Assured Guaranty Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 12, 2024

Key Takeaways

  • Assured Guaranty reached record highs in adjusted book value per share of $166.47 and operating shareholders’ equity per share of $113.96 at the end of Q3 2024.
  • New business production was robust across U.S. Public Finance, non-U.S. Public Finance and Global Structured Finance, with year-to-date PVP of $281 million (up $32 million year-over-year) and capturing 57% of insured par in the U.S. primary municipal market.
  • Assured Guaranty delivered YTD adjusted operating income of $5.80 per share, a 13% increase year-over-year, and Q3 adjusted operating income of $2.42 per share excluding a prior one-time gain.
  • The company remains committed to its capital management program, targeting $500 million in annual share repurchases (10% of 2023 shares repurchased to date), with an additional $250 million authorization approved and ratings affirmed post-merger.
  • Discussions on the remaining PREPA exposure continue in court-ordered mediation, with Assured Guaranty pursuing a fair, consensual resolution while prepared to enforce its rights as a secured creditor if necessary.
AI Generated. May Contain Errors.
Earnings Conference Call
Assured Guaranty Q3 2024
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good morning, and welcome to the Assured Guaranty Limited Third Quarter 2024 Earnings Conference Call. My name is Ezra, and I will be the operator for today's call. All participants will be in listen only mode.

Operator

After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to our host, Robert Tucker, Senior Managing Director, Investor Relations and Corporate Communications. Please go ahead.

Speaker 1

Thank you, operator, and thank you all for joining Assured Guaranty for our Q3 2024 Financial Results Conference Call. Today's presentation is made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. The presentation may contain forward looking statements about our new business and credit outlook, market conditions, credit spreads, financial ratings, loss reserves, financial results or other items that may affect our future results. These statements are subject to change due to new information or future events. Therefore, you should not place undue reliance on them as we do not undertake any obligation to publicly update or revise them except as required by law.

Speaker 1

If you're listening to a replay of this call or if you're reading the transcript of the call, please note that our statements made today may have been updated since this call. Please refer to the Investor Information section of our website for our most recent presentations and SEC filings, most current financial filings and for the risk factors. This presentation also includes references to non GAAP financial measures. We present the GAAP financial measures most directly comparable to the non GAAP financial measures referenced in this presentation along with a reconciliation between such GAAP and non GAAP financial measures in our current financial supplement and equity investor presentation, which are on our website at assuredguaranty.com. Turning to the presentation, our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Ltd Rob Balenson, our Chief Operating Officer and Ben Rosenbloom, our Chief Financial Officer.

Speaker 1

After their remarks, we will open the call to your questions. As the webcast is not enabled for Q and A, please dial into the call if you'd like to ask a question. I will now turn the call over to Dominic.

Speaker 2

Thank you, Robert, and welcome to everyone joining today's call. We continue to build value for Assured Guaranty shareholders and policyholders during the Q3 and 1st 9 months of 2024. Adjusted book value per share at $166.47 and adjusted operating shareholders' equity per share at $113.96 both reached record highs at the end of the Q3. New business production has been strong this year with significant contributions from each of our 3 market segments, U. S.

Speaker 2

Public finance, non U. S. Public finance and Global Structured Finance. For the 5th consecutive year, our PVP for the 1st 3 quarters reached or exceeded $240,000,000 coming in at $281,000,000 for 2024, dollars 32,000,000 higher than the 1st 3 quarters of last year. We benefited from greater overall municipal bond issuance and strong investor demand for our insurance, including from institutional investors on some very large infrastructure transactions.

Speaker 2

Rob will speak more about this shortly. Year to date, Assured Guaranty has earned adjusted operating income of $5.80 per share, 13% more than in the 1st 9 months of last year. As I mentioned in detail on our last earnings call, AGM completed its merger into AG, formerly AGC, on August 1, with AG as a surviving company. As we said at that time, we believe there are a number of benefits to this merger, including improved operating efficiency and better capital utilization. After the merger, S and P, Moody's and KBRA all issued statements affirming that there was no change to AG's ratings post merger.

