the financial strength, experienced staff and proven business model to continue growing and leading the financial guaranty industry.

I will now turn the call over to Ben to discuss our detailed financial results.

Thank you, Dominic and Rob, and good morning. I'm pleased to report fourth quarter 2025 adjusted operating income of $109 million or $2.32 per share, representing an increase of 83% on a per share basis from adjusted operating income of $66 million or $1.27 per share in the fourth quarter of 2024. Our full year 2025 adjusted operating income was $445 million or $9.08 per share, representing an increase of 28% on a per share basis, from $389 million or $7.10 per share in 2024.

The largest drivers of the quarter-over-quarter increase were a $23 million pretax gain associated with a loss mitigation strategy, higher earnings from alternative investments and lower loss expense. Full year results in 2025 also benefited from a $103 million gain related to the resolution of the LBIE litigation, $15 million in fees related to workout credits and a $20 million increase in the pretax contribution from the Asset Management segment.

As you can see, 2025 was a big year for resolving several previously troubled exposures. In addition to the gain on the LBIE resolution, loss mitigation efforts resulted in the paydown of our largest below investment-grade security, reducing the amount of loss mitigation securities in our investment portfolio by over $400 million. In addition, a commercially leased building that was part of a loss mitigation exposure was sold, removing another troubled asset from our balance sheet. The company was able to fully recover its losses through the negotiated settlements that were finalized in 2025.

This further demonstrates the strength of our underwriting, our persistence in defending our rights and our multifaceted approach to working with issuers and developing innovative solutions. Enhancing our investment returns is another strategy that yielded results this past year. As of December 31, 2025, our alternative investments had a fair value of over $1 billion, up from $884 million as of December 31 and 2024.

In the fourth quarter of 2025, alternative investments generated $47 million in pretax adjusted operating income and $160 million of pretax adjusted operating income for the full year, representing a year-over-year increase of 33%. Since we commenced the alternative investment strategy, we have consistently reported an inception to date IRR of approximately 13%. As a point of comparison, our fixed maturity portfolio, average yield over the past 3 years has been 4.16%.

In terms of capital management, we again reached $500 million in share repurchases, buying back 5.8 million shares or almost 12% of the shares outstanding at the end of 2024 at an average price of $85.92. We are committed to prudent capital management and have continued to repurchase shares in 2026. Our remaining share repurchase authorization as of today is $204 million. As always, we actively assess the various opportunities to deploy our capital effectively and aim to invest in those that we believe provide the most attractive returns.

Our holding company liquidity as of today is approximately $130 million, of which $48 million is at AGL. Last week, our Board of Directors also approved a 12% increase in our quarterly dividend per share from $0.34 to $0.38.

Finally, I want to highlight the acquisition of Warwick Re, which launched our annuity reinsurance platform and which we expect to add another source of earnings separate from our financial guarantee business. We are actively progressing several promising opportunities in our pipeline to assume new blocks of annuity business and expect to make investments in this business over the next few years. We are excited to grow this business, which we have renamed Assured Life Reinsurance, and we'll have an update for you on the first quarter earnings call. In the meantime, we have an annuity reinsurance presentation on our website.

I will now turn the call over to our operator to give you instructions for the Q&A period.

[Operator Instructions]

Our first question comes from Marissa Lobo from UBS.

Last quarter, you noted that issuance in BBB credits had come back from prior lower levels. How did this look in the fourth quarter? And what are your thoughts for the mix into 2026?

Yes, we're seeing that come back, and -- we started in the fourth quarter, and we're seeing -- we're off to a very good start in the first quarter. So we believe that that's going to continue. We've closed a number of transactions already in U.S. public finance as well as infrastructure finance in Europe. And so we continue to see that -- we're very excited about the 2026.

Okay. And looking at the big exposures, could you give us an update on your outlook across the U.K. utilities and Brightline as well?

Sure. I'll start with that and let Dominic and Rob chime in. So we are looking across obviously the U.K. utilities. When you look at what happened during the quarter, our U.K. water utility BIG exposure went down as we upgraded Southern Water. We feel pretty good about that upgrade as Southern Water was out in the market and had new equity introduced to it. So they raised debt and equity, making it really, in our opinion, investment-grade credit.

So for U.K. Water, we're 100% focused now really on, just Thames as being the only problem exposure there. We are part of the creditors committee, as you know, on Thames, and we are actively looking to work with the U.K. government on a market-based solution, and we're hopeful to have an update on that relatively shortly. Do you want me to cover Brightline or do you have any questions on that?

No, that's helpful. Brightline, please?

So for Brightline, we remain confident in our thesis when we went into Brightline. There is a lot of subordination below us, over $4 billion below us. And that is a really good position to be in a capital stack of a troubled exposure. Their ridership is going up. I think they're on the way to recovery. And we're obviously happy to be part of any solution they have. But we remain committed to them as well as we are very confident in our position in that exposure.

Our next question comes from Tommy McJoynt from KBW.

A question on your alternative investment portfolio. I tend to remember that it's largely CLOs that are in there. But can you just talk about the exposure there? Is there anything in private credit that we should keep on the radar?

We don't really take direct -- well, absolute direct exposure to private credit. Obviously, we are investing in the CLO market and some of the names are in there as well. However, we do mark our portfolio to the market, and we believe that any pain that probably has been experienced in the market to date, for many of the names that have been in there, we've experienced. But we remain confident that again, that our exposure there is in good shape, and we feel pretty good about it.

