Assured Guaranty Ltd

NYSE:AGO

Earnings Call Analysis

Stellar Q3 Drives Record Equity and Income Growth

In Q3 2023, adjusted operating income surged to $206 million ($3.42 per share), a notable increase of 55% and 62%, fueled by strategic gains from the Sound Point and AHP transactions amounting to $190 million. The company focused on augmenting fee-based and alternative investment earnings aiming to boost returns and diversify income streams, now holding $630 million in alternative investments with a strong annualized 12% return. Premiums and derivative revenues rose to $99 million, while expenses saw a modest decrease. A strategic debt refinancing provided capital flexibility, elevating share buybacks. Shareholders' equity and book value per share hit new highs. Regulatory applications for a special dividend have been filed with an optimistic outlook. An extraordinary 84.7% BBB insurance penetration showcases industry strength, with AA market penetration also promising. The company is well-positioned for future growth despite lower current issuance volumes due to lingering pandemic impacts and interest rate volatility.

Substantial Earnings Growth and a Strategic Acquisition

The company has seen a remarkable increase in adjusted operating income, jumping by 55% to $206 million, or a 62% rise to $3.42 per share, in comparison with the same quarter of the previous year. This surge in profit was largely fueled by a significant gain of $190 million stemming from transactions related to Sound Point and AHP.

Investing in Alternatives and Asset Management Expansion

Diversification into alternative investments is a notable strategic move as the company now owns a 30% stake in Sound Point, an asset manager with a solid track record of AUM growth. The firm is deeply committed to this avenue, investing a total of $1 billion within two years in Sound Point managed funds, having already allocated $250 million recently. Their alternative investment portfolio stood at $630 million with an impressive annualized return of 12%.

Bifurcated Adjusted Operating Income Trends

While the reported adjusted operating income surged, there was a separate instance where adjusted operating income diminished to $59 million from $159 million year-over-year. This was mainly due to increased reserves concerning PREPA exposures and reduced benefits from RMBS transactions compared to the previous year.

Gains in Net Investment Income and Premium Revenues

The organization experienced a $32 million rise in net investment income from available-for-sale fixed maturity securities, which is attributed to faster accretion on loss mitigation securities and an uptick in short-term interest rates and average investment balances. Premiums and credit derivative revenues also showed an increment, reaching $99 million from the prior year's $92 million.

Efficiency Gains and Tax Rate Changes

Operational improvements are evidenced by the reduction in operating and compensation expenses across all segments, which decreased slightly to $91 million. The company faced increased effective tax rates, climbing from 8.1% to 18.4% on a year-to-date basis.

Share Repurchases and Financial Flexibility

Demonstrating confidence in its financial health, the company bolstered share repurchases to $64 million and expanded its authorization by an additional $300 million. Successful refinancing of debt maturing in mid-2024 further strengthens the company's capital management capabilities and strategic financial maneuvers.

Navigating Sectoral Shifts and Regulatory Dynamics

The occurrence of a rapid decline in BBB issuance led to changes in the firm’s business composition, with a shift towards more secure, highly rated business streams. This proactive adaptability is compounded by a positive outlook for public finance flow in the upcoming quarter and ongoing assessments and tax planning in anticipation of Bermuda's potential tax regime changes.

Future Dividend Prospects and Business Supportive Conditions

The leadership has submitted applications for a special dividend, displaying proactive capital management and indicating a strategic approach towards share buybacks. Moreover, favorable high interest rates contribute positively to the business, however, municipal issuance has been dampened post-pandemic, limiting cash availability and rate-seeking financial strategies.

Market Penetration and Production Outlook

With high interest rates and subsequent wider spreads expected, the company foresees conditions that are conducive to the growth of both the business and the wider insurance industry. Penetration rates have reached over 50% in the BBB and A space, and the company remains ambitious, aiming to achieve even higher penetration rates in these sectors.

Objectives for Enhanced Market Penetration

The company's leadership confidently maintains the goal of reaching 25% penetration in the market, as current momentum in the BBB and A bonds indicates the feasibility of achieving this target. As high interest rates continue and spreads potentially increase, these rates are projected to rise further, strengthening the company's market position.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, and welcome to the Assured Currency Limited Third Quarter 2023 Earnings Conference Call. My name is Elliot, and I will be your operator for today's call. [Operator Instructions] Please note that this event is being recorded. And 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.

[Robert Tucker, executive]

Thank you, operator, and thank you all for joining Assured Guaranty for our Third Quarter 2023 Financial Results Conference Call. Today's presentation is made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The presentation may contain forward-looking statements about our new business and credit outlooks, 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.