Speaker 2

We believe AG is well positioned for future growth in its new structure. We still have excess insurance company capital above what is needed to maintain our high ratings. KBRA last month affirmed AAG's AA plus financial strength rating, building our strong capital position, skilled management team, strong risk management framework and strengthening market position. We continue to focus on optimizing the alignment of our capital and business opportunities to improve returns. During the 1st 9 months of 2024, we benefited from earnings generated by alternative investments and mark to market gains on trading securities with solid performance totaling $135,000,000 The inception date return on return on investments, including funds managed by SoundPoint and AHP was approximately 13% through September.

Speaker 2

We continue to focus on our capital management program in which we have targeted for years the repurchase of approximately $500,000,000 annually of our common shares outstanding. We remain committed to our share repurchase program and expect to reach our $500,000,000 target this year. As of November 8, 2024, the company has repurchased 10% of the shares that were outstanding on December 31, 2023. Our Board has authorized an additional $250,000,000 which brings our current authorization to approximately $385,000,000 For next year, we are targeting $500,000,000 again for share repurchases. Touching on our one remaining unresolved where we go exposure PREPA, the Title 3 court has ordered the parties to continue mediation and extended the time for them to resolve their differences.

Speaker 2

We remain committed to a fair and consensual resolution for all PREPA stakeholders, but are determined to enforce our rights as a secured creditor if a reasonable settlement may not be achieved. Overall, this has been a strong year. Since 2020, the value our bond insurance provides has been more widely recognized by the market. More issuers continue to turn to Assured Guaranty to help control their borrowing costs and execute their transactions more cost efficiently. In 2024 specifically, we have seen an increase in the number of large high profile transactions that use insurance.

Speaker 2

We believe that we are on a trajectory for future growth of our business as we strategically pursue new product opportunities, while appropriately managing risk and capital. I will now turn the call over to Rob to discuss our production results.

Speaker 3

Thank you, Dominic. Year to date Assured Guaranty is having exceptionally strong production results across our 3 financial guaranty markets. As Dominic mentioned, our $281,000,000 of year to date PVP is $32,000,000 higher than the 1st 3 quarters of last year. Our year to date result includes $63,000,000 in 3rd quarter PVP, up $17,000,000 from last year's Q3. Municipal issuance in the 1st 9 months of 2024 was up significantly year over year and so too was the total primary market par volume utilizing bond insurance.

Speaker 3

Sustained demand for Assured Guaranty's municipal bond insurance continued to make us the market leader, ensuring 57% of all insured par sold year to date in the primary U. S. Municipal bond market. During the 1st 9 months of 2024, Assured Guaranty insured $16,600,000,000 of new issue par, 18% higher than in the same period last year. This is the 2nd highest 1st 9 month primary market par we've insured over the last decade.

Speaker 3

So far this year, Assured Guaranty ensured some of the largest transactions that came to the municipal market, demonstrating the continued institutional demand for our guarantee and the increased market liquidity our insurance can provide. During the 1st three quarters, we insured a total of 33 transactions with $100,000,000 or more in insured par. These included $1,100,000,000 of insurance for the Brightline Florida passenger rail project, dollars 800,000,000 for the new Terminal 1 at John F. Kennedy Airport and $831,000,000 for a dormitory authority of the State of New York or DASNY school district revenue bond issue. 3rd quarter transactions included $446,000,000 for the Santee Cooper, South Carolina Public Service Authority, dollars 361,000,000 for the Central Florida Expressway Authority and $350,000,000 for the Lower Colorado River Authority in Texas.

Speaker 3

This year, we also saw an increase in the use of our insurance among credits rated in the AA category by S and P and or Moody's on an uninsured basis. Year over year in the primary market, we insured 26% more AA par and 36% more AA transactions for the 1st 9 months. This totaled approximately $3,500,000,000 of new issue insured par and 75 transactions. I am pleased to say that 3 of the transactions we insured this year have been awarded the bond buyer deal of the year in their respective categories. Florida Passenger Rail Brightline won in the innovative financing category, Westchester Medical Center won in the healthcare financing category and the JFK Airport New Terminal 1 project won in the Northeast region category.

Speaker 3

We believe that for issuers, our municipal bond insurance provides broadened market distribution on large transactions, a simplified credit story for complex bond issues and the ability to attract risk averse investors through enhanced credit quality. And for investors, it provides safety and security as well as potential market value support and improved market liquidity even during unstable market conditions. Outside of U. S. Public finance, our non U.

