Assured Guaranty Ltd (AGO) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the first quarter 2009 Assured Guaranty earnings conference call. My name is Shaquana and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Ms. Sabra Purtill, Managing Director, Investor Relations. Please proceed, ma'am.

Thank you, Shaquana and thank you all for joining us today for Assured Guaranty's first quarter 2009 earnings conference call. Our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Limited, and Bob Mills, Chief Financial Officer. We will take questions from the audience after their presentations. Please note that our call is not web-enabled for Q&A, so if you would like to ask a question please dial our conference call organizer at 800-299-7098 and join the call live in order to be queued for a question.

I would like to remind you that management's comments or responses to questions today may contain forward-looking statements, such as statements relating to our business outlook, market conditions, credit spreads, ratings, loss reserves, acquisitions, and other items where outlook is subject to change. Listeners are cautioned not to place undue reliance on the forward-looking statements made on this conference call today, management does not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or other events. You should refer to the investor information section of our website and to our most recent SEC filings for the most current financial information on our Company and on factors that could affect our future financial results and forward-looking statements.

I'll now turn the call over to Dominic.

Thanks, Sabra and thank you to all of you on the call for your interest in and support of Assured Guaranty. I am pleased by the results of the first quarter, as it validates our market acceptance based on the market penetration we achieved in public finance, recognized our diversified business model as we were able to execute the portfolio reinsurance transaction for CIFG, and confirms the improvement in our earnings model based on the increase in revenues over the prior year. Additionally, I continue to be optimistic about the remainder of 2009. Particularly with the acquisition of FSA and what the acquisition means for our financial strength and flexibility as well as for our future earnings power.

While the economic environment is still weak, we are seeing some signs of improvement in the fixed income market and some progress on stabilizing global financial institutions. With respect to our own portfolio risk assessment, it will take a few more quarters to get more certainty on its ultimate performance, which depends so heavily on the direction of economic activity, and the impact of the government's stimulus and mortgage programs. I was pleased with the improvement in our losses compared to the fourth quarter, but our losses still remain unacceptably high and I hope to see demonstrated improvement in the coming quarters as the economy recovers and real estate defaults and delinquencies decline.

Our new business production was very strong this quarter, especially given the challenges in the structured finance and international markets. Our public finance new issue PVP was up 50% due to the strong growth in demand for our guarantees in a market where we are the principal provider of bond insurance and where the availability of bank letters of credit has fallen sharply. Overall PVP was down about 20%, which I view as a solid result, given the absence of new issuance in the structured finance markets and the sharp difference in overall economic conditions from the first quarter of 2008. On the credit front, we continue to maintain our focus on all aspects of credit and performance.

We are constantly updating all of our models and credit evaluation to reflect the current economic situation as well as revising our projections to include future deterioration from today's levels. We are quite aware of the challenges the municipal market is facing. Virtually every state and city in the country is grappling with revenue shortfalls and increased expenditures. Moody's recently put a negative outlook on the entire tax backed market. But a downgrade is not the same as a default. The collateral and revenue streams that back up the municipal bonds that we guarantee are not like the structured finance risks where your collateral's pool is basically fixed. In the Muni world, you are supported by a stream of revenue and therefore can withstand short-term challenges in value or performance, similar to what we saw with Hurricane Katrina in New Orleans several years ago.

Having said that, 2008 still had a high level of muni defaults, about 130 issuers defaulted on $7.5 billion of debt. Although most of these issues were not insured. The largest single default was Jefferson County at $3.2 billion, and the outcome of that default is still not resolved. Accordingly, we have further strengthened our underwriting standards to reflect our current expectation of municipal performance. We don't accept every deal we're shown, even if they are rated investment grade by the rating agencies. In fact, in the first quarter we turned down about 20% of the submissions we were shown, because they failed to meet our credit standards. Greater uncertainty regarding municipal performance might actually help increase demand for our product, highlighting the need for credit protection in this environment.

