Assured Guaranty Ltd (AGO) 2018 Q2 法說會逐字稿

Good day, and welcome to the Assured Guaranty Second Quarter 2018 Conference Call. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Robert Tucker, Senior Manager of Investor Relations. Please go ahead.

Thank you, operator, and thank you all for joining Assured Guaranty for our 2018 Second Quarter financial results conference call. Today's presentation is made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

The presentation may contain forward-looking statements about our new business and credit outlooks, market conditions, credit spreads, financial ratings, loss reserves, financial results or other items that may affect our future results. These statements are subject to change due to new information or future events. Therefore, you should not place undue reliance on them as we do not undertake any obligation to publicly update or revise them, except as required by law.

If you're listening to a replay of this call or if you're reading a 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 Ltd.; and Rob Bailenson, our Chief Financial Officer. After their remarks, we'll open the call to your questions. (Operator Instructions)

I will now turn the call over to Dominic.

Thank you, Robert, and welcome to everyone joining today's call.

In the second quarter of 2018, Assured Guaranty recorded its highest quarterly gross premiums written and present value of new business production, or PVP, since the acquisition of AGM in 2009. Gross premiums written totaled $393 million and PVP totaled $454 million largely because on June 1, we closed the previously announced reinsurance transaction with Syncora. This makes it 4 consecutive years in which we increased our future earnings power by executing one of our core strategies of acquiring the insured portfolios of our former competitors. AGC assumes substantially all of Syncora's insured portfolio, and AGM committed the reinsurance on the book of business it had previously ceded to Syncora. We will also, for a fee, administer the reinsured book on behalf of Syncora.

Unlike our other legacy monoline transactions, this one has limited impact on current year earnings. But the $391 million of PVP it contributed will benefit future income and enhance the value of the company for many years.

At the midpoint of 2018, Assured Guaranty's value per share is higher than ever, whether measured by our shareholders' equity per share of $60.52 or our key non-GAAP measures, operating shareholders' equity and adjusted book value, which are $58.60 and $82.83 per share, respectively.

Our capital management program continued to be an important strategic objective and a driver of shareholder value. Year-to-date, we have repurchased 8.3 million shares at a total cost of $300 million at an average price of $36.11 per share. With our board's new $250 million share repurchase authorization, we are currently authorized to repurchase another $298 million of shares.

In terms of new business, direct new business production has been constrained this year by reduced municipal bond issuance, which is due in part to lower refunding volume caused primarily by tax reform. New money issuance has actually risen from last year's level. The impact of tax reform on refunding levels was less severe in the second quarter than in the first as a significant amount of business rushed to the market before year-end to benefit from the old law and decrease first quarter supply.

While second quarter overall market volume was down almost 7% compared with last year's second quarter, it was up 52% from the first quarter of this year. Insurance penetrations remain relatively steady near 6% as interest rates remain low and spreads tight.

We continue to lead the municipal bond insurance industry and guaranteed 53% of new-issue insured par sold in the second quarter and 50% in the first half. Our strategy has been to focus on transactions that provide comparably higher premium dollars and better returns over the longer term, taking advantage of our competitive advantage in insuring large transactions that appeal to institutional investors.

Year-to-date through June, we were selected to insure $50 million or more of par on 21 different transactions, including 7 where we insured $100 million or more of par. Those 7 transactions represented approximately $1.6 billion of the $5.4 billion we insured across our 418 primary market transactions and secondary market policies sold in the first half of the year.

Our structured finance group, through AGRO, closed its first direct residual value insurance transaction in the aviation market and obtained mandates for similar transactions. Elsewhere in the aviation market, we expect to close additional reinsurance transactions and are investigating other opportunities in this space.

Internationally, we guaranteed U.K.-regulated utility transactions in the secondary market during the second quarter. This is the 11th consecutive quarter that we generated PVP outside the United States. We continue to see opportunities arising from the beneficial regulatory capital treatment that life insurers and banks obtain by applying our guarantee to certain portions of their asset portfolios. We can provide these capital management solutions for structured finance and infrastructure transactions in both primary and secondary markets.

I'm pleased to say we continue to receive strong reviews from the rating agencies. In June, S&P Global Ratings affirmed the AA financial strength ratings for AGC, AGM and MAC, as well as for non-U. S. subsidiaries, including AG Re and our principal European operating subsidiary, Assured Guaranty Europe or AGE. All of those ratings have stable outlooks. S&P outlook is also positive for Assured Guaranty (London), which we acquired from MBIA, because we intend to combine all of our European subsidiaries into AGE, and we are making progress to that end. We estimate that under S&P's capital adequacy model as of the end -- year-end 2017, we have $2.8 billion of capital in excess of S&P's AAA requirement.