Speaker 3

S. Public finance business produced $44,000,000 of PPP year to date, dollars 6,000,000 higher than at this time last year. We have a promising pipeline of additional infrastructure business across a number of sectors and regions. New business in the 1st 9 months of 2024 included guarantees in the secondary market and on several U. K.

Speaker 3

Regulated utility and airport transactions as well as the annual renewal of certain liquidity guarantees. In Global Structured Finance, we also produced $44,000,000 of PVP year to date, a significant contribution. 3rd quarter PVP was $19,000,000 $5,000,000 higher than in last year's Q3. Our strong year to date production results involved primarily insurance securitization, bank balance sheet relief and subscription finance transactions. We continue to look for opportunities to expand our core financial organically business by entering new geographic or product markets.

Speaker 3

For example, during the Q3 in our international structured finance business, we insured a transaction for an Australian bank, which provided protection on approximately US600 $1,000,000 core lending portfolio. The transaction allowed that bank to manage their portfolio limits in a more capital efficient manner. We are pleased to have returned to the Australian market and expect to continue to grow our presence there. Company wide, the Q4 has gotten off to a strong start. Among transactions we have already priced for close in U.

Speaker 3

S. Public finance this quarter, we insured $920,000,000 of senior special facilities revenue bonds related to the redevelopment of JFK Airport's Terminal 6 $523,000,000 for Thomas Jefferson University in Philadelphia. I'm happy to report demand for our product is strong. We are expanding our business into new markets and we are looking forward to a solid finish for the year. I'll now turn the call over to Ben to discuss further our financial results.

Speaker 4

Thank you, Rob and Dominic and good morning. I am pleased to report Q3 2024 adjusted operating income of $130,000,000 or $2.42 per share. By comparison, in the Q3 of 2023, we reported adjusted operating income of $206,000,000 or $3.42 per share, which included a $190,000,000 after tax gain on the SoundPoint and HP transactions net of expenses. Excluding this one time gain, adjusted operating income increased significantly, primarily as a result of a benefit and loss expense in the Q3 of 2024. Before I delve into the developments for the quarter, I would like to remind you that in the financial guaranty GAAP accounting model, loss expense, which is included in adjusted operating income is different than economic loss development in that period.

Speaker 4

GAAP loss expense reached below investment grade insured transaction is reported only when its expected loss is in excess of its deferred premium revenue. As a result, loss expense may be higher or lower than economic loss development in a given period, but will converge over time as the deferred premium revenue amortizes. Q3 2024 economic loss development was a benefit of $34,000,000 and includes a benefit of $56,000,000 on our U. S. RMBS exposures, which continue to improve as home prices remain high and recoveries on both 1st and second lien loans improved compared with previous assumptions and a $23,000,000 benefit in the U.

Speaker 4

S. Public finance sector, primarily due to improvements in certain health care exposures. It also includes a $45,000,000 increase in expected losses on certain UK regulated utilities that we downgraded to below investment grade in the Q3, including our Thames exposures. It is important to note, however, that our Thames exposures are Class A senior debt at the operating company, not holding company obligations. In calculating expected losses, we are required by GAAP to apply probability weights to all possible scenarios in determining expected losses and therefore may report a GAAP expected loss even if we do not expect 1 in our most heavily weighted scenarios.

Speaker 4

In the Q3 of 2024, the loss component of adjusted operating income includes most of the benefit related to U. S. RMBS and healthcare. However, the economic loss development on U. K.

Speaker 4

Regulated utilities is not included in loss expense because deferred premium revenue was sufficient to cover the expected losses. Turning to net earned premiums. We reported $101,000,000 in the Q3 of 2024 compared with $99,000,000 in the Q3 of 2023. Our deferred premium revenue, which represents the storehouse of future earnings in the Insurance segment, remains strong at $3,800,000,000 and is a direct result of the new business production that Rob discussed. Our investment portfolio continues to perform well and demonstrates the value of having both a stable stream of interest income from the fixed maturity portfolio as well as income from a diverse portfolio of alternative investments.

Speaker 4

In Q3 2024, equity in earnings from our alternative investments was $28,000,000 compared with $25,000,000 in the Q3 of 2023. On an inception to date basis, alternative investments have generated an annualized internal rate of return of approximately 13%. Net investment income was $82,000,000 in the Q3 of 2024 compared with $101,000,000 in the Q3 of 2023. Net investment income from our externally managed and short term portfolio was consistent year over year. The decline in investment income is attributable to our portfolio of loss mitigation securities.

