Assured Guaranty Ltd. is a Bermuda-based holding company incorporated in 2003
that provides, through its operating subsidiaries, credit protection products
to the United States (“U.S.”) and international public finance (including
infrastructure) and structured finance markets. The Company applies its credit
underwriting judgment, risk management skills and capital markets experience
to offer financial guaranty insurance that protects holders of debt instruments
and other monetary obligations from defaults in scheduled payments. If an obligor
defaults on a scheduled payment due on an obligation, including a scheduled
principal or interest payment (“Debt Service”), the Company is required
under its unconditional and irrevocable financial guaranty to pay the amount
of the shortfall to the holder of the obligation. The Company markets its financial
guaranty insurance directly to issuers and underwriters of public finance and
structured finance securities as well as to investors in such obligations. The
Company guarantees obligations issued principally in the U.S. and the United
Kingdom ("U.K"), and also guarantees obligations issued in other countries
and regions, including Australia and Western Europe.
Assured Guaranty Municipal Corp. AGM is located and domiciled in New York,
was organized in 1984 and commenced operations in 1985. Since mid-2008, AGM
has provided financial guaranty insurance on debt obligations issued in the
U.S. public finance and global infrastructure markets, including bonds issued
by U.S. state or governmental authorities or notes issued to finance infrastructure
projects. Previously, AGM also offered insurance and reinsurance in the global
structured finance market, including asset-backed securities issued by special
purpose entities. AGM formerly was named Financial Security Assurance Inc. Assured
Guaranty acquired AGM, together with its holding company Financial Security
Assurance Holdings Ltd. (renamed Assured Guaranty Municipal Holdings Inc., "AGMH")
and the subsidiaries owned by that holding company, on July 1, 2009.
Municipal Assurance Corp. MAC is located and domiciled in New York and was
organized in 2008. Assured Guaranty acquired MAC on May 31, 2012. On July 16,
2013, Assured Guaranty completed a series of transactions that increased the
capitalization of MAC and resulted in MAC assuming a portfolio of geographically
diversified U.S. public finance exposure from AGM and AGC. MAC offers insurance
and reinsurance on bonds issued by U.S. state or municipal governmental authorities,
focusing on investment grade obligations in select sectors of the municipal
market.
Assured Guaranty Corp. AGC is located in New York and domiciled in Maryland,
was organized in 1985 and commenced operations in 1988. It provides insurance
and reinsurance on debt obligations in the global structured finance market
and also offers guarantees on obligations in the U.S. public finance and international
infrastructure markets.
On April 1, 2015 (“Acquisition Date”), AGC completed the acquisition
(“Radian Asset Acquisition”) of all of the issued and outstanding
capital stock of financial guaranty insurer Radian Asset Assurance Inc. (“Radian
Asset”) for $804.5 million; the cash consideration was paid from AGCs
available funds and from the proceeds of a $200 million loan from AGC’s
direct parent, Assured Guaranty US Holdings Inc. ("AGUS"). AGC repaid
the loan in full to AGUS on April 14, 2015. Radian Asset was merged with and
into AGC, with AGC as the surviving company of the merger. The Radian Asset
Acquisition added $13.6 billion to the Companys net par outstanding on April
1, 2015, and is consistent with one of the Companys key business strategies
of supplementing its book of business through acquisitions.
Assured Guaranty (Europe) Ltd. AGE is a U.K. incorporated company licensed
as a U.K. insurance company and authorized to operate in various countries throughout
the European Economic Area ("EEA"). It was organized in 1990 and issued
its first financial guarantee in 1994. AGE offers financial guarantees in both
the international public finance and structured finance markets and is the primary
entity from which the Company writes business in the EEA. As discussed further
under "Business" below, AGE has agreed with its regulator that new
business it writes would be guaranteed using a co-insurance structure pursuant
to which AGE would co-insure municipal and infrastructure transactions with
AGM, and structured finance transactions with AGC. AGE must obtain the approval
of the Prudential Regulation Authority ("PRA") before it can guarantee
any new structured finance transaction.
Assured Guaranty Re Ltd. AG Re is incorporated under the laws of Bermuda and
is licensed as a Class 3B insurer under the Insurance Act 1978 and related regulations
of Bermuda. AG Re owns, indirectly, Assured Guaranty Re Overseas Ltd. ("AGRO"),
which is a Bermuda Class 3A and Class C insurer. AG Re and AGRO underwrite financial
guaranty reinsurance. They write business as reinsurers of third-party primary
insurers and of certain affiliated companies.
Assured Guaranty is the market leader in the financial guaranty industry. The
Companys position in the market has benefited from its acquisition of AGMH
in 2009, its ability to maintain strong financial strength ratings, its strong
claims-paying resources, its proven willingness to make claim payments to policyholders
after obligors have defaulted, and its ability to achieve recoveries in respect
of the claims that it has paid on insured residential mortgage-backed securities
and to resolve troubled municipal credits to which it had exposure.
The Company primarily conducts its business through subsidiaries located in
the U.S., Europe and Bermuda. The Company generally insures obligations issued
in the U.S., although it has also guaranteed securities issued in Europe, Australia
and other international markets.
Financial guaranty insurance generally provides an unconditional and irrevocable
guaranty that protects the holder of a debt instrument or other monetary obligation
against non-payment of scheduled principal and interest payments when due. Upon
an obligors default on scheduled principal or interest payments due on the
debt obligation, whether due to its insolvency or otherwise, the Company is
generally required under the financial guaranty contract to pay the investor
the principal or interest shortfall then due.
Financial guaranty insurance may be issued to all of the investors of the guaranteed
series or tranche of a municipal bond or structured finance security at the
time of issuance of those obligations or it may be issued in the secondary market
to only specific individual holders of such obligations who purchase the Companys
credit protection.