More recently, KBRA has reaffirmed its AA+ stable rating assigned to MAC since we capitalized it in 2013. KBRA's new report reiterates that MAC can withstand a AAA level of KBRA's stress losses with a comfortable balance remaining and then notes that MAC has a diverse, high-quality insured portfolio and no exposure to Puerto Rico.

And that brings us to Puerto Rico.

It's now time to face the unfortunate reality. PROMESA has failed. Its intent was to provide structure for accelerated consensual negotiations so Puerto Rico can retain -- regain access to the capital markets and put its fiscal house in order without suffering through a morass of costly and extended litigation. Instead, the members of the Oversight Board have routinely ignored the specific requirements of PROMESA they were appointed to enforce. Even the tireless efforts of the House Committee on Natural Resources, which [granted] PROMESA to keep the board on task to its legal requirements, and Congress' intent have gone repeatedly unheeded. Title III in PROMESA was intended only as a last resort after all attempts at consensual settlement had been exhausted. We can now see the litigation quagmire caused by the Oversight Board's rush to the Title III courthouse as well as its indifference to plain language and congressional intent on PROMESA. It rejected the PREPA settlement that was grandfathered by PROMESA, forced PREPA into bankruptcy and objected to creditors' rightful requests to have a receiver appointed to run the utility, all of which left PREPA more vulnerable to the island-wide blackout and the incompetence that have treacherously followed Hurricane Maria. 2 years into PROMESA, we've seen 4 PREPA CEOs come and go, along with a parade of expensive advisers, and now a third iteration of its board has resigned. This week, the Oversight Board, the Commonwealth and PREPA struck a deal with a subgroup of uninsured PREPA creditors to develop a new RSA. We are not a party to that deal, and we will continue to vigorously enforce our property rights as a secured creditor in the PREPA Title III case while also continuing to see engagement with the government and its parties to resolve these matters consensually.

Elsewhere, the Oversight Board rejected a proposed settlement between GO and COFINA bondholders that would have been an important step towards achieving a comprehensive settlement or plan of adjustment for a significant portion of Puerto Rico's debt. The Oversight Board and negotiation -- negotiating agents for the Commonwealth and COFINA then hurriedly inked a separate plan that excluded any resolution for the holders of GO bonds, the highest-priority debt on the island. The Oversight Board has developed fiscal plans without transparency or meaningful input from creditors and without reliable data on which to base its decisions. The Commonwealth still cannot produce timely financial statements, let alone a clean audit. The most recent financial statements are for the fiscal year that ended back in June of 2015, and they were released last month with a heavily qualified 13-page auditor's opinion, drawing into serious question the reliability of the statements. Yet the Oversight Board certified the fiscal plan with this obvious lack of confirmation of the accuracy of the financial information.

Based on speculation rather than sound financial information, the Commonwealth repeatedly proposed fiscal plans that did not meet PROMESA's requirement to respect the relative lawful priorities and liens established by Puerto Rico's constitutions -- constitutional law and agreements. They've also not made public the information required by PROMESA to allow creditors to adequately understand the status of the island's financial position and assess potential resolutions. These plans authorize the unlawful diversion of bondholder collateral away from secured creditors, such as Highways and Transportation Authority bondholders, for the benefit of the Commonwealth. Additionally, the plan's projections assume a precipitous, multibillion-dollar drop in federal Medicaid funding during the plan period while expecting the territory's Medicaid expenses to grow rapidly while also inconsistently projecting a population decrease. The Oversight Board eventually approved its own fiscal plan, incorporating the same violations of PROMESA and many more unsound and even arbitrary assumptions.

By ignoring its own founding legislation, the Oversight Board is eroding confidence in the rule of law and shutting the door on future capital market investment in Puerto Rico's infrastructure. This will prevent the economic recovery that the people of Puerto Rico need and that we believe serves the best interests of all parties.

Keep in mind that in response to the misguided attacks by some elected officials of Congress, we did not acquire our exposure by buying discounted bonds. We have the exposure because we have been a long-term partner of Puerto Rico, helping it to reduce its borrowing costs for fundamental infrastructure projects like roads, utilities, schools and hospitals. We have irrevocable long-term commitments to Puerto Rico and its insured bondholders and have every reason to support constructive solutions. We have a documented track record of reaching consensual and constructive solutions with other distressed municipalities in the past.