Our underwriting standards for structured finance in international business also reflects the current global economic times and we've seen very few transactions that meet our criteria. The market overall is limited because of lack of liquidity and new issuance activity. We expect that we'll see more opportunities in the future as the structured finance market stabilizes and non-TALF issuance rebounds. As the only financial guaranty insurance Company committed to the structured finance market, we are in an excellent position to benefit from any change in investor appetite and new issuance.

Our reinsurance segment also had a very good quarter, due to the CIFG transaction. We'll continue to look for portfolio transactions through the remainder of 2009. However, our reinsurance operations still remains a key part of our business model, providing our direct Company with needed reinsurance capacity. Those of you who have followed us for the five years that we've been public know that we work very hard to achieve and maintain the highest levels of financial strength ratings in the financial guaranty industry. Therefore, I know that you share my frustration with the recent decision by Fitch Ratings to downgrade Assured and its subsidiaries based on loss projections that have changed significantly in the past few months and that are based on extremely pessimistic assumptions when compared to the actual results to date or other forecasts available in the market.

I think I've commented on it enough this week, but I would like to make one general point with respect to the rating agencies. As a financial guaranty Company, we have no comprehensive regulator. Our principal capital regulator has been the three rating agencies, subjecting us to divergent models and assumptions that are not consistent from agency to agency or to other regulatory bodies, like the state insurance commissioners, the Federal Reserve or the Treasury. We believe that the financial markets overall and our industry specifically, would benefit from consistent and sustainable capital and stress test models similar to the Fed's recent stress tests for banks. Consider the challenge for banks if they had managed to different capital models and different requirements from the Fed, the Treasury, and the Controller of the currency. That's the situation we find ourselves in today. Investors need to be able to rely on models that evaluate financial strength and capital adequacy that are transparent, supportable and sustainable.

Lastly, I view the downgrade as a temporary setback. We hope to re-achieve the AAA status where the performance our credit exposure is not subject to substantial conjecture but is based on demonstrated economic results. I believe the underwriting strategies we implemented years ago in order to avoid the CDOs of ABS, limiting our exposure to low rated RMBS and underwriting the senior most tranches of pooled corporates will be proven correct. By doing so, we will have proven that we have protected our capital and shareholder value from significant impairment. From the big picture perspective, Assured is the only financial guaranty Company that was writing business in 2007 and that is truly active in the market today. Our new business volume and our acquisition of FSA will provide our Company with a stronger balance sheet, an enhanced capital position, and strong revenues for 2009 and beyond, which will benefit our shareholders.

Before turning to call over to Bob, I'd like to briefly update you on the status of our FSA acquisition. We expect to close the transaction the second quarter. We are still waiting for the rating agency review of the separation of the financial products segment, which we hope to receive by the end of the next week. As you know, the cash portion of the purchase price has been backstopped by Wilbur Ross, our second largest investor, and we will make a decision about whether we use that or seek alternative funding through a public capital raise once we complete the rating agency reviews.

In the meantime, we've all been hard at work on the integration plans which we will initiate after closing. I continue to be quite excited about the acquisition which will provide Assured with a strong base of revenue as well as a significantly larger capital base to support new business opportunities. With that, I'd like to turn the call over to Bob to discuss our financial results.

Thanks, Dominic and good morning. I'd like to cover some brief highlights of the quarter and then we will open up the call for questions.

We expect to file our 10-Q on Monday, May 11th and you should also refer to that document as well as our press release and financial supplement for more details on the first quarter 2009 results. We adopted FASB statement 163 effective January 1, 2009, which resulted in a transition adjustment of $19.4 million after tax, that increased book value per share by about $0.22. Our press release has a section on the implementation of FAS 163, with a table showing the transition adjustments, and I'll be happy to answer any questions you have about our adoption of FAS 163. However, please note that prior periods are not restated as a result of FAS 163. Therefore, certain financial items in 2009 and future results are not directly comparable to 2008 and earlier reporting periods.

