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Rating Action:

Moody’s affirms Assured Guaranty’s ratings following agreement to acquire BlueMountain; outlook is stable

13 August 2019

New York , August 13, 2019 – Moody's Investors Service ("Moody's") has affirmed the A2 insurance financial strength (IFS) rating of Assured Guaranty Municipal Corp. (AGM) and the A3 IFS rating of Assured Guaranty Corp. (AGC) following an announcement by Assured Guaranty Ltd. (Assured Guaranty) that Assured Guaranty US Holdings Inc. (AGUS), its subsidiary and the indirect and direct parent of AGM and AGC, respectively, has entered into an agreement to acquire all of the outstanding equity interests of alternative asset manager BlueMountain Capital Management, LLC (BlueMountain). In the same rating action, Moody's also affirmed the Baa2 senior unsecured debt ratings of both AGUS and Assured Guaranty Municipal Holdings Inc. (AGMH). The outlook for the ratings is stable. A full list of rating actions on Assured Guaranty and its subsidiaries is provided below.

RATINGS RATIONALE

SUMMARY RATING RATIONALE

AGUS's acquisition of BlueMountain and its associated entities for approximately $160 million is expected to close during Q4 2019, subject to certain customary closing conditions and regulatory approvals. AGUS expects to contribute an additional $90 million of working capital to BlueMountain within the next year.

With approximately $19.3 billion of assets under management, the acquisition of BlueMountain significantly expands the Assured Guaranty group's participation in the asset management sector. While Moody's views the transaction to be beneficial for Assured Guaranty's diversification of earnings, it is incrementally credit negative for the overall credit profiles of AGM and AGC due to the increased levels of high risk assets and reduced liquidity within their investment portfolios as these firms are expected to make substantial investments in certain of BlueMountain's alternative investment strategies over time. These issues are somewhat offset by higher prospective investment income, which will boost the profitability metrics of these firms, though we note that certain of the investments contemplated have high embedded structural leverage that is likely to perform poorly in periods with higher than average default activity among corporate borrowers.

Moody's also notes that the transaction carries certain operational and execution risks, particularly related to the retention of BlueMountain's senior management personnel, maintaining relationships with investors in BlueMountain's funds and maintaining stable to growing levels of assets under management in an environment where there continues to be pressure on investment management fees, as well as increased complexities associated with information technology, financial controls and regulatory oversight and compliance. However, we view these operational and execution risks to be manageable given the size of the transaction, which is small relative to the larger Assured Guaranty group.

Assured Guaranty's ratings reflect its strong overall capital profile and core earnings power, its ability to underwrite transactions in both the public finance and structured finance markets worldwide through its multiple insurance operating subsidiaries, the ongoing improvement in capital adequacy due to insured portfolio amortization, as well as its leadership position in the financial guaranty insurance sector. These strengths are offset somewhat by the low levels of financial guaranty insurance utilization, as well as the potential for volatility in earnings and capital arising from large single risk exposures within its insured portfolio, including substantial exposures to the Commonwealth of Puerto Rico and its affiliated debt issuers.

At Q2 2019, Assured Guaranty had approximately $4.5 billion of consolidated net par exposure to various Puerto Rico issuers and had approximately $749 million of consolidated net loss reserves on its US public finance exposures, the majority of which are associated with Puerto Rico issuers. As part of our analysis of Assured Guaranty's Puerto Rico exposures, Moody's contemplates a variety of loss given default (LGD) scenarios based on the LGD-range implied by Moody's underlying ratings and other market indicators. Moody's most recent analysis suggests that Assured Guaranty's potential Puerto Rico-related losses could exceed the company's currently established US public finance loss reserves, which would require the company's subsidiaries to take reserve charges for incremental losses beyond those already reserved. However, we view these potential losses to be manageable within the context of the capital positions and core earnings power of AGM and AGC.

RATING RATIONALE - Assured Guaranty Municipal Corp.

AGM's A2 IFS rating reflects its strong capital profile, conservative underwriting of US municipal and international infrastructure finance risks and leading market position in the financial guaranty insurance sector. AGM is the flagship guarantor within the Assured Guaranty group of companies, producing the majority of group's new business. AGM's ability to organically generate significant capital through premium and investment earnings make its credit profile resilient to a broad range of stress scenarios.