Unfortunately at this time, we have no confidence that PROMESA will provide any resolutions. We have reconsidered the manner in which the board members were appointed and concluded that it was an end run around the U.S. Constitution's appointment clause. There is no historical precedent for how the current Oversight Board members were chosen, effectively by individual members of Congress and for them to take office without Senate confirmation. This procedure dismantles constitutional safeguards that ensure the separation of powers and public accountability for the appointment process.

Since we believe the board members were unconstitutionally appointed, they have no lawful authority to initially -- to initiate Title III proceedings, and we have filed a complaint seeking dismissal of the Title III filings for the Highways and Transportation Authority on those grounds. Judge Swain rejected a similar argument in a Commonwealth Title III case which is being appealed, so our complaint will allow us to participate in the appellate phase of the various appointment clause lawsuits.

The conditions for a consensual settlement clearly exist. The people of Puerto Rico deserve a prompt, consensual settlement that allows their government to regain access to capital market financing, restore the island's economy and credibility and improve its residents' quality of life.

To help educate people about the Puerto Rico situation, we recently launched a website called RevitalizePuertoRico.com. I encourage you to visit that site. It is a great resource for current and historical facts and viewpoints.

I'll conclude by saying we have a very positive outlook for our company for the rest of this year. The economy is strong, rates are increasing slowly and municipal issuance seems to be reviving. We have significant opportunities in all 3 of our core financial guarantee markets.

I will now turn the call over to Rob.

Thank you, Dominic, and good morning to everyone on the call.

As Dominic mentioned, we had another successful quarter. We posted our highest PVP in 10 years due largely to the Syncora transaction, which also contributed to the increase in ABV. Unlike our previous business combinations where we acquired legal entities and recognized both immediate bargain purchase gains and future earnings, the Syncora transaction was structured as a reinsurance and commutation agreement. As such, the net premium earnings related to this transaction will be recognized over the expected term of the acquired book of business.

The consideration for the Syncora transaction was $411 million comprised of $363 million in upfront cash and approximately $48 million in present value of future installments discounted at 6%. In exchange, we assumed $11.3 billion in new par and reassumed $1.2 billion of previously ceded par. Of the consideration, $391 million was attributable to PVP on the assumed component and $20 million was attributable to the commutation component. The assumed business included 15 below-investment-grade transactions with net par of $336 million and expected losses of $83 million, assuming a 6% discount rate that is consistent with the PVP discount rate.

On a GAAP basis, which is at risk-free discount rates, the corresponding expected loss is $131 million. Substantially all of the assumed expected loss relates to RMBS transactions.

While the reassumption component resulted in a small upfront commutation loss, it is a net positive to ABV as the reassumed book contributes to our future premium earnings streams. The cumulative effect of this transaction was a benefit to AVP per share of $2.25. The reinsurance structure is yet another way in which we have been able to achieve our objective of acquiring legacy financial guarantee exposures.

Turning to our quarterly results.

Second quarter 2018 operating income was $74 million. This compares with the $141 million for the second quarter of 2017, which included a tax reserve release and higher refunding activity.

In the second quarter of 2018, net earned premiums were $136 million compared with $162 million in the second quarter of 2017. The decline in net earned premiums was attributable mainly to reduced refunding activity due to a reduction in the insured portfolio that was subject to call as well as the reduction in advanced refunding bonds caused by the changes in tax law.

Refundings and terminations were $39 million in the second quarter of 2018 compared with $59 million in the second quarter of 2017.

The effective tax rate on operating income in the second quarter of 2018 was 6.6% compared with a negative 6.6% in the second quarter of 2017. The effective tax rate in 2018 reflects the reduced U.S. statutory rate. The second quarter of 2017 effective tax rate was lower than usual due to a release of $37 million in reserves for uncertain tax positions.

The effective tax rate will fluctuate from quarter-to-quarter based upon the proportion of income in different tax jurisdictions.

Economic loss development during the second quarter of 2018 was $19 million, mainly attributable to certain Puerto Rico exposures, offset in part by improved collateral performance on U.S. RMBS transactions.

From a capital management standpoint, we have continued to opportunistically repurchase shares in order to efficiently manage our positions. During the second quarter of 2018, we repurchased 4.2 million shares for $152 million at an average price of $36.48 per share.