If you are listening to a replay of this call or if you're reading the transcript of the call, please note that the 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 and 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 Limited; and Rob Bailenson, our Chief Financial Officer. After their remarks, we will open the call to your questions. As the webcast is not enabled for Q&A, please dial into the call if you'd like to ask a question. I will now turn the call over to Dominic.

[Dominic Frederico, executive]

Thank you, Robert, and welcome to everyone joining today's call. We continue to build value for Assured Guaranty shareholders and policyholders during the third quarter and first 9 months of 2023. Adjusted book value per share of $148.03 and adjusted operating shareholders' equity per share of $99.18, both reached record highs at the end of the third quarter. New business production has been strong this year with significant contributions from U.S. public finance, international infrastructure finance and global structured finance.

For the fourth consecutive year, our PVP for the first 3 quarters reached or exceeded $240 million, coming in at $249 million for 2023. In July, we completed our transaction with Sound Point Capital Management and Assured Healthcare Partners, which resulted in a $241 million pretax gain net of expenses. We now continue our asset management diversification strategy to our 30% ownership interest in Sound Point.

The earnings from that stake will be reflected for the first time in our fourth quarter reporting, furthering our strategy of generating fee-based earnings to complement our risk-based financial guarantee earnings. We also expect enhanced returns on our investment portfolio based on a broader range of alternative investment options with Sound Point.

More generally, these changes will also result in a streamlining some of our financial disclosures. Rob will expand on this in a few minutes. In capital management, during the third quarter, we completed our current debt restructuring efforts by refinancing $330 million of our senior obligations due next year. We also picked up the pace of our share repurchases, buying $64 million worth of shares in the quarter. And last week, our Board of Directors increased our repurchase authorization by $300 million.

Before I go into greater detail about the quarter and year-to-date results, I want to tell you about 2 important management promotions. I'm pleased to announce that CFO, Rob Bailenson, will become Assured Guaranty's Chief Operating Officer as of January 1, 2024. Rob will assume responsibility of our financial guarantee underwriting and origination strategies worldwide as well as other initiatives to grow our financial guarantee business and increase returns. He will also be working with me on setting the company's strategic direction and in assisting and executing other corporate priorities.

Additionally, we are fortunate to have an outstanding person of fill Rob's role as CFO, Ben Rosenblum. Ben is currently our Chief Actuary, Ben has managed under Rob many critical financial functions, including accounting and financial reporting. As CFO, he will add treasury tech and investment management to his portfolio of responsibilities. Ben's quantitative and management skills have helped us accomplish many business objectives since he joined us in 2004. Most recently, he was instrumental in completing the Sound Point transaction.

Rob and Ben are running these promotions by making numerous significant contributions over their many years at Assured Guaranty. With their extensive understanding of our strategies, markets, business practices and unique characteristics of the financial guaranty business, I'm confident they will provide great leadership in the years to come.

Turning to U.S. public finance. Our total year-to-date municipal bond par insurance was down 9% year-over-year. We nonetheless achieved a nearly 10% increase in the par amount of bonds sold with our insurance, guaranteeing $14.1 billion or 62% insured market share. This includes $7.2 billion of par from 27 large transactions at each involved at least $100 million of insured par, up from $4.8 billion of par from 21 such transactions in the first 3 quarters of 2022.

Importantly, the industry has maintained relatively steady high insured penetration rates this year with a rate of 8.5% of new issue par sold for the first 9 months of 2023 compared with 7.8% for the first 9 months of 2022. The 9-month 2023 penetration rate is the highest in the decade. And in the third quarter of 2023, with overall par volume issued up only 3% year-over-year, we ensured almost 50% more primary market par sold than we did in the third quarter last year.

Our insured par sold in the primary and guaranteed in the secondary market totaled $4.4 billion, up from $3.4 billion in the third quarter of 2022. We are also pleased with the increased activity we are seeing on bonds with underlying AA ratings from S&P or Moody's. In that category, we insured approximately $2.8 billion of par during the first 9 months of 2023, up from $2.3 billion of par for the first 9 months of last year.

We wrote 64 policies on such AA transactions during the 9-month period, 55 of which were for new issues. We believe investors see our guarantee on high-quality credits as a mitigant to downgrade market value risks. And looking forward to the fourth quarter activity, we're off to a strong start. In the month of October, 3 U.S. public finance transactions between $350 million and $750 million sold are closed with our insurance, 2 airport transactions and the green bond transaction in the power sector.

