Business Context and Reporting Period
This Form 8-K was filed by Assured Guaranty Ltd. on July 7, 2016, reporting events occurring on June 30 and July 1, 2016. The filing details the company's response to the debt default by the Commonwealth of Puerto Rico and its instrumentalities, specifically regarding bond insurance claims and a restructuring support agreement with the Puerto Rico Electric Power Authority (PREPA).
Key Financial Metrics and Events
The filing focuses on specific claim payments and bond purchases rather than general operating metrics like revenue or profit margins.
- PREPA Bond Purchase: Assured Guaranty Municipal Corp. (AGM) purchased $25.8 million of new PREPA bonds (7.5% coupon, maturing 2020) to help fund PREPA's July 1, 2016, debt service. Total purchases by all parties under the agreement were $263.8 million.
- Total Debt Service Due: PREPA's total principal and interest due on July 1, 2016, was $416.7 million.
- Claims Paid: AGM and Assured Guaranty Corp. (AGC) paid claims on defaulted Puerto Rico bonds. Total gross claims paid were $205 million.
- Net Claims Impact: After accounting for expected additional claims ($11 million) and expected reimbursements from reinsurers ($33 million), the estimated net claims paid were $184 million.
- Exposure: Municipal Assurance Corp. has no insured exposure to Puerto Rico.
Default and Claim Details (July 1, 2016)
| Issuer | Total Payment Due (Gross P&I) ($M) | Total Claim Paid (Gross P&I) ($M) |
|---|---|---|
| Commonwealth of Puerto Rico (GO) | 210 | 196 |
| Puerto Rico Public Buildings Authority (PBA) | 9 | 8 |
| PRHTA (Transportation) | 55 | 0 |
| PRHTA (Highway) | 34 | 0 |
| PRCCDA | 15 | 0 |
| PRIFA | <1 | <1 |
| PREPA | 1 | 0 |
| PRASA | 25 | 0 |
| MFA | 9 | 0 |
| COFINA | 0 | 0 |
| UPR | 0 | 0 |
| Gross Total | 403 | 205 |
Material Changes and Unusual Items
The primary material change is the activation of insurance claims due to the sovereign default of Puerto Rico. While $403 million in principal and interest was due from various obligors, Assured Guaranty paid claims on only $205 million. The remaining amounts were either paid by the obligors directly or from their reserves. Notably, no claims were paid for PREPA, PRHTA, PRCCDA, PRASA, MFA, COFINA, or UPR, despite defaults, as these amounts were covered by the obligors or reserves.
The restructuring support agreement (RSA) with PREPA was extended to December 15, 2016.
Guidance, Outlook, and Risks
The filing contains forward-looking statements regarding the Puerto Rico restructuring. Management highlights significant risks and uncertainties, including:
- Adverse developments in Puerto Rico or its instrumentalities.
- Failure of creditors to negotiate a consensual restructuring.
- Current or future litigation.
- Governmental or legislative action/inaction by Puerto Rico or the U.S.
The company states it undertakes no obligation to update these forward-looking statements except as required by law.
Key Facts for Investor Verification
- Verify the final net cost of the Puerto Rico claims after all reimbursements from external reinsurers are realized.
- Monitor the status of the PREPA restructuring support agreement and the securitization of the bonds purchased by AGM.
- Confirm whether the "0" claim payments for entities like PRHTA and PRASA indicate full payment by the obligors or potential future disputes.
- Review subsequent filings for updates on the $11 million in expected additional claims from reinsurance exposure.