Since the beginning of 2013 through June 30, 2018, we have repurchased a total of 88 million shares. The cumulative impact of these repurchases have contributed approximately $13.55 per share to operating shareholders' equity and approximately $24.36 to adjusted book value per share.

We have continued repurchasing shares since June 30, bringing the current year-to-date share repurchases to $300 million or 8.3 million shares. In aggregate, we repurchased 46% of the shares that were outstanding at the beginning of 2013.

As of July 31, 2018, we had $297 million in cash and investments available for liquidity needs and capital management activities at the holding companies. The continued share repurchases have helped to drive operating shareholders' equity per share and adjusted book value per share to new records of $58.60 and $82.83, respectively. This week, the Board of Directors authorized an additional $250 million in share repurchases, bringing our current remaining authorization to $298 million.

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

(Operator Instructions) Our first question comes from Bose George of KBW.

I just had a follow-up question on the comments earlier on the agreements earlier this week between PREPA and some of the bondholders. Just given that it was, whatever, 30-ish percent of the bondholders, what happens next? Do they -- like what -- is there a certain threshold after which it goes to the court? And is there a level where you have to do something about it?

So there are specific requirements within PROMESA in terms of how a vote by class can work. So first thing you have to have is 50% of the available class vote -- more than 50% vote. And then of the class that votes, you have to get 67% of the vote. Obviously, with the monolines holding roughly 31% of this class who vote, you can start to work the numbers and figure that it'll be very tough to have a vote of an adverse decision that we'd be able to carry with our positioning of having 31% of the total class. Number two, that still has to deal with our lien on the revenue of the utility that has to be dealt with beyond betting on a specific debt class. So we believe our legal rights are very strong both relative to the revenue lien and then, obviously, our position as a significant percentage of the class that's currently resolving or trying to negotiate a settlement.

Oh, okay, that's helpful. And then actually just switching over to the level of the refunding activity this quarter. Is that now kind of a good run rate going forward, do you think?

I think it was still elevated this quarter from transactions that actually were advanced refund to last year but needed to actually find documentation to make sure that it was legally [the piece]. So I would say that the run rate would be slightly lower for the next 2 quarters.

And Bose, the easiest thing to do is go look back to 2008, 2009, 2007. Remember, these are typically refundings that are hitting the 10-year call. And if you remember, production volumes, they peaked significantly in '08, started to decline in '09 and then precipitously fall based on kind of the revised market of 0 interest rates and 6% penetration. So always look backward in time to time you're looking forward.

Okay, that's helpful. And then actually just one on the Syncora transaction. The cash from that transaction go to the insurance sub, right? It doesn't do anything for excess capital, is that, right?

Correct, it goes right into the AGC.

But it does increase the investment income when...

But it does increase -- well, yes, I was just going to say but it will increase its investment income, obviously, as it gets deployed. And if you increase its investment income, you will -- you increase the available -- the amount that we could (inaudible) out from the insurance company.

Our next question comes from [Michael Temple], investor.

Couple questions. And obviously, Puerto Rico is front and center. I can more than appreciate your frustration and anger over the lunacy, if you will, of the PROMESA board. But for all your frustration, the stock price had a very nice runup here in the last month or so in anticipation of or in reaction to the latest PREPA restructuring news. So a couple of questions arise. First, is this a template -- even though you are far from having settled with the government, is this a template that would allow investors, analysts to look at your HTA exposure, PRASA, GO exposure and simply extrapolate that if PREPA is headed towards some kind of consensual restructuring, and, obviously, that's going to take some time, that approximates the figures that have been bandied about or perhaps better, that similar recoveries could be in the offing in the coming 18 months or so for these other exposures that you have?

Okay, you're going to stop there or are you going to ask me the second part of...

I figure that will give you a mouthful to reply to.