Okay. And switching gears, to the extent that you guys allocate some capital into the annuity reinsurance market, would that preclude you from sticking with your $500 million annual buyback target? Or should we think of those as 2 independent opportunities?

I think you got to look at the entire capital stack as independent. So we've got a range of capital management opportunities this year in terms of stock buyback. But that range will be dictated by what other opportunities we see in the market, specifically in the life and the annuity re. As we said when we made the acquisition, we have a substantial excess capital there that allows us to write a substantial amount of new business. But as we've seen, we've gotten more inquiries than we were actually expecting. So we're pretty happy with the opportunities we see there.

So that might allocate some more capital. So that will dictate exactly where we land in the range of our stock buyback. But we're committed to the capital management. We're committed to stock buyback and repurchasing. We'll just measure that as we go throughout the year.

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

Thank you, operator. 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.

Good morning, and welcome to the Assured Guaranty Limited Third Quarter 2025 Earnings Conference Call. My name is Becky, and I'll be your operator for today's call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to our host, Robert Tucker, Senior Managing Director, Investor Relations and Corporate Communications. Please go ahead.

Thank you, operator, and thank you all for joining Assured Guaranty for our third quarter 2025 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 outlook, 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. 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 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 of Assured Guaranty Limited; Rob Bailenson, our Chief Operating Officer; and Ben Rosenblum, 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'd 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. We continue to build value for Assured Guaranty shareholders and policyholders during the third quarter and first 9 months of 2025. Adjusted book value per share of $181.37 and adjusted operating shareholders' equity per share of $123.10, both reached record highs at the end of the third quarter. Year-to-date, Assured Guaranty earned adjusted operating income of $6.77 per share. This is an increase of approximately 17% compared with the same period last year. Third quarter financial guarantee production was strong. We produced $91 million of PVP in the quarter, 44% more than in the third quarter of last year and 42% more than in the second quarter of 2025, as transactions coming to market return to a more typical business mix for Assured Guaranty. Rob will provide more details on this later in the call.

For the first 9 months, we generated a total of $194 million of which U.S. public finance business produced $152 million. We benefited from record U.S. municipal bond issuance and strong investor demand for our municipal bond insurance including both from institutional investors on some very large infrastructure transactions. Additionally, our U.S. public finance secondary market business flourished with $1.5 billion of insured par, representing 2.5x the amount of secondary business we insured in all of 2024. Non-U.S. public finance and global structured finance contributed $42 million of PVP collectively during the first 9 months. Production in these business lines tend to be more episodic than in U.S. public finance because their transactions are fewer, generally larger and typically have longer lead times.

In structured finance, we've been building our subscription finance business which is characterized by many smaller, shorter duration and renewable transactions. Rob will provide more details on this. Our investment portfolio performance has been enhanced by the greater use of alternative investments in recent years. We continue to see excellent performance from our alternative investments, whose inception to date annualized internal rate of return, including from funds managed by Sound Point and Assured Healthcare Partners was approximately 13% through September.

In terms of our share repurchase program on November 5, the Board of Directors authorized the repurchase of an additional $100 million of our common shares, bringing our current authorization to just over $330 million. I'm looking forward to a successful fourth quarter in which we have already booked some sizable transactions. We continue to look for strategic opportunities to expand our current insurance businesses into new sectors and new markets and to diversify our revenue sources further to support prudent sustainable growth. I will now turn the call over to Rob.

Thank you, Dominic. In the third quarter, the PVP across our 3 insurance business lines was $91 million. This result was led by our core business, U.S. public finance. We closed U.S. public finance transactions totaling $7.9 billion of par in the third quarter compared with $5.4 billion in the third quarter of 2024. The third quarter of this year saw a marked change from the previous 2 quarters in the business mix of U.S. municipal bonds that came to market. Many BBB issuers held back from coming to market during the first 6 months of the year. This resulted in a skew toward higher rated transactions in the available market for our insurance during the first half of the year.

However, in the third quarter, issuance by BBB credits came back from its temporarily lower levels and the mix of sectors and of underlying credit ratings in the municipal bonds we insured came more in line with our typical production mix, which contributed to strong third quarter results.

For the first 3 quarters of the year, U.S. municipal bond issuance increased by more than $50 billion over what was already a record issuance during the first 9 months of 2024. And total primary market insured par volume rose 18%. We continue to lead the industry, ensuring 63% of the total insured U.S. municipal market par sold in 9 months 2025, compared with 57% in 9 months 2024, ensuring approximately $21 billion of primary market par through September 30. Also year-to-date Assured Guaranty ensured some of the largest transactions that came to the municipal market, reflecting the continued institutional demand for our guarantee and the increased price stability and market liquidity our insurance can provide.

For example, on a sold basis, we insured 14 transactions of $100 million or more in the third quarter. Year-to-date, we insured over 40 transactions of $100 million or more. For the third quarter, this included approximately $650 million for the Massachusetts Development Finance Agency, $600 million for the New York Transportation Development Corp., New Terminal 1 at JFK Airport. $422 million for the city of Orlando and $372 million for the Illinois Municipal Electric Agency. Additionally, AA issuers and investors have continued to derive value from our guarantee. In aggregate, during the first 9 months of 2025 we issued 132 policies on bonds with AA underlying ratings across the primary and secondary municipal markets, totaling $5.8 billion of par.

