Assured Guaranty Ltd., the biggest municipal bond insurer, is buying BlueMountain Capital Management LLC for $160 million to deploy insurance company excess capital at "attractive returns" and diversify existing revenues with a new fee-based growth platform, which adds to their current business model that is premium-based.
Assured officials said the move should enhance its investment returns.
Assured announced that its subsidiary Assured Guaranty US Holdings Inc. has entered into an agreement to purchase all of the outstanding equity interests in BlueMountain and its associated entities for a purchase price of about $160 million, subject to certain adjustments. The $160 million goes to selling shareholders, while Assured intends to provide "stability and enhance Blue Mountain’s growth trajectory" through an expedited $500 million investment in BlueMountain Funds, collateralized loan obligations and/or separately managed accounts over three years as well as a $90 million capital contribution to BlueMountain to fund working capital and growth. The deal is expected to close sometime during the fourth quarter of this year.
“We have been searching for the right asset management platform for over three years, and we found it in BlueMountain, a seasoned asset management firm with a compatible credit culture, complementary market knowledge and the scale to make a material contribution to Assured Guaranty’s profitability,” Dominic Frederico, president and CEO of Assured Guaranty said. “BlueMountain will be our largest and most important investment outside the financial guaranty sector. We expect to allocate a portion of our financial guaranty subsidiaries' investment portfolios to be managed by our new asset management platform and believe that will drive improvement in our overall investment returns, which should raise the future level of insurance subsidiary permitted dividends. The acquisition is consistent with our strategic objective to diversify into fee-based revenue sources, and we expect this platform to be the basis for further development of our presence in the asset management sector. We are delighted that Andrew Feldstein will join Assured Guaranty to execute this strategy.”
BlueMountain is an alternative asset management firm with $19.3 billion in assets under management. As part of the agreement, BlueMountain’s co-founder, chief executive officer and chief investment officer, Andrew Feldstein, intends to join Assured Guaranty as chief investment officer and head of asset management, which will include his current roles at BlueMountain. BlueMountain manages assets across collateralized loan obligations, long-duration opportunity funds that build on the firm’s corporate credit, asset-backed finance, infrastructure and healthcare experience; and four relative value hedge funds. BlueMountain is the 16th largest global CLO manager by AUM and has issued 34 CLOs since its inception. The deal fits right in with Assured, which has a long history and extensive involvement insuring CLOs.
“Along with other senior executives of BlueMountain, I enthusiastically look forward to joining Assured Guaranty’s team and leading Assured Guaranty’s asset management initiatives," Feldstein said. "Assured Guaranty is a well-capitalized, credit-focused financial services group that believes in BlueMountain’s strength and long-term prospects, and it sees alternative asset management as a key element of its long-term strategy. Assured Guaranty’s asset management business will capitalize on the many synergies between the companies, including BlueMountain’s significant experience in CLOs, asset securitization, infrastructure investments and health care finance.”
Not less than $114.8 million of the approximately $160 million purchase price will be payable in cash. The remainder of the purchase price is payable, at Assured Guaranty’s election, in cash, its common shares, a one-year promissory note, or in a combination of the foregoing. As part of that payment, Assured Guaranty expects to issue $22.5 million of its common shares to Mr. Feldstein. Additionally, Assured Guaranty will contribute $60 million in working capital to BlueMountain at closing and intends to provide an additional $30 million of working capital within a year of closing. Assured Guaranty also expects to allocate $500 million of its financial guaranty subsidiaries' portfolios to the asset management platform’s funds, CLOs and separately managed accounts over a three-year period.
AGUS intends to fund the acquisition with loans from its financial guaranty subsidiaries Assured Guaranty Municipal Corp., Municipal Assurance Corp. and Assured Guaranty Corp., subject to regulatory approval. This approach allows Assured Guaranty to put capital of these subsidiaries to work to support the asset management business, without impacting its capital management plan.
As contemplated, Assured Guaranty expects the transaction to have no impact on its financial strength ratings. Assured Guaranty plans to continue its current share repurchase program.
Goldman Sachs & Co. LLC and Greensledge Capital Markets LLC served as financial advisors and Mayer Brown LLP acted as legal advisor to Assured Guaranty. Barclays Capital Inc. served as financial advisor and Purrington Moody Weil LLP acted as legal advisor to BlueMountain Capital Management.
Assured is expected to continue investing in other companies, as it continues to look at ways to utilize capital in ways that align with its expertise.
"While S&P Global Ratings does not publish a figure for Assured’s excess capital under their AAA depression stress model, we estimated it was approximately $3.2 billion as of December 31, 2018 under the criteria used in S&P’s June report. This is $400 million higher than our December 31, 2017 number of $2.8 billion," Frederico said on a conference earnings call Thursday morning.