Okay. Well, any time you're talking about Puerto Rico, it always gives me a mouthful as you can well imagine. So let's go back. Look, the RSA, the original negotiated transaction relative to resolving PREPA's debt crisis way back when it was a template. This was kind of more or less the form, so let's not get confused. Although it sounds different, it takes virtually the same form in terms of the surcharge they put on electricity bills that allows for debt service repayment. And it's just the amount, the volumes and whether you get a Class I or Class II security and how secure those securities are. So the template has always been there relative to consensual negotiation. Obviously, as we look at the entire environment, what do we know? We know that PROMESA came out with the specific requirement to respect to constitutional priorities and contractual liens. We also know that the board is supposed to fix or at least get a good handle on the financial activity prior to moving into solutions. What we have today is no fix whatsoever on any operation, both fundamental or financial, and yet we moved ahead and certified plans. And now with a 13-page qualified auditor's opinion, tells you the accuracy of the financial statement, and, therefore, the basis for which these calculations are derived from is pretty weak. Yet the board still went on and certified, and a judge also accepted those filings in the court. So it tells you that something is not working. However, pressure is now building. You're getting court cases that are just -- cumulative, I think the court cases today are over 50. So think of it. For a bill that was supposed to -- or a law to really minimize the amount of legal activity, litigation and the unnecessary expense involved when you're basically saying, all I want is my rights recognized, and we're now into the plus 50. In addition, the Commonwealth and the control board have spent over $100 million in fees and consulting services and say, okay, and what's the value of that? So I think there's a lot of pressure building on behalf of both the Commonwealth and the control board that says, okay, guys, show us your results. Because quite honestly, 2 years in, you've gotten absolutely nothing done. You've now basically filled up the court of law with hearings, you've got appeals on any decisions made. So guess what? It really isn't working, so something needs to be done. Is this a response to that to try to get something on the board? Potentially. As I said, the framework has always been there. We believe, if you really look at the true economics and really provide common sense approaches to dealing with some of the issues like excess expenses, essential services, et cetera, there is a framework that can easily be resolved, and, therefore, agreed upon, and we get to move forward. The COFINA GO deal is obviously a huge step forward in terms of dealing with almost $19 billion of Commonwealth debt that could be resolved on a consensual basis going forward. So I think there's pressure building. Is there a framework? Absolutely. Is there an ability for consensual settlement? Absolutely. But someone's got to stop playing the game. Someone's got to stop looking at litigation as the only solution or trying to pretend like they're willing to go to litigation. But those hearings are going to start to be heard. Those appeals are going to start to be heard. Ultimately, we're going to recognize that we are a country in a environment of rule of law. And guess what? Things are going to have to get settled, and the opportunity to sell then, then becomes more restrictive. But we believe it's all out there and then we just need to follow a real, proper, law-recognizing course of things and get results.

Fair enough. Regarding capital management, given your confidence in the ultimate resolution to your favor with Puerto Rico, and given there's still relative undervaluation of the stock against the various metrics of shareholder value, I'm just curious, is there room or scope for the consideration of increasing your share buyback, especially in light of, as I said, even though you're not particularly happy with it, at least 2 somewhat positive steps forward with the COFINA and now the PREPA restructuring activities, and, again, acknowledging that they're not what you think they should fully be?

No. And remember that when we set out on the capital management strategy, we set an annual target. And we said that annual target is going to be based on external factors. And in these most recent years, we've also talked about that to achieve the external target or this expected target, we will need the cooperation of a couple of parties and, most importantly, the New York DFS, to approve special dividends annually that allow us to top up the capacity of the operating subsidiaries' dividend capability so we get to the level that we're looking at. As we look at today, remember, first and foremost in the capital management strategy, in the defense of our high ratings so that we're able to continue to still actively produce and negotiate and execute on our transactions in our core competency space of financial guarantees. Two, we do look at Puerto Rico as a potential benefit or detriment relative to those amounts and those arguments and especially when we get to special dividend. Three, as you know, we have other plans relative to capital usage, and we have to evaluate those, both in the portfolio acquisition as well as alternative investment space acquisition. So we set a goal annually. We work to achieve that goal annually. We examine all external conditions that would influence that annual target. And we believe that annual target was the right amount, and I think over history, it's proven itself to be pretty reasonable and I think provides the appropriate shareholder value without trying to go into a acceleration in any one given year to the detriment of a potential future year.

Okay. And then final question. As you highlighted, the Syncora transaction is -- now marks the fourth consecutive year in which you've made a strategic acquisition of a legacy competitor. Does the outlook continue to look reasonably good for continued such transactions? I know that there's not as many birds sitting on the fence anymore, but how would you assess opportunities going forward after completing the Syncora deal?