Operating income for the first quarter 2009 was $63.4 million or $0.69 per diluted share, compared to $6.2 million or $0.08 per diluted share for the first quarter 2008. Please refer to our press release for a definition of operating income and any other non-GAAP financial measures. The quarter was benefited by $0.30 per share due to the acceleration of unearned premiums for policies expiring prematurely, offset by a loss reserve established for a disputed reinsurance agreement. Aside from these items, our operating income was $0.39 per diluted share, which reflects the growth in net earned premiums due to the continued growth in our in force book and a modest improvement in financial guaranteed losses, $50.8 million in the first quarter of 2009 versus $58.3 million in the first quarter of 2008. Slightly off set by increased operating expenses related to the FSA acquisition. Hence, first quarter 2009 results included a $26.9 million net gain, or $0.30 per diluted share for items not comparable to our first quarter 2008 results.

Shareholders' equity per share was $22.48 at March 31, 2009 and our adjusted book value per share was $43.12. Both shareholders' equity and adjusted book value per share include unrealized mark-to-market losses on our contracts written in credit derivative form. Excluding the mark-to-market items, our book value per share was $26.34, a 2% increase over the last 12 months, while our adjusted book value per share was $46.99, an 8% increase from $43.43 at March 31, 2008. Our new business production, which we measure as PVP, or present value of gross written premiums for insurance and credit derivatives, totaled $221.7 million for the quarter, down 20% compared to $276.6 million for the first quarter 2008. Strong public finance new issue business, which grew by 50% quarter-over-quarter, and significant reinsurance activity was offset by weak new business conditions in structured finance and international. You should note that our financial guaranty reinsurance segment had $90.8 million of PVP from one large transaction. The CIFG portfolio acquisition that we don't expect to be repeated next quarter, given market activity.

Our revenues grew significantly from prior year's quarter. First quarter 2009 net earned premiums, unrealized gains and other settlements on credit derivatives excluding the accelerated premiums and refundings from the reinsurance segment were up 21% from first quarter 2008, $87.7 million in the first quarter of 2009, versus $72.2 million in the first quarter of 2008. Reflecting the strong growth in our new business over the last year.

Our total losses for financial guaranty segments, including credit derivatives was $50.8 million, down from $58.3 million in the first quarter of 2008. FAS 163 has changed our loss reserving methodology, so the two quarters' results are not totally comparable. The majority of our first quarter 2009 incurred loss expense was in our financial guaranty reinsurance segment, largely in US RMBS exposures, that were put on our below investment grade list this quarter, but also included reserve additions for Jefferson County Sewer. You can find the details of our first quarter 2009 loss reserves on page 39 of our financial supplement.

The downgraded credits this quarter caused our below investment grade list to rise to about $9.4 billion at March 31, 2009. About 4% of our net par outstanding, the highest level we've seen since the IPO. The downgrades were in the Alt-A and option ARM classes and certain trups transactions and largely reflect continued deterioration in collateral performance, which erodes our credit enhancement protection.

Finally, let me draw your attention to unearned premium reserves, which changed materially due to FAS 163 for two reasons. The first change was in unearned premium recognition which had an immaterial impact on our reported net earned premiums this quarter. However, it did effectively add back unearned premiums to our unearned premium reserve. The second and more significant change was under FAS 163 we now include the discounted present value of future installment premiums on financial guaranty insurance contracts. An item that was previously off balance sheet. The total amount of the change in our unearned premiums reserve as a result of FAS 163 was $827.7 million, which is disclosed on page 40 of our financial supplement that discusses the transition adjustments for adopting FAS 163.

As a result of these two items, and new business, our unearned premium reserve increased dramatically this quarter, from $1.2 billion at December 31, 2008, to $2.2 billion at March 31, 2009. However, the impact of this change on shareholders' equity and adjusted book value was not significant. As we've discussed previously, the growth of our business over the past several years combined with the stability of our earnings model gives us great deal of visibility into future revenue growth levels. The source of most of our revenues for 2009 are invested assets in our unearned premiums is already on our books.

