Marissa Lobo

Marissa Lobo, on behalf of Doug Harter, inquired about the most attractive risk-adjusted returns across hotel, industrial, and storage originations, how new origination spreads compare to repayment levels, and details on the Arizona office restructuring's covenants.

Answer

CEO Bryan Donohoe stated that opportunities are broad outside the office sector, with a focus on principal protection and durable capital structures. He noted that logistics/industrial and multifamily typically have tighter spreads, self-storage offers higher yields due to smaller asset sizes, and hospitality is selective, providing enhanced yield. Regarding the Arizona office restructuring, Mr. Donohoe explained that while specific details couldn't be disclosed, restructures generally aim for accelerated business plans, sponsor expertise, and capital commitment.

Marissa Lobo inquired about Assured Guaranty's potential involvement in the current data center capital expenditure cycle as a new opportunity.

Answer

Rob Bailenson, Chief Operating Officer, confirmed that Assured Guaranty is actively evaluating data center opportunities, similar to their past entry into liquid natural gas. Dominic Frederico, President and CEO, added that while data centers present opportunities, power sources are a key underwriting consideration.

Marissa Lobo from UBS Group inquired about Assured Guaranty's ongoing investment allocation strategy for higher-yielding sectors like corporate securities and CLO equity tranches, particularly in the context of current macroeconomic trends. She also asked for an update on the Brightline transportation exposure, seeking details on the pressures affecting these deals. Finally, Lobo explored potential opportunities for Assured Guaranty to engage in the burgeoning data center CapEx cycle.

Answer

Ben Rosenblum, Chief Financial Officer, explained that Assured Guaranty works with internal and external managers to optimize investment yield while maintaining a safe portfolio with adequate liquidity. Dominic Frederico, President and Chief Executive Officer, addressed the Brightline exposure, noting it's a new operation experiencing typical startup challenges but expressed comfort with the structure and Assured Guaranty's senior position. Rob Bailenson, Chief Operating Officer, and Dominic Frederico confirmed that Assured Guaranty is actively evaluating data center opportunities, alongside other new sectors like liquid natural gas, considering power sources as part of the underwriting process.

Marissa Lobo inquired about the potential impact of a lower interest rate environment on Assured Guaranty's primary and secondary public finance business, and also sought details on the increase in below-investment-grade exposures, particularly regarding non-US credits like Thames Water.

Answer

President and CEO Dominic Frederico explained that lower rates have mixed effects, potentially depressing premium calculations but also stimulating more issuance and refunding activity. COO Robert Bailenson added that the secondary market provides a balance with higher-return opportunities. Regarding credit, Mr. Frederico and CFO Benjamin Rosenblum clarified that while their internal ratings can be conservative, their position in the capital stack often makes actual losses remote, describing loss reserves as primarily an accounting concept. For Thames Water specifically, Mr. Frederico expressed confidence in their well-protected position within the operating company's capital structure.

Marissa Lobo, on behalf of Doug Harter at UBS Group, asked for the company's view on the trajectory of core earnings and its implications for the dividend.

Answer

Chief Investment Officer Brian Norris stated that return on equity (ROE) is currently very attractive, supported by wide mortgage spreads. He explained that the technical factors keeping spreads wide are not expected to change significantly, and the current leverage level is sufficient to produce earnings the company is comfortable with, suggesting stability for the dividend.

Marissa Lobo, on behalf of Doug Harter at UBS, asked about the drivers for the increase in loan commitments during the quarter and inquired about the future trajectory of the company's leverage ratio.

Answer

Jeffrey Levin, Chief Executive Officer, characterized the quarter's deal activity as 'more of the same,' with no significant shifts in the size or sector of financed businesses. David Pessah, Chief Financial Officer, stated the goal is to increase leverage to a range of 1.15x to 1.20x. However, CEO Jeffrey Levin added that reaching this target will be done patiently, prioritizing credit quality over speed.

Marissa Lobo of UBS, on behalf of Doug Harter, inquired about the company's book value performance quarter-to-date and its capital allocation strategy between Agency RMBS and Business Purpose Loans (BPL).

Answer

President Nicholas Mah reported that as of the end of April, adjusted book value was down approximately 1.5%. He affirmed that the core strategies remain Agency RMBS and BPL, with a current preference for Agency RMBS due to historically wide spreads and their favorable performance in potential recessionary environments. He added that a significant shift into other credit assets would require more material changes in loss assumptions than are currently visible.