Further, our secondary market U.S. public finance strategy continued to produce strong results. We generated $32 million of PVP in the first 9 months of 2025, compared with $5 million in the first 9 months of 2024. The company's $1.5 billion of par written in the secondary market represented 7% of our U.S. public finance par written in the first 9 months of 2025 compared with 2.4% in the first 9 months of 2024. With $4 trillion of municipal bonds outstanding, this business has plenty of room to grow.

Non-U.S. public finance added $5 million in PVP for the quarter and has contributed $19 million in PVP year-to-date. Year-to-date contributions or from several primary infrastructure finance and regulated utility transactions throughout the U.K. and the European Union as well as secondary market transactions for U.K. subsovereign credits. Global structured finance contributed $8 million in PVP for the quarter and $23 million in PVP year-to-date. Global structured finance's year-to-date PVP contribution came primarily from subscription finance and the upside of a transaction in Australia that provided protection on a core lending portfolio for an Australian bank.

As Dominic mentioned, our global structured finance business has increasingly moved towards repeatable business. which generates future premiums as we see with subscription finance. And since these are shorter duration transactions, we also benefit because we earn the premiums more rapidly and can recycle that capital. For example, the new business we insured in the first 9 months of this year will mature within 5 years, and we will earn all the premiums during that period. This time frame is 2 to 3x faster than the structured finance business we were insuring just 5 years ago. We are looking forward to a solid finish for the year.

I'll now turn the call over to Ben for more details on our financial results.

Thank you, Dominic and Rob, and good morning. Adjusted operating income in the third quarter of 2025 was $124 million or $2.57 per share which compares with adjusted operating income in the third quarter of last year of $130 million or $2.42 per share. In comparing third quarter 2025 to third quarter 2024, it's important to note that investment income portfolio and the scheduled premiums from the financial guaranty insured portfolio, both contributed more to adjusted operating income in the third quarter of this year than the comparable period of last year. .

As of September 30, 2025, our deferred premium revenue was $3.9 billion, consistent with last quarter. Large premium transactions as well as supplemental premiums on certain existing transactions contributed to the stable warehouse of earnings that offset amortization on the existing insured portfolio and demonstrate the strength of our underwriting and new business development efforts. Earnings from the investment portfolio come in several forms with different earnings recognition methods.

The majority of our investments are available for sale, fixed maturity and short-term securities that are in net investment income. This portfolio earned $11 million more in the third quarter of 2025 than it earned in the third quarter of 2024 due to several factors. First, certain CLO equity tranche investments that were previously in a CLO fund reclassified to the available-for-sale fixed maturity portfolio. Net investment income in the third quarter 2025 included $9 million related to the CLO equity tranches, whereas in the prior year, the change in the NAV of the CLO fund was $8 million and was reported in equity and earnings of investees.

And second, net investment income on the externally managed fixed maturity portfolio increased by $4 million as our managers reinvested into some corporate securities that were higher yielding. Offsetting these increases was a reduction in earnings of $7 million from the short-term investment portfolio as interest rates and our average balances declined.

In addition to the CLO equity tranches, we have other alternative investments whose changes in NAV are reported in adjusted operating income. Earnings from this portfolio tend to be more volatile than earnings from the fixed maturity portfolio. In the third quarter of 2025, the change in NAV from these alternative investments was a $25 million gain compared with a $28 million gain in the third quarter of 2024.

On an inception-to-date basis, as of September 30, 2025, our aggregate alternative investments have generated an annualized internal rate of return of 13%, substantially greater than the returns on the fixed maturity portfolio. While adjusted operating income in the third quarter of 2025 reflects a modest decline compared with the third quarter of 2024, this was primarily attributable to the amount of benefit related to improvements in U.S. RMBS recoveries. In both periods, we increased our recovery assumptions on second lien charged-off balances, which resulted in a $26 million benefit in the third quarter of this year and a $29 million benefit in the third quarter of last year. These assumption updates are based on observed trends over the past several years. Last year, we also updated recovery assumptions on first lien transactions. However, these assumptions remain static this year.

Overall, we saw positive results in our third quarter loss development with a total net economic benefit of $38 million, primarily related to legacy RMBS exposures and a non-U.S. public finance exposure. As I mentioned last quarter, the largest below investment-grade exposure in the investment portfolio, which was obtained as part of a loss mitigation strategy was paid down in the third quarter. While there was no significant impact on income associated with this final resolution on an inception-to-date basis, we received over $100 million more than we paid out.

In October, a commercially leased building that was part of a loss mitigation strategy for a troubled insured exposure was sold. We expect to realize an after-tax gain associated with the sale and final resolution of this exposure in the fourth quarter of approximately $10 million to $15 million more than we paid out. These outcomes showcase our multifaceted approach to loss mitigation, combining vigorous legal defenses, enforcement of our rights under financial guarantee insurance contracts and financial flexibility as well as our ability to extract value from the underlying collateral of our workout credits.

Turning to capital management. In the third quarter of 2025, we repurchased 1.4 million shares for $118 million at an average price of $83.06 per share and also returned $16 million in dividends to our shareholders. Including our Board's approval earlier this week of an additional $100 million in share repurchases, our remaining authorization is $332 million.

