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Assured Guaranty Ltd. Message Board

  • hounddawgie hounddawgie Feb 19, 2009 7:11 AM Flag

    AGO's competitive advantage

    AGO should continue to enjoy a command of the credit enhancement market. MBIA's creation of a new company got a AA- rating from S&P, a couple of notches below AGO's AAA rating. When you are selling credit enhancement, a AAA rating will save the customer (bond issuer) money based on the rate they must offer the bond investors. In addition, a higher rated issue is more easily sold to investors, especially in the difficult credit markets we are seeing today.

    In order for MBIA to create a major threat to AGO's command in the market, they will need to raise more capital. Doing a material 'capital raise' by a non-bank financial company (MBIA) who's stock is at ~$4 would be highly dilutive to existing shareholders, not to mention a difficult sell to the new investors.

    The most exciting prospects for the monolines lays in the recovery of the structured finance products they currently hold. In short, something that will shore-up the asset side of their Balance Sheets.

    MBIA probably stands to benefit more by a recovery in the structured products they currently have on their balance sheet than AGO will, only because MBIA has a higher level of the "toxic" products that have the most to gain by improvements in those markets, if/when they recover. When the valuations of toxic products improve, so should MBIA's credit rating and thus make them more competive on the cash flow side of offering new credit enhancement products.

    AGO is much more balanced. AGO's Balance Sheet is not loaded with the risky type of assets that MBIA has, thus giving them a higher credit rating. The cash flow side of AGO should be propelled by their command in the market for new issues. However, the "market" for new debt instruments is under pressure. Eventually, as the credit markets settledown, all the money invested in U.S. Treasuries should start piling into the higher yields offered by muni and corporate bonds.

    In conclusion, AGO investors just need to be patient and hope for continued improvments in the overall economic landscape and a return to a time when investors desire to own non-U.S. Treasury debt instruments.

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    • FAIR and objective comparison.. very relevant too. any changes in your view after new reporting?

      • 1 Reply to mlkrborn_ny
      • I have combed their report. All things considered economically, management did a good job. Their operating results looked pretty good considering that investors are not buying any debt other than Treasuries. The RMBS write-downs are to be expected, residental real estate is still falling.

        The important thing is they have cash flow and it is positive. The landscape is clear and AGO should be able to spring into action when the economy starts improving. With the FSA addition, they will have plenty of talented and hungry "boots on the ground" to cover the landscape once investors start piling out of Treasuries in search of higher yields. There has to be a lot of pent-up demand by the issuers of muni-bonds, they flat need the money.

        Bond fund managers hate wrapped bonds, but the issuers love them. More important, if the issuers have a so-so credit rating, AGO can save them tons of money.

        I think we just need housing to bottom and see investors that are willing to bet on something other than the super-safe (Treasuries).

        I hate to say it, but we have to be patient.

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