Assured Guaranty’s subsidiary Assured Guaranty US Holdings (AGUS) is to acquire all of the outstanding equity interests in BlueMountain Capital Management (BlueMountain) and its associated entities for a purchase price of approximately USD160 million, subject to certain adjustments.
BlueMountain is an alternative asset management firm with USD19.3 billion in assets under management (AUM).The acquisition is expected to be completed in the fourth quarter of 2019, subject to certain customary closing conditions, including the receipt of consents and regulatory approval. 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 collateralised loan obligations (CLOs); 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.
“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,” says Assured Guaranty President and CEO Dominic Frederico. “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.”
Mr. Feldstein said, “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. 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 capitalise on the many synergies between the companies, including BlueMountain’s significant experience in CLOs, asset securitisation, infrastructure investments and health care finance.”
Not less than USD114.8 million of the approximately USD160 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 USD22.5 million of its common shares to Mr. Feldstein. Additionally, Assured Guaranty will contribute USD60 million in working capital to BlueMountain at closing and intends to provide an additional USD30 million of working capital within a year of closing. Assured Guaranty also expects to allocate USD500 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.