Based on the business we already have on the books as of March 31, 2009, we expect net earned premiums and credit derivative revenues, excluding refundings of about $245 million for the next nine months of 2009, which you can see on page 13 of our financial supplement. Our revenue base will also benefit from new business written after March 31, as well as from the acquisition of FSA, as they have a large base of in force premium too. Please note, however, that our acquisition of FSA will be subject to purchase accounting adjustments, which were summarized in our February 2, 2009 proxy, that we filed for the special general meeting of shareholders that was held on March 16, 2009. These purchase accounting adjustments will, of necessity, be updated using market values as of the date the transaction closes.

Now, I'd like to turn the call over to the operator to poll for questions.

Thank you. (Operator Instructions). Your first question comes from the line of Mike Grasher with Piper Jaffray. Please proceed.

Good morning, everyone.

Hi, Mike.

Hi, Mike.

First question I had is with regard to Fitch and the rating agency action, I don't recall any specific commentary about the level of capital you currently possess, nor how much would be needed to raise, I guess raise the rating back to a AAA level. Did they leave you with any targets, numbers or provide any indicators in that fashion?

Mike, the capital shortfall obviously they said meets the AA requirement. We have a better handle on what the new stress losses were as opposed to the capital shortfall. They did mention to us that they felt that the FSA transaction was capital accretive, and almost to the extent of our shortfall would be or could be offset by their excess, so there would be a challenge of the Company as to can we make the capital functional and move it where it would be beneficial to get ratings improvement. More importantly, the portfolio of both companies and probably more the FSA portfolio runs off significantly through 2009.

Right.

So our view is that the capital shortfall between the FSA transaction, some other capital strategies we have, the runoff and the combination should help to resolve whatever the capital issues. We have significant problems as I tried to indicate in my comments relative to the stress level of losses that continue to change substantially every time they look at the portfolio and without in my view real justification and we're hitting back at a level of assumptions included in these numbers. For instance, they're talking about concern over the TruPS portfolio. That's a portfolio that obviously we have not paid any losses on. We do list all those transactions on the website and you can see substantially those portfolios and though underlying transactions still have substantial credit enhancement, typically above 40%. And yet the capital need just for TruPS alone went up over their last review, 671% from $82 million to $632 million on transactions that we have not paid any losses, we remain with substantial credit enhancement that would push out any loss possibility for years and years and years and yet we've got a $600 million round number capital hit.

And that brings my second question or follow-up question around that would be what are their pessimistic assumptions or where have they changed their assumptions and what are they?

Well, it's kind of an across the board further economic decline which entails obviously on the consumer side more individual consumer defaults but as importantly, substantial corporate defaults. But the level that you would have to get to justify this kind of stress losses, basically you would have to say there is no economy. I mean, if you really think about the TruPS deals that have, say, 50% subordination and you still have recovery on those exposures, right, because there's a lot of senior debt positions within them, if you really believe more than 50% of all corporates are going to default, what would that do to unemployment? What would that do to the whole level of federal and state revenues and how that would then have an impact across the board on whatever we consider as an economy that's left and I don't see any consistency with using that kind of an assumption in the financial guaranty world because if you applied it to, say, banks, corporates or municipals, I don't know anybody that could hold an investment grade rating.

Just with regard to the time line of things, are they suggesting that there's further deterioration in the economy and it will be prolonged for a period of three to four years or something like that?

Well, I mean, I would ask them. But we can only infer, based on this increased level of stress loss scenario that just using the TruPS as an example, if you're really forecasting greater than 50% of all corporates default, I'm assuming then you're taking a very pessimistic view of the future economy. What is the justification for that? We don't see both in our models, as well as picking up the paper on any given day and seeing where the economy is going. The good news is that even in spite of the Fitch change in ratings, all the deals that we had already agreed or gotten mandated on are closing and they're all closing at the same level of pricing as well as the new business pipeline continues to fill with new submission activity. So I think the market is reacting a little bit more sensibly and taking a real look at the Company, the financial results, the capital continues to build in the Company, we're not paying a large amount of losses. Our exposures that we've had issues with have been pretty much contained within the second lien area.

