For once the news out of Puerto Rico was tilted in a positive direction. In August the Obama administration named the seven members of the oversight board who will be tasked with overseeing Puerto Rico’s restructuring. Despite the charged political atmosphere and the profound elements of governmental dysfunction, this process has produced a tangible result that I think will be prove to be effective in creating meaningful reform.
The oversight board is a bipartisan group with considerable Puerto Rico experience. Although creditors (including Assured and Ambac) had some say with legislators regarding the choices, the selections were ultimately made by Republicans Paul Ryan and Mitch McConnell (two each) and Democrats Nancy Pelosi and Harry Reid (one each). President Obama picked the seventh member. The members include a retired bankruptcy judge who oversaw the Chrysler and Enron proceedings; a former California budget director; a private equity manager who used to run Puerto Rico’s Government Development Bank; a bankruptcy trustee with an insurance background; a Social Security pundit from the American Enterprise Institute; a law professor from the University of Pennsylvania; and a former banker from the island who is now the CEO of the Federal Home Loan Bank of New York. If successful, the oversight board will be able to bring a much needed dose of fiscal oversight. Getting the board in place was one big hurdle, but the clock is ticking and we’ll know much more about their progress in the next 3-6 months.
During the quarter Assured Guaranty also continued to invest in legacy bond insurance portfolios. On July 1st it closed its acquisition of CIFG, a former peer. The purchase was made at a significant discount to statutory capital and is immediately accretive to AGO’s earnings and shareholders’ equity. Separately, Assured hired the former President and CEO of CIFG and two other executives to form a new investments group. The goal is to deploy a portion of Assured’s excess capital in acquisitions and new business opportunities that complement the company’s existing expertise. This effort will complement Assured’s existing stock repurchases and dividends, both of which could be scaled up if a special distribution is approved by regulators. In September Assured also announced its acquisition of MBIA’s UK insurance subsidiary, another immediately accretive purchase made at an attractive price. I continue to believe that Assured’s management of its insured obligations and its capital allocation policies are rational and beneficial to us as shareholders.
The above commentary is excerpted from the quarterly letter of Anabatic Investment Partners LLC. The fund’s Managing Principal and Portfolio Manager is Philip C. Ordway. Please note that the complete text of the disclaimer included with the fund’s quarterly letter is also reproduced below.
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