In terms of our current holding company liquidity position, we have cash and investments of $272 million, of which $35 million resides in AGL. These liquidity balances reflect the $213 million cash component of the $250 million stock redemption approved by the Maryland Insurance Administration that was implemented in August. Share repurchases, along with adjusted operating income and new business production collectively contributed to new records for adjusted operating shareholders' equity per share of over $123 and adjusted book value per share of over $181. While adjusted operating income varies from period to period, the consistent quarterly increases in these book value metrics reflect the value of our key strategic initiatives, which build shareholder value over the long term.

I'll now turn the call over to our operator to give you the instructions for the Q&A period.

[Operator Instructions] Our first question comes from Marissa Lobo from UBS Group.

So first, on the changes to the investment portfolio you outlined, including higher-yielding corporates and CLO equity. How are you thinking about the ongoing allocation to these higher-yielding sectors in light of current macro trends?

Were always work with our outside investment managers, and we have an internal group that looks at our investments as well, both our treasury and functional alternative investments. And our idea is to obviously both optimize the yield on our investment as well as maintain a safe portfolio with adequate liquidity in the event we have a loss.

Okay. And just looking at the listing of the low investment grade, could you talk a little bit about the issues with the Brightline transportation exposure and what's causing some of the pressure on those deals?

Well, Brightline, as you know, is a new operation. They're having the total growing pains of a startup. They had a problem with both the choice of the lines and the number of the cars you're able to put on the availability for service. We're very comfortable with the structure, with our exposure. You remember we're in the senior most section of the capital stack, significant equity and subordinated debt is beneath us. So in terms of our view of it, they're having the typical growing pains as they get better at their management of both availability and route structure, it will basically work itself out.

And finally, just looking at the opportunity set. I was curious if there's a place for AGO to get involved in the current data center CapEx cycle?

I'll let Rob -- but yes, absolutely.

Yes, we are actually evaluating the data center, and we are -- we look at that opportunity every quarter as well as other opportunities we have executed in new areas like liquid natural gas, and we are actively looking at data centers as well.

It's an asset that led to [ self structure ].

[Operator Instructions] our next question comes from Tommy McJoynt from KBW.

Along the same line of that previous question. But more broadly speaking, I guess, what do you guys view as the pipeline to grow written premium into 2026. So as you guys look about the various opportunities for increased infrastructure spending, any other structured credit pieces. If you could just talk about the pipeline into 2026?

Well, we see great opportunities with all 3 of our financial guaranty lines of business. In U.S. public finance, as you've seen, we've made a big investment in secondary market both internal resources as well as modernizing our systems where we can interact much more quickly with our asset managers and investors that are looking for secondary market opportunities. As you can see, we've had great success this year, and we continue to see that as an opportunity going forward and a growth opportunity given that the market is 90% uninsured, there are a lot of credits that we can actually provide value on. It also demonstrates the trading benefit and trading value that we see in the market, and it helps us on the primary execution and also those primary executions help us in the secondary market as well.

In global structured finance, we're looking at core lending portfolios of banks and also regulatory capital that's needed in -- for these Europe -- most of the European and Australian banks. And as you can see, we've executed significantly in the fund finance sector, and we see continued growth opportunities there. And in Australia, we're looking at infrastructure as well, like airports and other utilities. So we're very -- we feel very strongly going forward in the sector.

Yes, I think we're very bullish on the ability of the company to produce and what production is going to look like going forward. As you look in the current quarter, it kind of reinforces our view of the domestic public finance market that we were getting hurt by a mix of business for the early quarters and this quarter kind of returned to normal and so the activity that we're able to book through that cadence. If you look internationally, as Rob says, we've got tremendous opportunities kind of across the globe where we have the law in our favor or rule of law, and those markets are expanding in terms of both asset classes, as you somebody mentioned, in terms of data centers, it's an opportunity that we've seen coming strongly.

Obviously, we're concerned about the power sources for some of those things, but that's part of the underwriting equation. As Rob said, we shifted to a different type of structured finance. It's shorter term, earnings quickly, releases capital for recycling, will provide a better ROE to the bottom line of the company. Those opportunities, as more counterparties we identify and able to get an agreement with, we'll continue to expand that market and become a significant part of a repeatable business. So we look for good revenue sources to meet our underwriting criteria, and we think that there's a great opportunity globally to the type of businesses that we write and the success we've had as I said, the quarter, I think kind of verifies that or give some validation to that premise.

I also want to just reiterate, we've been actively opening up new counterparties in both Europe and Australia, that want to trade with us for their core lending portfolios and risk-weighted assets. And as we open up these lines to these banks and trading with these banks, we help them in many areas, not just in fund finance, but other parts of the balance sheet that they need risk-weighted asset protection.

Got it. And switching over to the Puerto Rico side, there were some positive developments during the quarter with the Oversight Board and some consolidation in the creditor groups. What's the onus for you guys to get more positive on -- where you'd have to book a favorable reserve development particularly around that PREPA exposure? Like what type of events would you need to see?

Well, Tommy, 2 things. One, you just cost me money because I bet the room we would not get a PREPA question. So now I'm down some bucks, thank you very much for that. What's going to really get a recognition of the value that we placed on the reserve and the claim is a deal. And obviously, we've had 3 deals that have been rescinded on us by the government. And we think we're in a very preferred position relative to being a creditor based on the appellate decision recently in terms of the perfected of our lean and the size of the claim.