Both issuers of and investors in financial instruments may benefit from financial
guaranty insurance. Issuers benefit when they purchase financial guaranty insurance
for their new issue debt transaction because the insurance may have the effect
of lowering an issuers interest cost over the life of the debt transaction
to the extent that the insurance premium charged by the Company is less than
the net present value of the difference between the yield on the obligation
insured by Assured Guaranty (which carries the credit rating of the specific
subsidiary that guarantees the debt obligation) and the yield on the debt obligation
if sold on the basis of its uninsured credit rating. The principal benefit to
investors is that the Companys guaranty provides certainty that scheduled payments
will be received when due. The guaranty may also improve the marketability of
obligations issued by infrequent or unknown issuers, as well as obligations
with complex structures or backed by asset classes new to the market. This benefit
to market liquidity, which we call a "liquidity benefit," results
from the increase in secondary market trading values for Assured Guaranty-insured
obligations as compared with uninsured obligations by the same issuer. In general,
the liquidity benefit of financial guaranties is that investors are able to
sell insured bonds more quickly and, depending on the financial strength rating
of the insurer, at a higher secondary market price than for uninsured debt obligations.
As an alternative to traditional financial guaranty insurance, in the past
the Company also provided credit protection relating to a particular security
or obligor through a credit derivative contract, such as a credit default swap
("CDS"). Under the terms of a CDS, the seller of credit protection
agreed to make a specified payment to the buyer of credit protection if one
or more specified credit events occurs with respect to a reference obligation
or entity. In general, the credit events specified in the Companys CDS are
for interest and principal defaults on the reference obligation. One difference
between CDS and traditional primary financial guaranty insurance is that credit
default protection was typically provided to a particular buyer of credit protection,
who is not always required to own the reference obligation, rather than to all
investors in the reference obligation. As a result, the Companys rights and
remedies under a CDS may be different and more limited than on a financial guaranty
of an entire issuance. Credit derivatives were preferred by some investors,
however, because they generally offered the investor ease of execution and standardized
terms as well as more favorable accounting or capital treatment. Due to changes
in the regulatory environment, the Company has not provided credit protection
through a CDS since March 2009, other than in connection with loss mitigation
and other remediation efforts relating to its existing book of business. See
the Risk Factor captioned "Changes in or inability to comply with applicable
law could adversely affect the Companys ability to do business" under
Risks Related to GAAP and Applicable Law in "Item 1A. Risk Factors"
for additional detail about the regulatory environment.
The Company also offers credit protection through reinsurance, and in the past
has provided reinsurance to other financial guaranty insurers with respect to
their guaranty of public finance, infrastructure and structured finance obligations.
The Company believes that the opportunities currently available to it in the
reinsurance market consist primarily of potentially assuming portfolios of transactions
from inactive primary insurers and recapturing portfolios that it has previously
ceded to third party reinsurers.
U.S. Public Finance Obligations The Company insures and reinsures a number
of different types of U.S. public finance obligations, including the following:
General Obligation Bonds are full faith and credit bonds that are issued by
states, their political subdivisions and other municipal issuers, and are supported
by the general obligation of the issuer to pay from available funds and by a
pledge of the issuer to levy ad valorem taxes in an amount sufficient to provide
for the full payment of the bonds.
Tax-Backed Bonds are obligations that are supported by the issuer from specific
and discrete sources of taxation. They include tax-backed revenue bonds, general
fund obligations and lease revenue bonds. Tax-backed obligations may be secured
by a lien on specific pledged tax revenues, such as a gasoline or excise tax,
or incrementally from growth in property tax revenue associated with growth
in property values. These obligations also include obligations secured by special
assessments levied against property owners and often benefit from issuer covenants
to enforce collections of such assessments and to foreclose on delinquent properties.
Lease revenue bonds typically are general fund obligations of a municipality
or other governmental authority that are subject to annual appropriation or
abatement; projects financed and subject to such lease payments ordinarily include
real estate or equipment serving an essential public purpose. Bonds in this
category also include moral obligations of municipalities or governmental authorities.
Municipal Utility Bonds are obligations of all forms of municipal utilities,
including electric, water and sewer utilities and resource recovery revenue
bonds. These utilities may be organized in various forms, including municipal
enterprise systems, authorities or joint action agencies.
Transportation Bonds include a wide variety of revenue-supported bonds, such
as bonds for airports, ports, tunnels, municipal parking facilities, toll roads
and toll bridges.
Healthcare Bonds are obligations of healthcare facilities, including community
based hospitals and systems, as well as of health maintenance organizations
and long-term care facilities.
Higher Education Bonds are obligations secured by revenue collected by either
public or private secondary schools, colleges and universities. Such revenue
can encompass all of an institutions revenue, including tuition and fees, or
in other cases, can be specifically restricted to certain auxiliary sources
of revenue.
Housing Revenue Bonds are obligations relating to both single and multi-family
housing, issued by states and localities, supported by cash flow and, in some
cases, insurance from entities such as the Federal Housing Administration.
Infrastructure Bonds include obligations issued by a variety of entities engaged
in the financing of infrastructure projects, such as roads, airports, ports,
social infrastructure and other physical assets delivering essential services
supported by long-term concession arrangements with a public sector entity.
Investor-Owned Utility Bonds are obligations primarily backed by investor-owned
utilities, first mortgage bond obligations of for-profit electric or water utilities
providing retail, industrial and commercial service, and also include sale-leaseback
obligation bonds supported by such entities.
Other Public Finance Bonds include other debt issued, guaranteed or otherwise
supported by U.S. national or local governmental authorities, as well as student
loans, revenue bonds, and obligations of some not-for-profit organizations.