Speaker 4

As a reminder, these are Assured Guaranty insured bonds that had expected losses, which we had purchased at a discount to mitigate those losses. In recent years, we have not been actively purchasing loss mitigation securities and therefore, we expect this portfolio to continue to pay down over time with the proceeds reinvested in the alternative investment or externally managed portfolios. Breaking down the Q3 2024 results by segment. Insurance was the largest contributor with $162,000,000 in adjusted operating income and the asset management segment contributed $4,000,000 which is in line with our seasonably adjusted expectations as GAAP revenue recognition rules result in SoundPoint's performance fees generally being recognized towards the end of its calendar year, which will be reflected in our Q4 and Q1 results due to the lag in reporting. The corporate division loss was $29,000,000 On the capital management front, stock buybacks continue to be one of our most accretive strategies.

Speaker 4

And last week, our Board authorized an additional $250,000,000 in share repurchases. In the Q3 of 2024, we repurchased 1,700,000 shares for $131,000,000 at an average price of $78.87

Speaker 1

per share. As of today,

Speaker 4

our remaining authorization is approximately $385,000,000 and our holding company cash and investment balances are approximately $286,000,000 of which $33,000,000 resides in AGL. The share repurchase program along with adjusted operating income and new business production collectively contributed to new records for adjusted operating shareholders' equity per share of almost $114 and adjusted book value per share of over $166 While adjusted operating income varies from period to period, the consistent quarterly increases in these book value metrics reflect how the successful execution of all our key strategic initiatives build shareholder value over the long term. I'll now turn the call over to our operator to give you the instructions for the Q and A period.

Operator

Thank you very much. We will now begin the question and answer session. Our first question is from Brian Meredith with UBS. Brian, your line is now open. Please go ahead.

Speaker 5

Good morning. It's actually Marissa Lobo on for Brian today. Thanks for taking my questions. Maybe we could start with Capital Management. Specifically, how do the developments with the U.

Speaker 5

K. Utilities impact your capital management outlook for 2025? And does it have any impact on the dividend capacity to the holding company?

Speaker 2

Good question. But as you can see, we expect to reach the $500,000,000 this year and expect to reach $500,000,000 again next year. So obviously, it's not having any impact whatsoever on dividend capacity or the buyback program.

Speaker 5

Got it. Okay. Thank you. And moving to municipal issuance, could you give us a little bit more context around the slightly lower insured par market penetration this quarter? And what is your outlook for 2025 muni issuance?

Speaker 5

Do you think you can increase your insured penetration further?

Speaker 2

Onshore penetration has been increasing basically year to year as the value of the insurance is getting better recognized. And you can see that in a lot of ways, large deals we've been on this year, penetration in the AA market and the overall penetration as well. So we expect that to continue as bond insurance continues to be a really value in the marketplace, allows for execution in the spread environment that we're in, there's still savings to be made for the issuer. And obviously, the ease of execution makes it a real opportunity for the issuer to benefit from. We expect issuance to remain high.

Speaker 2

There's a crying need of infrastructure investment across the country as well as internationally. So our volumes, we continue to expect to grow as well.

Speaker 3

I want to add on the large transactions that we completed over the last year. We're capturing a significant portion of that spread, and it shows the benefit of our product in the execution of the transaction both with the insured and uninsured transaction. It allows for the deal to be much more efficient from a liquidity standpoint in the market.

Speaker 5

That's helpful. Thank you. And finally, if I could, any updated thoughts on the on how the 15% Bermuda income tax rate is going to affect your corporate tax rate in 2025?

Speaker 4

Yes. So right now, as you know, for Bermuda, we will begin to use our tax benefit that we put up at the end of last year, next year. So if you look forward at a corporate tax rate, assuming everything stays the same going forward, I'd expect a slight decrease in our corporate tax rate in 2025.

Speaker 5

Thank you very much. That's it for me today.

Speaker 6

Thank you. Thank you.

Operator

Our next question is from Jordan Himowitz with Philadelphia Financial. Jordan, your line is now open. Please go ahead.

Speaker 7

Thanks, guys. And congratulations on continuing to perform an exceptionally profitable company and well run.