Obviously in the current quarter we've seen a jump up in delinquencies on the Alt-A and option ARMs that take us closer to exhausting the credit enhancement build on those deals. As we now have a new FASB model for calculating losses, you're now required to create scenarios based on cash flow assumptions in each deal, weight the scenarios and use that as the basis for your reserve. So as that changes, obviously it changes our worst case scenario. If you look at those deals today, if we look at our base case, we still have enough enhancements to absorb the current levels of delinquencies and expected future results. Running it to potential revenue shortfall and that's why we have to continue to look at the reserving model and under the new FASB do these modeled assessments and then do the weighting of those to come up with the reserve number. The good news is at least new business as we represented in the first quarter which is basically post a Moody's downgrade and now as we look at April and the continued activity since the Fitch announcement, the market seems to be reacting very positively.

So no change in the trading differential really then. And then just a final question. You mentioned in your opening remarks about tightening your own underwriting standards. Can you share with us a little bit more detail, in what way?

Well obviously we're doing a predominantly municipal book of business these days as you're well aware, and as we try to basically take our assumptions that go across the board from corporates and consumer, and say okay, what do we think is the impact on the municipal revenue stream? And if you look at the book of business we wrote, it's predominantly general obligation tax backed, very little healthcare, very little Higher Ed, because you're really looking for more substantial revenue streams that would support the debt issuance. Right? As I mentioned in my comments, when you look at structured finance, typically you've got a given group of collateral and that collateral has a terminal value and you can either achieve or not achieve it based on market conditions.

On the muni side, it's really a stream of revenue or stream of payments. So as we look at the underwriting standards, we further stress that stream and the availability of funding whether it's a tax backed or general obligation as we try to assess economic damage on kind of a state by state basis. And as I said, if you said to me a year and-a-half ago how many submissions on the muni side did you really reject and I'd say that number is probably below 5%. As you can see, the current quarter we rejected or did not meet our credit standards for about 20% of the submissions that we got.

Okay. That's all helpful. Thanks very much for your time and best of luck.

Just to clarify one thing. The number that Dominic gave relative to the trust, that's a stress case loss. That's not a capital requirement.

Okay.

Just to clarify that.

Got it.

Your next question comes from the line of Darin Arita with Deutsche Bank. Please proceed.

Good morning.

Good morning.

Hey, Darin.

Was wondering if you could give an update on the HELOC portfolio and what you're seeing in terms of recoveries?

Good question. Interesting thing about the HELOC portfolio as we look at the most recent activity, if I could say there's good news, it seems like delinquencies are definitely starting to flatten off and especially in the '05 deal and charge-offs -- and it's hard to get a reading because these things bounce all over the place but if I really looked at like a two quarter average, they're also coming down. I think more prevalent in the '05 deal than in the '07 deal, and that would make sense based on pure seasoning. As we talked a little bit about in previous quarters, obviously we've done a lot of work relative to the auditing of the portfolios and the specific loans and whether they meet the standards that were agreed upon when we did the deals.

Currently we're up to about $25 million in agreed upon putback requests. We're getting those losses reimbursed. And obviously we have a substantial pipeline of further requests and it's just a matter of dragging them to the table and getting the case by case file which is very time-consuming, to reflect these type of results. But we are getting a substantial portion of our putback requests, once we get down to the individual file by file review as accepted as being not valid in terms of portfolio inclusion. So our view on a longer term basis, and this is a slow, tedious process, and at some point in time we're going to have to look at how can we accelerate this thing. Obviously we would like to avoid litigation because we think we're getting good activity, but they are very slow. It is very time consuming. It does use up a lot of our resources in the RMBS surveillance area, and those guys are working pretty hard as you can well imagine. And remember, this is only for the HELOCs for the one specific originator.