Now this administrative expense for the might has been disappearing. We've been steadfast in our direction in our view that we're going to defend our legal rights. And a great example is if you look at the current year, there are 3 transactions that reflect the full recovery of any paid losses or paid losses, if any, as well as an additional return on the fact that we held to our legal rights and litigated or negotiated ultimate settlements in our favor. And if you go back to RMBS, I look at it, we're 4 for 4. I don't expect to go 4 for 5.

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

Thank you, operator. 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.

Good morning, and welcome to the Assured Guaranty Limited Second Quarter 2025 Earnings Conference Call. My name is Ezra, and I will be the operator for today's call.

[Operator Instructions]

Please note that this event is being recorded. I would now like to turn the conference over to our host, Robert Tucker, Senior Managing Director, Investor Relations and Corporate Communications. Please go ahead.

Thank you, operator, and thank you all for joining Assured Guaranty for our second quarter 2025 financial results conference call. Today's presentation is made pursuant to the safe harbor provision 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, both 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 Limited; Rob Bailenson, our Chief Operating Officer; and Ben Rosenblum, 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'd 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. We continue to build value for Assured Guaranty's shareholders and policyholders during the second quarter and first 6 months of 2025. Adjusted book value per share of $176.95 and adjusted operating shareholders' equity per share of $120.11, both reached record highs at the end of the second quarter. Adjusted operating income per share was $4.21 and $1.01 for the first half and second quarter, respectively. Ben will provide more details later about our financial results. U.S. municipal issuance remained strong in the first half of 2025.

Through June 30, the par amount of U.S. municipal issuance was 17% ahead of last year's record pace. We ensured 64% of the insured par sold in the primary market during the first half of 2025. This indicates that the market recognizes the strength of our guarantee and value proposition. One of our strategic priorities in 2025 was to increase our production and ensuring U.S. municipal bonds in the secondary market. We wrote nearly $900 million of secondary market policies in the first half, including over $500 million in the second quarter. Our first half secondary par was 150% of the total amount of secondary par we insured in all of 2024.

And as I have mentioned in the past, we received significantly higher premiums on our secondary market policies. Overall, our U.S. public finance originations in the first 2 quarters where of unusually high credit quality and produced $74 million of PVP. Rob will provide more details on our high-quality business mix in a few minutes. With the addition of non-U.S. public finance and global structured finance, six-month PVP totaled $103 million. In capital management, we remain committed to our share repurchase program with a target of this year of $500 million. So far this year, as of August 6, 2025, the company had repurchased $296 million of common shares, representing 6.8% of the shares that were outstanding on December 31, 2024. And in August, our Board authorized the repurchasing of additional $300 million of its common shares. We are also pleased to announce that in July, a $250 million stock redemption or a special dividend, but our U.S. insurance subsidiary was approved by our Maryland regulator.

Over the years, we have repeatedly proven the strength and resilience of our business model. Reflecting this on June 30, S&P Global Ratings affirmed Assured Guaranty's AA financial strength rating with a stable outlook citing our very strong competitive position, excellent capital and earnings, well-diversified global underwriting strategy and exceptional liquidity. Additionally, last week, KBRA affirmed Assured Guaranty's AA+ financial strength rating with a stable outlook, setting substantial claims paying resources, strong risk management, leadership position in the financial guaranty market, high-quality insured portfolio and conservative investment approach, among other factors.

We believe we are now on a growth trajectory in both U.S. and non-U.S. markets. In 2022, after a long period of reducing our insurance exposure, the amount of our new business each year began to exceed what was amortizing in our insurance portfolio. That began the current trend of increasing the size of the insured portfolio. We intend to continue our leadership position in the U.S. municipal bond insurance while further expanding and diversifying our global infrastructure and structured finance reach. I will now turn the call over to Rob to discuss in detail our production results.

Thank you, Dominic. Assured Guaranty led the municipal bond insurance industry in par insured during the first half of 2025, capturing 64% of the insured par sold. We insured $14.1 billion of new issue par sold, 30% more than during the same period last year. As Dominic discussed, in the secondary market, we insured an additional $900 million of par at much higher premium rates. In aggregate, during the first half of 2025 our primary and secondary insured municipal par totaled approximately $15 billion. We also significantly increased the number of primary market transactions we executed granting 474 new issues during the first half, 44% more than in the period last year.

For the second quarter of 2025, our new issue insured par sold of $9.5 billion was up 32% year-over-year, while the total insured portion of the market was up by 21%. Our deal count for the quarter was up 41%. First half results reflected an unusual operating environment, the ratings of new issues in the first half of this year were more weighted toward higher quality and therefore, lower average premium rates than has typically been the case. These higher-quality credits also tend to moderate our overall risk profile and result in lower rating agency capital charges. Our guarantee adds value to the high-quality bonds because it can further enhance credit quality, reduce borrowing costs, mitigate the impact of downgrade and headline risk, improve market liquidity and potentially stabilize market value.

During the first half of 2025, we issued over 100 policies totaling $5 billion of AA par, some of which were in the secondary market. These are issues with underlying ratings in the AA category by S&P or Moody's. For municipal transactions we closed in the first half of 2025, such AA credits represented 32% of our insured par. This represents a 50% increase over the percentage of AA business reinsured in each of the previous 3 years.