Outside of U.S. public finance, our international public finance business produced $38 million of PVP year-to-date. We also have a promising pipeline of additional infrastructure business. In fact, during the fourth quarter, we are in the process of closing 5 transactions in the airport, water utility, higher education and student accommodation sectors with par [indiscernible] of $600 million.

In Global Structured Finance, we produced $82 million of PVP year-to-date assuring that 2023 will be our best year for direct structured finance production since 2009. We have another number of future mandates expected to close this year. The growth of our structured finance business further validates the three-pronged approach we take to writing financial guarantee business. By diversifying across U.S. public finance, global structured finance and international infrastructure markets, we can reduce production volatility over time as weird conditions in one market can be offset by a more favorable environment in another.

Our last remaining nonpaying Puerto Rico exposure is the power authority PREPA, for which we continue our loss mitigation efforts. After mediation reach in [ NPAs ], proposed PREPA plan of adjustment appears headed towards a contested plan of confirmation hearing, we remain committed to resolving PREPA consensually if possible, but we'll protect our bond claims and enforce our creditor legal rights through litigation in the Tier 3 plan confirmation and appeals process as necessary. Meanwhile, our outstanding PREPA insurance exposure continues to reduce.

Overall the strength of our insured portfolio has improved significantly in the last several years largely because of our loss mitigation efforts. We now classify only 2.1% of our $242 billion insured portfolio as below investment grade compared with 4.6% of the portfolio in 2017.

As I mentioned on our last call, during the third quarter, S&P reaffirmed its AA financial strength rating with stable outlooks of our insurance companies, setting both our very strong financial risk profile and very strong business risk profile in its annual review of us.

This report describes [ many strengths ] supporting our AA rating, including S&P's view that we have excellent capital and earnings with a meaningful capital adequacy buffer. Additionally, in October, KBRA reaffirmed its AA+ insurance finance strength rating with stable outlook of our financial guarantee operating subsidiaries in its annual surveillance reports on AGM and AGC. It also commented that investor demand for our product may be further enhanced by economic conditions such as tightening credit cycle, an economic environment of higher interest rates, volatile or widening credit spreads and economic uncertainty.

Our product is designed to provide value in a matter of the market environment, including when credit related market conditions are particularly uncertain. We believe the market disruptions during the pandemic and more recently volatility in the markets and global economies, geopolitical unpredictability and climate-related natural disasters have resulted in a broader recognition of the protection and value our guarantee provides against unforeseen circumstance and incredibly appreciation for the capital and liquidity supporting our insurance policies.

We believe that concerns in the market can increase the demand for financial guarantee insurance because it cannot support price stability and provide greater certainty of execution for new issues in the volatile pricing environments. Our outlook is positive as we continue to focus on our core principles of prudent capital management that is optimized for the benefit of our policyholders and shareholders, disciplined risk management and clear and well-executed strategies for new business production. I will now turn the call over to Rob.

[Robert Bailenson, executive]

Thank you, Dominic, and good morning to everyone on the call. I am pleased to report third quarter 2023 adjusted operating income increased to $206 million or $3.42 per share. This represents an increase of 55% and 62%, respectively, compared with the third quarter of last year. The increase was primarily driven by the gain on the Sound Point and AHP transactions of $190 million, which is net of transaction expenses and deferred taxes.

The Sound Point and AHP transactions were strategic milestones towards our goal of increasing fee-based and alternative investment earnings in order to grow the returns of the company while diversifying sources of income. With the Sound Point transaction, we will own a 30% interest in an asset manager with historically strong AUM growth that provides an array of alternative investment options. In keeping with our commitment to invest a total of $1 billion in Sound Point managed alternative investments within 2 years, we committed $150 million to 2 Sound Point funds in the third quarter and another $100 million since the end of the third quarter. Including funds managed by Sound Point, AHP and others. As of September 30, 2023, we had $630 million in alternative investments, our inception to date annualized returns across all alternative investments is 12%.

Before I get into a discussion of the third quarter, I wanted to highlight a few financial reporting changes resulting from the Sound Point and AHP transactions. First, while we are still reporting an asset management segment, it now primarily consists of our 30% share of Sound Point's earnings net of any amortization of intangible assets associated with the Sound Point investment because all Sound Point reporting is on a one quarter lag. Our share of Sound Point results will be first reported in the fourth quarter.

And second, the Sound Point and AHP transactions triggered the deconsolidation of all Assured IM CLOs and CLO warehouses as well as the AHP funds. However, due to the significant ownership interest and other control rights that we maintain in certain funds, we continue to consolidate three Assured IM funds that are now being managed by Sound Point, a CLO fund and two asset-based funds with a total net asset value of $272 million.