We're obviously doing this now across the entire portfolio, of both second liens and first liens, where we've had these high incidences of early payment defaults that really would be contradictory to the level of the quality of the borrower. So we're making good progress. If I looked at what was the quarterly change, it's probably 10 to $15 million of further reimbursements from what we had at the end of the fourth quarter. And we'll continue to work that hard and hopefully at some point in time our friends the originators are going to say you know what, we're spending too much money and sitting down at the table. You guys have been right a substantial portion of the time, let's try to get to a global settlement and that's kind of what we're hoping to see.

All right. That would be good. And then I guess thinking about the rating agencies, I mean, you've definitely struggled with them in the past, early on, and recently. Have you given any thoughts on how you might change the business model so you're less dependent on what the actual ratings are?

Well, I don't think we've given it a lot of thought but we don't have the ability to make that change. I think if you'll read and you talk to people in the Congress, the Fed, the Treasury, the SEC, I think everyone's concerned about what they view to be probably not efficient or not effective regulation. And, therefore, if you talk to, say, a Paul Kanjorski in the Congress, he said unequivocally yes, we are going to bring in new insurance regulation, new financial services regulation and specifically mentioned the bond insurers as a part of that.

Obviously from our point of view, we would like to see some comprehensive regulator, and whether that is federal or whether that's state or whether they choose New York as kind of the -- basically center of financial activity, and say to the New York Department, okay, beef up your capability, you're going to become the super regulator for the financial guaranty industry if that's the case, or whether it's Treasury or SEC, there needs to be a comprehensive regulator and as importantly, as you look at a Company like ours, and we have responsibility to our insured policyholders, we have responsibility to our shareholders, it's impossible for us to manage a Company when on any given day my capital requirement can go up 60% because someone takes a look at, say, our trust preferred portfolio and says, okay, your stress losses will go from $82 million to $632 million and they don't have to prove it. They don't have to justify it. That's just a bill handed to us the next day. And it's our problem. That makes absolutely no sense. It doesn't promote stability. These things are not transparent. They're not sustainable in terms the model is consistent so you can manage around what you think are going to be the requirements.

So I think the case is made. I don't think we have the ability. Obviously, we'll be more than happy to participate in arriving at a solution that does make more economic and regulatory and really market sense. So that you have this consistency, stability, transparency that everyone will understand. And I think that's so important and the recent trials and tribulations that we've had relative to changes in views are not beneficial to us. They're not beneficial to our shareholders, to our insured policyholders. More importantly, it's not beneficial to the financial markets. The you municipal market is really struggling today. We're doing our best to help them meet their needs and solve their problems but it's almost impossible, obviously if on any given day our ratings can be substantially changed off of purely conjecture.

It would be a very different story if we've got real issues and we're paying out a substantial amount of losses and the continued significant deterioration of the credit enhancement that exists on those obligations is apparent. Like I said, we're very transparent. Go on the website. We have the transactions out there in the pooled corporate environment including the trust preferreds and tell me my capital or my stress losses went up 671% off of that business and go back and look at it three months ago, six months ago and today, that's impossible, and yet there is no check or balance on that requirement demand to us and there's got to be checks and balances. This is absolutely the most absurd situation I've ever seen.

All right. Thanks. That was very helpful, Dominic. One more thing if I may follow up in terms of what Fitch did and their loss system that you mentioned, the stress case loss is $600 million. What about on your Alt-As and your option ARMs?

I've got the list. I'm trying to find it. Everybody's going to die if I give you these numbers. You don't want to give him the numbers? I'll give you one of the numbers just to show you my frustration. Obviously these are proprietary with our friends so maybe I would prefer that you ask them the question. Home equity stress losses went up 100%. With all the positive things we see relative to the putbacks, the reps and warranties, they still increased their stress loss model 100%.

Okay. Great. Thanks, Dominic.

Thank you.

Your next question comes from the line of Brian Meredith with UBS. Please proceed.

Yeah, good morning, Dominic.

Good morning, Brian.

Hi, Brian.