During the second quarter, we issued 54 primary and secondary market policies totaling $3.3 billion of AA credits. The composition of our business mix in the second quarter of 2025 was more heavily weighted toward AA credits than last year's second quarter, where we also had 2 large high premium transactions that significantly boosted that quarter's PVP. This year, we have also ensured a number of transactions with in short par amounts of $100 million or more. Institutional investors are large buyers of these transactions, and they continue to value our guarantee on them. In the first half of 2025, we guaranteed par of at least $100 million on 27 transactions for a total of $6.7 billion of insured par sold. Of that, during the second quarter, we guaranteed 19 transactions totaling $5.2 billion of insured par sold. The insured par amounts of some of these larger transactions included $1 billion for the Dormitory Authority of the State of New York, $844 million in aggregate for 2 issues for the Downtown Revitalization Public Infrastructure District in Utah, $411 million for Allegheny County Airport in Pennsylvania, and $361 million for Meritus Health issued by the Maryland Health and Higher Education Facilities Authority.

In our other markets, non-U.S. public finance contributed $14 million in PVP for the first half of 2025. Second quarter 2025 transactions included one primary and several secondary infrastructure transactions in the U.K. Additionally, in Europe, we issued a guarantee for Spain's A127 Aragon Regional Roadway, our first post financial crisis P3 transaction in Spain and a guarantee for XP fiber, the largest independent fiber-to-home operator in France, which is our first primary transaction in French infrastructure since we opened our Paris office. The nature of this business which includes large transactions with significant lead times result in less predictable quarterly production results. Structured Finance contributed $15 million in PVP for the first half of 2025. Within Structured Finance, results were primarily attributable to subscription finance and gold corporate transactions. Subscription finance transactions are typically short duration, so their PVP earns significantly faster than the PVP generated by our other business segments.

Further, based on our experience with these deals there is an expectation that many of these transactions will extend or renew at maturity, generating additional PVP that was not recognized at the time of closing. Since 2021, we have seen growth in this product line year-over-year, and we expect this growth to continue in the coming years. Looking at the third quarter, we are off to a good start, ensuring approximately $2.8 billion in par close in the month of July. This includes $600 million of par for the new Terminal 1 and New York's JFK Airport with over $10 million in claims paying resources. We are well equipped to support projects of this scale. We are also in the process of closing another substantial transaction in Australia, as a follow-up to the transaction we insured in 2024.

In closing, we believe we are well positioned for the second half of the year. As Dominic indicated earlier, the U.S. municipal market is seeing high issuance with some forecasts projecting that municipal issuance in 2025 to surpass 2024's record of $500 billion. Total market volume had already reached $278 billion by June 30. We see many attractive opportunities in global infrastructure and structured finance. We have confidence in our strategy and a commitment to succeed. I will now turn the call over to Ben to discuss our financial results further

Thank you, Dominic and Rob, and good morning. Second quarter 2025 adjusted operating income was $50 million or $1.01 per share, which compares with adjusted operating income of $80 million or $1.44 per share in the second quarter of 2024. The key revenue drivers, net earned premiums and net investment income on the available for sale portfolio were both up in the second quarter of 2025, compared with the second quarter of 2024, and which reflects the earnings power of each of these predictable streams of core earnings. Net earned premiums and credit derivative revenues increased by $5 million, primarily due to earnings on new large transactions and supplemental premiums written in 2024.

Our deferred premium revenue, which is our future store earnings, was $3.9 billion. Net investment income on the available-for-sale fixed maturity and short-term investment portfolio increased $8 million in the second quarter of 2025. There were a few notable changes in the composition of the available-for-sale investment portfolio compared with the second quarter of 2024 that contributed to the increase in net investment income. First, certain CLO equity tranche investments were reclassified to the available-for-sale fixed maturity portfolio from a CLO fund whose change in net asset value or NAV, was previously reported in adjusted operating income. Net investment income in the second quarter of 2025 included $9 million related to the CLO equity tranches, whereas in the prior year, the change in the NAV of the CLO fund was $3 million.

And second, net investment income on the externally managed portfolio increased by $6 million as our managers reinvested into higher-yielding assets. However, the average balance of our short-term investment portfolio declined as did the short-term interest rates resulting in an offsetting decrease of $10 million in net investment income. In addition to the CLO equity tranches in the available for sale portfolio, we also have other alternative investments whose changes in NAV are reported in adjusted operating income. Earnings from this portfolio tend to be more volatile than the fixed maturity portfolio.

In the second quarter of 2025, the change in NAV from these alternative investments was $5 million compared with $15 million in the second quarter of 2024. On an inception-to-date basis, as of June 30, 2025, our aggregate alternative investments has generated an annualized internal rig return of 13%, substantially greater than the returns on the fixed maturity portfolio. Changes in the fair value of trading securities which mainly consists of Puerto Rico contingent value instruments also tends to be volatile. In the second quarter of 2025, the change in fair value of trading securities was a $2 million gain compared with a $17 million gain in the second quarter of 2024. The changes in fair value of alternative investments and trading securities are 2 of the 3 primary drivers of the decrease in adjusted operating income in second quarter 2025 compared with second quarter 2024.