Speaker 8

Only the Eagles are doing better.

Speaker 2

Fly Eagles Fly.

Speaker 7

NBA announced last week that they would consider putting themselves up for sale after prep for clarity in Q1. I believe this is the 3rd time, but my accounting is kind of difficult that they put themselves up for sale. In my opinion, there's only one likely bidder and that's you and it's just about price. And so I guess my question is, MBA has got to be looking at how well your stock done and how well your capital management has been. And no matter what the small dollars are, they're losing out dramatically.

Speaker 7

So I guess with that preamble, my question is, is there a possible way to consider a contingency payment based on the outcome of PREPA? And would you consider an offer based on a contingency payment depending how and if PREPA ended up?

Speaker 2

Jordan, as you know, we've been in the market repeatedly to basically consolidate the industry where the other companies are not trading anymore. And of course, MBIA is the largest one left. So you can assume that we've done everything we could in terms of making an offer that would make sense to them, but make more sense to us. And I think you highlighted it properly that the price is not right. So we're standing here on the sideline waiting for the price is right.

Speaker 7

And do you think with the new Republican governor or are we probably going to orient a governor of Puerto Rico, there might be any push to get rid of the independent authority or have more control or anything in that regard because all this money is only money going out of the Puerto Rican economy to legal bills as they fight this out, and all the money is not going to the new electricity that should be there?

Speaker 2

Yes, I wouldn't color the current governor elect to be or Democrat. I think they're obviously pro Puerto Rico. So we got to continue to look at that and what that means relative to our ability to recover on the PREPA exposure. I think the more important is the control board is there for the long haul, not the short haul. And now it has a change potentially in who the members could be on that board as we got a change in the presidency and the various members of the Congress.

Speaker 2

So we're looking forward to that as part of the biggest activity and coming up year in the current 2025.

Speaker 7

Okay. Well, congratulations again on wearing some AGO swag on this call. You've done a phenomenal job over many, many years.

Speaker 3

Thank you. Thank you, Jordan.

Operator

Our next question is from Geoffrey Dunn with Dowling and Partners. Geoffrey, your line is now open. Please go ahead.

Speaker 6

Thanks. Good morning. Good morning, Jeff. I was hoping you could get into more detail on the water deals. I understand that relative to the exposure, the provision economic provision this quarter was de minimis.

Speaker 6

But can you get into what these water utilities actually do? What revenues support the bonds? And what protections are in there against an ultimate loss?

Speaker 2

Sure.

Speaker 4

Sure. So Jeff, these are obviously essential services. You're providing water for the U. K. Water sector.

Speaker 4

And let's be clear, these are monopoly services. There's not a competition going on for the water. But there's a certain need of investment that exists right now that has to be supported and that they need to access the capital markets. UK government has been clear they're not looking to nationalize the water utilities. So you really can't push down the bondholders too bad because you really need to access the capital markets to do that work.

Speaker 4

And let's talk about our exposure specifically. Our exposure is the senior debt at the operating company. So we're not at the holding company level where I think there may be some infirmities and there is debt below us in the operating companies. Also as you know, all our exposure is P and I when due and we do not have any principal payments on any of our exposure to 2,037. So we have plenty of time on our hands to work this out and let the markets work it out.

Speaker 4

And we know there's a number of groups in the market right now who are looking to supply some short term funding to help them through to get to be able to raise more equity to support that sector. And obviously, we're very supportive of both new equity and new debt being raised as long as it doesn't significantly impair our position. So I think you're right in the assertion that we didn't put up a big loss this quarter. We don't see this as something that's particularly bothersome. I think it's just the natural order of how things have played out.

Speaker 4

And we're happy to sit there and support this, but it's not something that we're looking at and say, wow, this is going to be a problem from a capital basis, from a reserve basis. I think that's just a natural order and we expect relatively insignificant, if any, losses from this at all.

Speaker 2

And remember, Jeff, they rely on the capital markets to fund the entire operations. There's a significant amount of debt across the board and all the regulated utilities, they're highly regulated. They're required to maintain investment grade ratings. We're in a senior position. We expect no real issue here except for working out the short term difficulties they're having in terms of cash flow.

Speaker 3

Let me just add, as required under the accounting model, when something goes below investment grade, we have to probably wait all scenarios. So while we might not expect a loss, but we're required under the gap to put all those scenarios in.