Well, I think there's something important to notice, right. So the Syncora deal represents another type of transaction we can use to acquire legacy portfolios. As you'd pointed out, typically we've done it through acquisition and acquisition has its own characteristics. As we look to the remaining portfolios, there are complications. Either there's credits we don't like, there's a complicated capital stream that we really can't assess or be able to acquire. So this provides us another tool in our chest that allows us to continue the consolidation of the portfolios. And of course, as you know, there's at least 2 major portfolios left. We believe those companies are further along the line in realizing whatever the future plans might hold and how they have to deal with the regulatory capital requirements. So we think the environment is very fertile, very opportunistic. We continue to pursue those opportunities.

(Operator Instructions) Our next question comes from Geoffrey Dunn of Dowling & Partners.

Dominic, I want to understand the RSA, your settlement around this new RSA. It doesn't sound like a positive to me. It sounds like it's a weaker version of the original. It's moving forward without the fiscal reviews that you as a company have repeatedly suggested needed to be done. But the sentiment on The Street seems mixed, positive or negative. But to me, it's sounding negative from your commentary. Can I just clarify what your opinion is?

Sure. I'd say it's not negative. So hopefully, that disarms that. So think of it as, Geoff, that we're 85% in unsecured debt structure and now getting 67.5% in a securitized structure and a 10% hub note. But the hub note, I have to tell you, when we looked through the information, it's based on the current projections, and you know that government's been very, very conservative in their projections to make the case look worse than it is. So you have to say and hope that it's got some value. Also, it carries a high coupon rate. So the end of the day, when you think about for us, we have to pay debt service. So regardless of the proceeds we receive, it would have to go out. So there is some value there. So don't give me negative. And remember, if you try to value the 77.5% against the 85%, depending on the coupon and the value of the Class B share or whatever you want to call it, it's probably a push. So for them, God bless them if that's the deal they want. Go right ahead and take it, and I think that's a positive step. Any move towards a consensual settlement has to be considered positive based on the current stance of the board, who's been absolutely ignoring every requirement, every law, et cetera. So for some recognition that a bondholder, secured bondholder has some right, God bless them. It's groundbreaking in my eyes, right. So I don't want to undersell it. And I think for those folks that take that deal, I'm sure they're very happy with the deal, and I could construct the fact that says this is probably as good if not similar to what they had been in the past. Now the government has made all sorts of claims, but be careful when you look at the claims. They're talking about debt service over a specific period of time. Every deal has always been putting debt service more to the back there. If it's expensive structure, obviously, by definition, the first 20 years come under a different level of capital or cash requirement. Okay, those things can always be engineered as part of any negotiation. So it seems similar to me. It's representative of at least a recognition of rights. That's a positive step forward. Obviously, we have the secured lien. We're a little bit different creditors, to say the least, in this argument. So of course, we'll expect, as we continue to negotiate, as we have across all the borders trying to get to consensual agreements, it'd be able to make sense for us.

Then my -- a question. Who's the oversight on the PROMESA OB?

Congress last time I checked. And really, obviously, the judge should be kind of the on-site oversight to say, well, why do I accept these filings when Congress should be the true oversight because they're the ones that specified the law that created this thing.

All right And then last question. In your commentary, you were talking about the most recent [CA] filed against the constitutionality of the OB appointments. Did you say that, that has already been ruled on and effectively that puts you on track to join the appeal?

Yes. So remember, last week, Judge Swain -- or it was a week before, I lose track of time -- ruled that because she believes the Oversight Board is territorial, in effect, people and not congressional people or federal people, that the appointment clause doesn't matter. And of course, if you also read that same day another judge came out on a different claim against the federal government that ruled exactly the opposite that said the control board are federal employees, therefore the federal government is responsible or could be responsible. I want to be very legalistic in my description. So you've got 2 conflicting opinions, which, for us, is great because if the idea is that this court wants to run one way, at least there's another court that says, no, there's a possible second way to go.

And that's kind of where I was going with this question. So what's the next step? I mean, I think the other one was the Tucker Act challenge, then you had Judge Swain's ruling. Now that goes to the appeal court and basically those 2 kind of conflicting rulings will then be resolved? Is that the next step?

Oh, yes. Well, right now, you've got Swain basically denying the lawsuit from the constitutionality of the appointment of the Control Board. That will be appealed within that court to the appellate, which is the appellate court in Boston. The First District or whatever -- the First Circuit Court in Boston. So that's where that goes next. So they'll schedule the presentation of arguments. They'll set a court date, et cetera. And that'll get appealed at that level. If there's still conflict there, then depending on what that court does, it either attempts to go higher or it gets resolved there. So that runs its own a track. The other court runs its own track as well. And they don't, at this point, meet at the top until somewhere down the road.

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

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