Greenlight's Einhorn presentation ignites row with Assured Guaranty

Bermuda-based bond insurer Assured Guaranty issued a statement criticising David Einhorn of Greenlight Capital following a short-sale presentation.

Hedge fund manager David Einhorn said on April 23 that his Greenlight Capital was betting Assured Guaranty’s stock will fall, sending shares of the company down as much as 6 percent in after-hours trading, according to a Reuters report.

Einhorn reportedly called Assured Guaranty “a melting ice cube that is paying out the drops while it still can” at the Sohn Investment Conference.

New business coming into the company is not enough to offset the amortization of the portfolio, Einhorn explained.

Assured Guaranty provides credit enhancement products to the US and international public finance, infrastructure and structured finance markets.

“Mr. Einhorn’s analysis of Assured Guaranty fails to acknowledge the positive implications of our significant financial strength and strong operating performance, and demonstrates a fundamental lack of understanding of our business model and the municipal debt markets,” according to the statement.

“In the event of a municipal default, Assured Guaranty is obligated to cover shortfalls in scheduled principal and interest payments only when those payments are due. Our insurance policies do not permit acceleration of payments without our consent. Mr. Einhorn’s focus on total debt service ignores this lack of acceleration, as well as the strength of our balance sheet, and the highly liquid nature of our investment portfolio, which generates significant investment income over time.

“Furthermore, Assured Guaranty is well reserved for its municipal exposures and, due to the non-acceleration feature, does not face liquidity risks. We have $11.5 billion of cash and investments1 with $2.8 billion of estimated excess capital over S&P’s AAA level.2 In addition, we have strong legal rights, including for Puerto Rico under PROMESA, which requires that fiscal plans must respect contractual liens and constitutional priorities established under Commonwealth law.

“Throughout its history, Assured Guaranty has successfully mitigated potential losses and defended its legal rights in numerous distressed municipal situations, including Jefferson County, AL; Stockton, CA; Hartford, CT; Detroit, MI; and Harrisburg, PA.

“For all these reasons and others, we strongly disagree with Mr. Einhorn’s assertions. We remain focused on continuing to generate long-term value for our shareholders.”

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