Speaker 6

Understood. What is causing the it sounds like the cash shortfall for these utilities?

Speaker 4

I think what's happened over the years is they've pulled money out, the equity owners have pulled money out and they haven't reinvested the money right now in the water sector. So you can read the headlines and you'll see some articles that suggest that there are definitely imminities in the system and they need improvements just like every piece of infrastructure and probably a lot of the countries around the world. And I think what's driving the need to raise new equity to make the improvements going forward so the people in the UK can have clean drinking water.

Speaker 2

Yes, I think it's a CapEx problem, not an operating problem, but the CapEx problem has got to be solved so that they continue to provide the services they're required to do by the regulatory bodies, which are now saying in the areas like sewer waste treatment, you need to make a significant improvement, which requires capital. So we've got to raise the capital.

Speaker 4

I think the other thing we're waiting on, obviously, there was a rate determination early in the year. That rate determination is being appealed. So we're waiting to see what the result of the appeal is. And my guess is if they don't get a successful resolution, they'll appeal again. But I think that's really what's sitting out there is there is a need to increase the rate slightly to help support the capitalized improvements that need to be done for the water sector.

Speaker 2

Okay. That's helpful. Thank you.

Operator

Our next question is from Tommy Bjorn with KBW. Tommy, your line is now open. Please go ahead.

Speaker 8

Hey, good morning guys. Thanks for taking my questions. Staying on the U. K. Water topic, it sounds like we're waiting for the sort of final determination of rates from the U.

Speaker 8

K. Water regulator coming in December or January. Do you view that as sort of an important impactful event for how you'll have to adjust loss adjustments? Or is that not something that you guys are necessarily focused on?

Speaker 4

Obviously, you want to see the outcome of what comes through. There is a CMA process to go ahead and if they don't like the result, as I mentioned, they can appeal again. And historically, that's been a relatively decent process for the water utility. So I don't think this is something that I'm going to sit there and tell you that in December, they get a bad resolution that it's really going to change our numbers. I think this is something that we'll have to let play out over the next year or so as they work through what the right rate is to support capital investments that will improve the water sector.

Speaker 4

And obviously, we do not as we mentioned, we do not really expect losses. We just think this is a short term issue that they have to raise rates to get that liquidity.

Speaker 2

Remember the rates up the OpCo in terms of its normal daily operations, the excess of the rates will help them fund the CapEx as the CapEx which gets paid out over time. So obviously we'll see how this continues to play out, but we're expecting the rates to be going to increase and therefore enough funds to make the operations flow and then go out to raise equity for the CapEx.

Speaker 8

Got it. And I guess the frequency of claims in this business is rather low. Is there a historical similar case study that you could point us to where an insured utility or even better a non U. S. Utility seemingly face financial distress for the headlines out there and then AGO with some insured exposure ultimately emerged unscathed.

Speaker 8

Maybe you could just point us to for kind of learn about this process.

Speaker 2

Not really. Remember, these are highly regulated utilities or essential services. They're monopolies. So they typically work their way out of the province. So you've seen very little activity in terms of losses or even any write downs relative to debt service or debt capacity because it's so critical.

Speaker 2

I mean, think of it. They rely on the market for funding. They can't allow the market to take a loss and expect the funding to be there. So this is more an issue for the HoldCo, not the OpCo.

Speaker 8

Yes. Okay. And then just to the extent that you do see the uninsured U. K. Water bonds trading at a substantial discount to par in the market, which they appear to be doing so, would you consider pursuing any loss mitigation security strategy in terms of purchasing those?

Speaker 8

Or is that not something you're interested in?

Speaker 2

Our insured bonds don't take the same impairment. Therefore, there is no loss mitigation you can do. And buying the uninsured would just increase our exposure. So yes, there's no opportunity for that. It's not like the other like RBS where we guys do buy our own wrap securities at very deep discounts that doesn't exist for the water utilities.

Speaker 2

It shows you the market's expectation is pretty much money good.

Operator

Thank you very much. Our next question comes from Giuliano Bologna with Compass Point. Giuliano, your line is now open. Please go ahead.