The last notable component of the variance is an increase of $27 million in the Insurance segment loss expense. In the second quarter of 2025, loss expense was primarily attributable to additional reserves on certain U.K. regulated utility and U.S. [indiscernible] revenue exposures. Loss expense is a function of both economic loss development and the amortization of deferred premium revenue. In the second quarter of 2025, economic loss development was $36 million, mainly due to certain health care U.K. regulated utility and municipal revenue exposures. Breaking down the main contributors of our second quarter results, the Insurance segment contributed $76 million and the Asset Management segment contributed $4 million. These segment earnings were offset in part by the corporate division's adjusted operating loss of $29 million in the second quarter of 2025, which is down from a $35 million loss in the prior year.

On the capital management front, we repurchased 1.5 million shares for $131 million at an average price of $85.03 per share, and also returned $19 million in dividends to our shareholders in the second quarter of 2025. Including our Board's most recent $300 million share repurchase authorization, our current remaining authorization is $356 million. In terms of our current holding company liquidity position, we have cash and investments of $157 million, of which $60 million resides in AGL. Share repurchases, along with adjusted operating income and new business production collectively contributed to new records for adjusted operating shareholders' equity per share of over $120 and adjusted book value per share of almost $177.

While adjusted operating income varies from period to period, the consistent quarterly increases in these book value metrics reflect the value of our key strategic initiatives, which build shareholder value over the long term. Since the end of the quarter, we had 2 very positive developments which demonstrate the successful execution of several of our key strategic initiatives. First, after many years of negotiation and hard work, our largest loss mitigation security with a carrying value of $408 million as of June 30, 2025, was paid down using the proceeds from the liquidation of the trust assets. This outcome showcases our multifaceted approach to loss mitigation, combining a vigorous legal defense and financial flexibility.

We reached a positive resolution after pursuing our legal rights allocating capital to repurchase most of the outstanding exposure at discount and remaining patient while the collateral value recovered. There will be little impact on the third quarter income for this final resolution. However, on an inception-to-date basis, we received over $100 million more in recoveries than we paid out, which resulted in a positive lifetime internal return of 2.7% for this troubled exposure. The second development, as Dominic mentioned, was that the Maryland Insurance Administration approved the redemption by the company's U.S. insurance subsidiary, Assured Guaranty Inc. of $250 million of its shares of common stock.

Assured Guaranty Inc. expects to redeem such shares in exchange for cash and alternative investments in the third quarter of 2025. Proceeds from the stock redemption will flow into our U.S. holding companies and will be available for strategic initiatives, including share repurchases. I'll now turn the call over to our operator to give you the instructions for the Q&A period.

[Operator Instructions]

Our first question comes from Marissa Lobo with UBS.

First, I would just some more color on the -- can you hear me okay?

Sorry, we missed the question.

I was hoping for more color on how a lower interest rate environment impacts the opportunity set for AGRO, both in primary and secondary public finance?

The lower interest rate environment, as we said, we get paid on principal and interest, so a lower interest rate environment, but obviously, depressed premium volume in terms of what we would calculate as our rate against. So the basis of the premium calculation would go down. It would affect our insurance portfolio, which is obviously made of mostly fixed income securities. So that would also affect book value to that -- in terms of the secondary market, I don't think you had any impact whatsoever.

And as we said, strategically, we've looked at the secondary market as kind of the balance in today's marketplace where there are low rates and tight spreads. The secondary market gives us an opportunity to balance that out with higher rated, higher performance or higher ROE business. So as I said, it will affect the portfolio, will affect the premium calculation going forward, depending on the size of the decrease in the interest rates.

Yes, but if rates -- remember also, if spreads widen out, even if rates go down, then you're still going to get -- you're going to calculate a higher premium.

Well, on the positive side, if rates go down, you're going to probably have more issuers in the market as well because people take advantage of the low interest rates to in effect, accomplish some borrowings that they've probably been holding off of because of the volatility in the market because of tariff, no tariff, political, no political. So we got to make sure that, that strains out as well. But if they're low enough, you'll see a lot more issuers come to market.

You'll also see more BBB and A-rated issuers come to market out lower with lower interest rates.

And it could affect our earned premium in a positive way because of refunding. So there is some good news and some bad news with the lower interest rate environment.

That's helpful. And just moving on to the loss expense and increase in big exposures. Could you speak a little bit about the increase in the big exposure to the non-U.S. and also how you see the process time line playing out for Thames Water here?

So this is something we've discussed at length in the company and also to you over the quarter. So what we're responsible to do from the standpoint of evaluating the credits is do an independent evaluation of what we would raise the credit. And the rating is kind of severe. So if you look at a bright line, we're the top tier of the basically capital stack. The ability to get to us in terms of a loss situation is pre remote.

But once the underlying credit has trouble making cash flow or making operating expenses, you downgrade the stack but the stack is protected at the top very, very well. So you're looking at it the below investment-grade credit that quite honestly, if you're the top $2 billion of $7 billion, you really have no exposure. But that's not the way the rules work. When it comes to the loss reserves, you've got the same problem. Low investment grade credit is going to attract the loss reserve. Loss reserves are calculated based on a scenario analysis and a probability weighting.

The majority, and I mean the significant majority of our credits that goes into our calculation of either reserves or below investment grade do not pay losses. So it's an accounting concept. We actually try to get a statistic for you that how many lower reserves that we put up or you never paid a loss on, and it's the majority of the cases, the strong majority of the cases. Ben, do you want to add anything to that?