RATING RATIONALE - Assured Guaranty Corp.

AGC's A3 IFS rating reflects AGC's strengthening capital adequacy profile due to an increase in its capital resources resulting from several acquisitions of legacy financial guarantors over the past several years. The increase in AGC's invested assets and unearned premium base also improves the firm's prospective profitability. AGC's capital adequacy profile has also experienced improvement from the continued amortization of its insured portfolio. Moody's maintains a one notch rating differential between AGM and AGC to reflect AGC's higher proportion of below investment grade exposures and its more limited strategic role within the Assured Guaranty group of companies.

RATING RATIONALE – Assured Guaranty (Europe) plc

The A2 IFS rating of Assured Guaranty (Europe) plc (AGE) reflects a combination of formal and implicit support from its parent, AGM. Formal support from AGM includes a net worth maintenance agreement and quota share and excess of loss reinsurance arrangements. AGE is the platform from which Assured Guaranty writes its financial guaranty business in Europe.

RATING RATIONALE – Debt Ratings

The Baa2 senior debt ratings of AGMH and AGUS represent a three-notch spread between the senior debt ratings and AGM's A2 insurance financial strength rating, which is consistent with Moody's typical notching practices for U.S. insurance holding company structures. Assured Guaranty's Baa2 long-term issuer rating is aligned with the senior debt ratings of AGMH and AGUS. Assured Guaranty fully and unconditionally guarantees the senior debt of AGMH and AGUS and guarantees on a junior subordinated basis the junior subordinated debt of AGMH and AGUS.

RATING DRIVERS

The main rating sensitivities for Assured Guaranty and its subsidiaries relate to the composition and performance of their respective insured portfolios, capitalization levels and market support.

The following factors could result in a downgrade: 1) Ultimate Puerto Rico losses that exceed the upper end of our loss projection ranges; 2) the extraction of meaningful amounts of capital from operating subsidiaries without an associated reduction of risk; 3) Assured Guaranty's new business production falls to unsustainable levels (e.g. less than 25% market share or less than $100 million in annual premiums); and 4) significant diversification into higher risk businesses.

The following factors could result in an upgrade: 1) a favorable resolution to the firm's Puerto Rico-related exposures that leads to limited additional loss reserve charges; and 2) a significant increase in demand for financial guaranty insurance (15%+ US municipal market insured penetration) at attractive pricing levels.

RATINGS LIST

The following ratings have been affirmed:

Assured Guaranty Ltd. – long-term issuer rating at Baa2;

Assured Guaranty US Holdings Inc. -- senior unsecured debt at Baa2, junior subordinated debt at Baa3(hyb);

Assured Guaranty Municipal Holdings Inc. -- senior unsecured debt at Baa2, junior subordinated debt at Baa3(hyb);

Assured Guaranty Municipal Corp. -- insurance financial strength rating at A2;

Assured Guaranty (Europe) plc -- insurance financial strength rating at A2;

Sutton Capital Trusts I, II, III, and IV -- contingent capital securities at Baa2(hyb).

Assured Guaranty Corp. -- insurance financial strength rating at A3;

Woodbourne Capital Trusts I, II, III, and IV -- contingent capital securities at Baa3(hyb).

Outlook Actions:

The outlooks for Assured Guaranty Ltd., Assured Guaranty US Holdings Inc., Assured Guaranty Municipal Holdings Inc., Assured Guaranty Municipal Corp., Assured Guaranty (Europe) plc, Sutton Capital Trust I, Sutton Capital Trust II, Sutton Capital Trust III, Sutton Capital Trust IV, Assured Guaranty Corp., Woodbourne Capital Trust I, Woodbourne Capital Trust II, Woodbourne Capital Trust III and Woodbourne Capital Trust IV remain stable.

The principal methodology used in these ratings was Financial Guarantors published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Assured Guaranty Municipal Corp. and Assured Guaranty Corp. are financial guaranty insurance companies based in New York. They are wholly owned by Assured Guaranty Ltd. [NYSE: AGO], the ultimate holding company. As of June 30, 2019, Assured Guaranty Ltd. had consolidated GAAP net par outstanding of approximately $235 billion, qualified statutory capital of $6.7 billion, and total claims paying resources of $11.5 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

James Eck
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Marc R. Pinto, CFA
MD-Financial Institutions
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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