Speaker 6

Hi Giuliano. I'll echo Jordan's comments about how aggressive you guys have done over the past 10 plus years, I'm sure guarantee. Maybe to take it off, there's a question about buyback capacity and the pace. I think you guys also have a lot of accumulated income on the alternative investments that are held in a subsidiary. I'm curious how much is there?

Speaker 6

And if I'm not mistaken, if you were to push some of that out the dividend up, it would count towards the next year, your dividend capacity. I'm just curious how where that stands and you obviously have some other levers and settle dividends in other ways around that, but I'm just curious how much that backlog how big that backlog is at this point?

Speaker 4

Yes. So at this point, we obviously are exploring we explore all options to increase our dividend capacity. There's no magic for us that in order to buy back our shares, we have to continue to push to find ways to move capital up to the holding company level. Obviously, we do have obligations to sound point. So it's not as simple as I have money warehouse that an investment and place it down low.

Speaker 4

I can't sell it. I could certainly move it up in cases that it works. It makes sense. We're happy to do it. But we do want to make sure it makes sense both for the short run and the long run, our ability to both to manage our capital appropriately.

Speaker 2

And remember, our goal is the $500,000,000 that we feel comfortable that we're making that this year, we're making it again next year. So that's obviously the strategy we're deploying in terms of what assets we're moving where to make sure we continue to fund that $500,000,000 buyback.

Speaker 6

That's helpful. And then, being a company over the international side, I'm curious, when you look at some of the transactions that you're doing or maybe the Australian transaction as an example, I'm curious what the premiums look like or how big the premiums could be. I realize every transaction is different, but curious how that compares to domestic or other more common international transactions that you've done and how that can impact the returns of some of that business?

Speaker 3

Yes. I would tell you that the returns are better in that business. The tenor is shorter, And we're providing capital relief transactions to banks and insurance companies. So we're really excited to continue to expand in that market.

Speaker 2

Yes. It's a very attractive business for us. As you can imagine, it's got a higher ROE content than any other business that we do. And because of the short tenure, you get to realize those earnings and release that capital. So accelerated earnings release of the capital quicker makes a higher return.

Speaker 2

So it's a great model and that's why we continue to maintain our international presence. And as you can see, based on Rob's presentation, we continue to expand our international borders as well. That we want international becoming a more significant segment of the overall company and taking pressure off of the domestic market that really relies on issuance here. It's opportunity and the opportunity is global. We're trying to meet that opportunity demand by making sure our global operations address it.

Speaker 6

That's helpful. And maybe one last one, but looking at the Thames exposure, it looks like most of the exposures are very low coupon and very long dated. I think obviously you're only ensuring the time we can in principal interest. So the MTB factor there has a huge benefit that's on your side. Yes, I'm curious if there because of that duration of those coupon dynamic, if there could be anything similar to the old COFINA exposures and things like that where you might have the ability at some point to consider loss mitigation.

Speaker 6

But I realize that you probably have to see a lot more weakness flow through before that would even become something to consider.

Speaker 2

Well, I think we've proven it and Tommy, I think we've proven our metal in terms of loss mitigation and how we handle distressed credits. I mean, you look at the results we've been able to achieve going way back to RMBS and the amount of money we've made off of the RMBS securities. Look at any troubled credit that we've had in the portfolio and how we exercise our rights within all those deals have really made loss mitigation a key strength of the organization and we will continue to look at that way for TEMS as well. And as I said, based on what our position, regulated senior position, OpCo, highly regulated, need to get access to the capital markets. That this is kind of something that we're very good at and we'll continue to work hard to get it done rightly.

Speaker 6

That's helpful. And there's a comment about very similar to what you saw in the transaction. It's a different entity and different legal system, but the process restructuring worked out pretty well as a regulated utility there, and even in Puerto Rico. Right.

Speaker 2

That's right. You've not seen any of these things in the market before. So we have these issues where

Speaker 6

we have

Speaker 2

Detroit Water and even Puerto Rico water worked out.

Operator

Our next question is from Jeffrey Dunn with Dowling and Partners.

Speaker 6

I was going to say, Jeff, you paid for

Speaker 2

the second question, so be careful.

Operator

This concludes the question and answer session. I would now like to turn the conference back over to our host, Robert Tucker, for closing remarks.

Speaker 1

Thank you, operator. I'd like to thank everyone for joining us on today's call. If you have additional questions, please feel free to give us a call. Thank you very much.

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