Just a quick question. On the mortgage guaranteed losses, can you talk a little bit more about what happened there and what are the potential kind of additional losses from the mortgage guaranty book that we could potentially see here going forward?

Well, remember, we now have a new loss reserving requirement that forces us to look at forecasted outcomes and then profitability weight is how you're now required to calculate reserves. So as you all know, there's a disclosure in the K and will be in the Q that we have a disputed single reinsurance transaction, that has gone to arbitration and is looking at potential outcomes and profitability weighting, ergo lies in a reserve calculation. It's a single transaction. It's in obviously a book of business that we don't write that has been in substantial runoff so it's not repeatable. It's not recurring. And hopefully this will come to a rather timely resolution, which we hope over the next few weeks or months.

Okay. And then on the UK transactions, cancellations, were those kind of one off deals or are there other potential transactions like that that may occur.

This is really an odd one-off deal. We wrote a series of swaps over a given number of obligations and the obligations were prematurely disposed of.

Okay. Great, thank you.

Those were FG policies as I'm now being reminded by our folks.

Okay.

(Operator Instructions). Your next question comes from the line of Andrew Wessel with JPMorgan. Please proceed.

Wish I was related to Thomas here, I wouldn't be doing this job, I guess. Good morning. Big quick question on the past Fitch movements, I mean, what has customer reaction been like? Obviously Fitch has been late to the party and kind of discounted I think in terms of their overall view. Are clients kind of pulling back and saying -- are customers pulling back and saying that's important or has it kind of been taken with a grain of salt?

I wouldn't go that far. Number one, I actually give Fitch a little bit of credit. I think they've been ahead of the game. I don't necessarily think they've been behind. In some cases I think them being ahead was the right thing to do. In this case I struggled. I shared with you some of the numbers. I think they've gone too far ahead and my issue here is we don't have enough transparency and we don't have enough dialogue to really sit down and say okay, if you really take these level of defaults or this further decline in the economy, the consequences of that, if you apply it across everything you theoretically rate would be catastrophic and, therefore, I'm more concerned about the inconsistency.

So I give them credit, though, that they've really been more ahead of the game than behind the game. And they've been reasonably open. So, you know, I don't want this to be a bash session for Fitch because I have a lot of respect for them and I think they've done a really good job. But as we look at the market, as I said, we had a lot of deals that had already been mandated and were scheduled to close and now they have closed. Additionally, we priced 15 new deals since the announcement and we got 30 new submissions. So the business activity, I don't say it ignores Fitch because I think that would be too bold of a statement, I just think they're still looking at the Company, the capital, the fact we continue to make operating earnings through the worst economic cycle in anyone's recollection, that has to count for something, right? The financial strength of the Company, its capital base continues to grow.

We obviously have other opportunities. We're getting ready to make a very large accretive acquisition. I think a lot of people understand that and are giving us the credit that we deserve off of that basis.

Great. And then in terms of capital, obviously there's some -- there's thoughts around how you're going to do that, the transaction, at least the cash portion, any comment on that or what your thoughts are with the stock trading where it is?

Obviously with the stock trading where it is it's above substantially the equity commitments, from the Wilbur Ross backstop as well as the agreed upon price per share conversion for the Dexia shares, relative to their cash value which we also have the option of replacing 50% of them with cash. You remember, Dexia is $8.10, the Wilbur Ross top end is $8.50. Obviously if we maintain a stock price where we're at today, it would make more sense to consider a public offering. And whether the public offering is equity, equity and a convert or some other combination of security instruments to broaden the investor base, we will evaluate that over the next few weeks. Obviously, as we said, we anticipate getting the rating agency signoffs reasonably timely and from that point we start the 45 day clock in terms of actually settling and closing the transaction.

Okay. Great. Thanks.

Thank you.

At this time I would now like to turn the call back to Ms. Purtill for closing remarks.

Thank you and many thanks for all of you for joining our call today. We certainly appreciate your interest in Assured Guaranty. If you have any additional questions or require further information, please feel free to contact me. Thank you again and have a great day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day.