Answers to Questions About AGC's Acquisition of CIFG Assurance North America, Inc.
July 5, 2016
Assured Guaranty Corp. (AGC) acquired the parent of financial guaranty insurer CIFG Assurance North America, Inc. (CIFG) on July 1, 2016. As part of the transaction, on July 5, 2016, CIFG merged into AGC, which is the surviving company. Due to the merger, all insurance policies issued by CIFG have become direct insurance obligations of AGC. AGC is an indirect subsidiary of Assured Guaranty Ltd. (together with its subsidiaries, Assured Guaranty).
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Q&A for Issuers and Trustees of Securities Insured by CIFG
Do we need to do anything to make sure our CIFG insurance policies are covered by AGC?
No. Because CIFG has merged with and into AGC, and AGC is the surviving company, by operation of law, CIFG’s outstanding insurance policies and obligations have become outstanding insurance policies and obligations of AGC.
We are required to make regular financial disclosures to the guarantor. Where do we send them now?
Beginning July 1, 2016, issuers who previously provided financial disclosures to CIFG should provide those disclosures to Assured Guaranty. Public finance issuers should refer to the disclosure guidelines on the Assured Guaranty website at AssuredGuaranty.com/munidisclosure and email information to firstname.lastname@example.org. Structured finance issuers may contact the appropriate surveillance officer listed below under “Whom do I contact to make a claim or request a waiver or consent?”
Where can I find the documents evidencing the merger of CIFG into AGC?
A copy of the Articles of Merger filed with the Department of Assessments and Taxation of the State of Maryland is available here.
A copy of the Agreement and Plan of Merger filed with the Department of Financial Services of the State of New York is available here.
Whom do I contact to make a claim or request a waiver or consent?
Please contact the appropriate member of our Surveillance Department based on the type of security:
Tax-Backed, Lease, Tax Allocation, Special Assessment
Karen Hofstein, email@example.com, 212.339.3419
Water and Sewer, Public Power, Gas and Electric, Resource Recovery
Barbara Boulle, firstname.lastname@example.org, 212.339.3504
Airport, Port, Mass Transit Fare Box, Parking Garage, Toll Road and Bridge
Valery Marfitsin, email@example.com, 212.339.3531
Victor Chu, firstname.lastname@example.org, 212.339. 3528
Housing Bonds, Infrastructure Finance
Geoff Durno, email@example.com, 212.339.3527
Student Loan Bond
Manish Thareja, firstname.lastname@example.org, 212.339.3410
Errol Uhr, email@example.com, 212.339.3476
Other Structured Finance
Steven Tremblay, firstname.lastname@example.org, 212.339.3516
Q&A for Investors in Securities Insured by CIFG
Are my bonds or notes still insured?
Yes. Due to the merger of CIFG into AGC, AGC has the responsibilities under CIFG’s outstanding insurance policies that CIFG had before the merger.
Are there any changes to my insurance policy?
No. The insurance policies remain in full force and effect and have the same terms as when they were issued. The only difference is that claims, if any, will be paid directly by AGC.
For policies associated with the 2009 reinsurance transaction between AGC and CIFG, AGC provided 100% reinsurance for the covered policies and administered the policies on behalf of CIFG. Beneficiaries of some of these reinsured policies subsequently novated them to AGC, making them direct obligations of AGC, and the relevant rating agency(ies) upgraded the public ratings on the novated obligations to AGC’s financial strength ratings. Policies that were reinsured in 2009 but were not novated by their beneficiaries prior to the merger, and were therefore still rated on the basis of CIFG’s ratings, have also become direct obligations of AGC, and we expect the relevant rating agency(ies) to upgrade the public ratings on the obligations insured by those policies to AGC’s financial strength ratings, as well.
Is my credit protection as strong as it was before the merger?
It is measurably stronger.
AGC is an operating unit of Assured Guaranty, the leading provider of financial guaranty insurance. Assured Guaranty has a proven business model and long track record of success. Including AGC, Assured Guaranty has $12 billion of claims-paying resources and annual investment income of approximately $400 million. Assured Guaranty has provided municipal bond insurance and other financial guarantees for more than three decades and has the financial guaranty industry’s largest surveillance department to monitor the underlying credit quality of the obligations it insures.
As a result of the merger, insurance policies issued by CIFG are now backed directly by AGC’s claims-paying resources, which exceeded $3.3 billion at March 31, 2016.
Does the public rating of my CIFG-insured securities change?
We expect S&P Global Ratings to upgrade the public ratings of CIFG-insured securities to AA, the financial strength rating S&P assigns to AGC. Securities already publicly rated AA or higher, whether based on policy novation or S&P’s rating of the underlying credit, would maintain their current public ratings.
Similarly, we expect Moody’s Investors Service to upgrade the public ratings of CIFG-insured securities to A3, the financial strength rating Moody’s assigns to AGC. Again, securities already rated A3 or higher, whether based on policy novation or Moody’s rating of the underlying credit, would maintain their current public ratings.
Additionally, the transaction has a positive effect on rating agencies’ views of AGC’s financial strength. For example, on April 19, 2016, shortly after the transaction was announced, Moody’s published an Issuer Comment in which it wrote: “We view the transaction as credit positive for AGC due to the prospective increase in capital resources relative to the amount of risk assumed from the acquired financial guaranty insurance exposures.”
How does the merger affect the market value and market liquidity of my bonds?
For holders of CIFG bonds that were not novated, the effect should be positive, as we expect such bonds to trade similarly to bonds insured by AGC. Demand for Assured Guaranty-insured bonds has been growing, and the market provides strong liquidity for them, with $500 million of average daily trading volume.
Where can I obtain more information about AGC and Assured Guaranty?
This website contains extensive information about Assured Guaranty and AGC. The Investor Information section contains Financial Supplements and GAAP and statutory financial statements for Assured Guaranty (http://assuredguaranty.com/investor-information/by-company/assured-guaranty-ltd) and AGC (http://assuredguaranty.com/investor-information/by-company/agc).
I have specific questions about my securities. Where should I direct them?
Please email our Investor Relations department at email@example.com.
Q&A for Assured Guaranty Shareholders
How does the CIFG transaction affect the value of Assured Guaranty as a company?
The acquisition adds a solid book of business that is consistent with our strategic objectives. The transaction is expected to increase AGC’s shareholders’ equity and statutory capital, and to be accretive to Assured Guaranty’s operating shareholders’ equity(1) and adjusted book value(1) at the acquisition date. It is also expected to be accretive to future operating earnings per share(1) and, subject to mark-to-market adjustments, earnings per share.
What did AGC pay for CIFG, and what did it acquire for that amount?
AGC paid $450.6 million in cash to acquire the parent of CIFG. As of March 31, 2016, CIFG’s statutory capital was approximately $644 million. The transaction adds approximately $5.5 billion of par to AGC’s net par outstanding.
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(1) Operating earnings, operating shareholders’ equity and adjusted book value are non-GAAP financial measures. The most directly comparable GAAP financial measures are net income for operating earnings, and shareholders’ equity for operating shareholders’ equity and adjusted book value. An explanation of these non-GAAP financial measures and their most comparable GAAP financial measures may be found in the most recent Equity Presentation, Fixed Income Presentation and Assured Guaranty Ltd. Financial Supplement in the Investor Information section of the Company’s website at AssuredGuaranty.com.