I think that sums it up. I think in many cases, I think in many cases, we put up losses, and this is true certainly in the health care sector in the U.S. where we put up many losses over the years and we downgraded our credit this quarter in Westchester Medical Center, but I can't even think of the last time we paid out a loss in the U.S. health care sector is probably the Bayon Hospital 20-some-odd years ago. So --

Insurance, I think.

Well, FSA did it. But at the end of the day, we do have a very strong surveillance team that works on the health care front. They're very good at their job. They get in there and work out the credit, downgraded and then we work through the problem.

And your question was on TEM, so let's go back to that for a second. So remember, as we said, we're in the opco, not the holdco. The problem there is capital expenditures, not operating expenses or operating ability to cover best service. We're very well protected in terms of the legal structure. And as you've seen in the current environment, we put up a plan with the rest of the creditors relative to refinancing, which is the only plan available.

We're very comfortable with our position in the plan, what it means to us as a company. So hopefully, that will continue its pace, get approved and then put into effect, we'll be able to cure the credit. The joke I make internally, and I'll put it out here over some criticism is that even in Puerto Rico's case, they paid the water bill. So I'm assuming the U.K. government will do the same.

[Operator Instructions]

Our next question comes from Tommy McJoynt with KBW.

This is a timely call following the announcement just a few days ago that 5 of the 7 members of the Puerto Rico Oversight Board were dismissed by the President. Can you walk through your understanding of what happens from here in terms of nominations or new appointments to that Board, if they have to go through approval process? And then this, in any way, delays the overall restructuring procedures just as new members get up to speed?

Well, let's look at the facts from the rear. So number one, nothing could delay restructuring or a kind of consensual deal than the existing Board was doing in terms of their execution. Remember, we had signed 3 previous deals, which they renicked on every time. So it couldn't go any slower. So any change of that's got to be an improvement, Tommy. So at the end of the day, I'm optimistic that this sort of turns out to be a positive, not a negative.

Number two, what ultimately happens, I think is still up for discussion relative to who's got legal right to do what. Remember how the original Board was constituted. Each side got to put a couple on, the President got to put somebody on. Will they follow that path? I have no idea. So it's still up in the open. It's still whether they're going to contest the dismissals. But as I said, to me, it can only improve. It can't go in an adverse way.So I think there's potential.

Yes, we'll stay tuned on that. How much contingent value instruments from earlier Puerto Rico restructuring, do you guys still hold? And as I understand it, those have been performing very well, and that's just reflective of sales tax receipts coming in above budget. As we see that happen, can we think of PREPA's ability to repay and the ultimate recovery there as also potentially coming in better, just thinking about economic activity driving sales tax receipts and then also potentially leading to more electric utilization. Is there a correlation there that we can think of?

Let me answer your first question. So we have about $117 million remaining from the previous contingent value securities. And as you said, they performed very well. That's why we held back unless it doesn't meet our internal return thresholds we would sell, but they do. So we hold, we expect them to continue to improve. So as the market presents opportunity, we'll execute accordingly. We don't have a liquidity situation or position to have to worry about holding the securities. So at the end of the day, it's positive for the company.

Number two, depending on what we ultimately resolve PREPA with, will there be contingent securities? I don't know. But like you said, is they tend to undervalue them, they're not a bad investment to take as part of a salmon because they typically outperform. We believe PREPA has abilities to repay its debt. And as you can see, the growth in the administrative expense claim continues to significantly increase, which represents a significant portion of the debt that was owed, which is kind of funny. In this case, we thought we'd have to prove that there's money there or they have to prove to us that there isn't money there.

So I think it's a very different situation than it was in the past. With the change in the Board members potentially and this administrative claim, I think things are getting very positive from the standpoint of PREPA's ability to settle our dispute and get to a consensual agreement.

Our next question comes from Geoffrey Dunn with Dowling and Partners. Please go ahead.

I saw Westchester Medical was added to your BIG list. I know it's only one notch below investment grade, but can you talk a little bit about what occurred there relative to first quarter and second quarter that brought it down to the BIG level?

Yes. I think we're constantly evaluating our credit. As I mentioned, we have a really good surveillance team led by Holly Horn. And she looked at it we looked at it. And we saw the liquidity was not where we like our standards. Additionally, when you look at what's coming out of Washington, there may be some headwinds from Medicaid and Medicare patients out there. And as a result, as a forward-looking basis, we decided we would downgrade it. We do not believe this is going to be a big problem. We generally, as I mentioned, work out our health care credits, but you got to take prudent measures and put up the ratings that you think makes sense at the time.

This is a critical facility, very important to the state, very important to the local environment. But as Ben points out, we have a process where we look at credits, we look at the future, we look at the cash flow situation, the available management team margins that are being pressurized and take the decisions we think are necessary relative to managing the credit.

We generally have a very positive view on the turnaround possibilities there, and we're looking forward to working with them to turn it around.

I think as Ben talked about in our history of health care credits, they performed very, very well because they aren't operating exposure that can easily be amended versus political situations that are a little tougher to handle. This is not one of those. We are recognizing the facts of what it means relative to Medicare, Medicaid, and cash flows and the demand. Remember, they're bringing on a new facility, which always has its problems in terms of operations. But just being forewarned is forearmed. That's kind of our process in surveillance.

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

Thank you, operator. 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.