The net impact of CIBs to adjusted operating income was a loss of $10 million which primarily consists of a loss on deconsolidation of the CLOs and AHP funds. In the Insurance segment, adjusted operating income was $59 million in the third quarter of 2023 compared with $159 million in the third quarter of 2022. The decline was primarily attributable to increase reserves on PREPA exposures and a lower benefit on RMBS transactions compared with the third quarter of 2022.

Economic loss development in the third quarter of 2023, for RMBS transactions, was a benefit of $48 million, primarily due to higher recoveries for charged-off loans. Higher earnings generated by the investment portfolio partially offset increases in loss expense. Net investment income on available-for-sale fixed maturity securities increased by $32 million due to the acceleration of accretion on loss mitigation securities and higher short-term interest rates and average investment balances.

Equity and earnings on alternative investments was a gain of $25 million in the third quarter of 2023 compared with losses of $11 million in the third quarter of 2022. In addition, fair value gains on Puerto Rico contingent value instruments were $4 million in the third quarter of 2023 compared with losses of $8 million in the prior year period. Net earned premiums and credit derivative revenues increased to $99 million in the third quarter of 2023 from $92 million in the third quarter of last year. Accelerations were $15 million in the third quarter of 2023 compared with $12 million in the third quarter of last year.

Deferred premium revenue remained steady at approximately $3.6 billion as new business production replenished the amortization of deferred premium revenue. Total operating and compensation expenses across all segments were $91 million in the third quarter of 2023, down from $94 million in the third quarter of last year. The third quarter of this year includes $14 million in Sound Point and in AHP transaction expenses and no longer includes asset management segment expenses, which were $24 million in the third quarter of last year.

As you know, our effective tax rate fluctuates from period to period based on the proportion of income in different tax jurisdictions. On a year-to-date basis, the effective tax rate was 18.4% for 2023 compared with 8.1% for 2022. In addition to advancing our key objectives in asset management, alternative investments and new business production, we continue to focus on capital management. In the third quarter, we increased the pace of share repurchases to $64 million or 1.1 million shares.

Last week, the Board of Directors increased the share repurchase authorization by $300 million. We also achieved a great execution on the refinancing of $330 million of debt that was scheduled to mature in mid-2024. Our next debt maturity is now in September of 2028. The refinancing provides us the flexibility to pursue other capital management strategies, including share repurchases.

At the holding company level, we currently have cash and investments of approximately $146 million of which $67 million resides in AGL. These funds are available for debt service and corporate operating expenses as well as share repurchases and other strategic initiatives. The transformation of our Asset Management segment, the efficiency of our capital management activities and focus on new business origination and earnings growth continue to drive adjusted operating shareholders' equity and adjusted book value per share to new records of over $99 to $148, respectively.

I'll now turn the call over to our operator to give you the instructions for the Q&A period. Thank you.

[Operator]

[Operator Instructions] First question comes from Tommy McJoynt with KBW.

[Thomas Mcjoynt-Griffith, analyst]

Looking at the gross written premium and the PVP in the quarter, there was a sizable decline. And while I understand the structured finance side can be lumpy, should we read anything into this such as a pullback or a tightening of credit from your underwriting standpoint? Or is this simply a function of what the market gave you and you're really trying to write as much new business as you can?

[Dominic Frederico, executive]

It's really a function of mix of business in the quarter. There was a rapid start decline in the BBB issuance in the quarter, which obviously is where we -- most of our put is in. So that affected what we were able to write. So we wrote a lot of what I'll call, down the middle of the road, flow business, highly rated. Now the rates that are available to us in the marketplace.

[Robert Bailenson, executive]

And Tom, as we said, as Dominic said in the fourth quarter, we're seeing a strong flow in public finance.

[Thomas Mcjoynt-Griffith, analyst]

Got it. Okay. And then switching gears on the capital standpoint, is your leverage position, your debt to capital, a constraining factor that could inhibit you from doing more buybacks at some point? And when you and perhaps your regulators look at the opportunity for buybacks and what that could mean for your debt-to-capital ratios. Do you look at a capital number that includes or excludes the other comprehensive income, given the swings that we've seen there?

[Robert Bailenson, executive]

Well, the regulator would look at excluding other comprehensive income looking on a statutory basis. And we look -- we generally look at our debt-to-capital ratios with respect to the rating agency constraints. And yes, it's true that as you -- if, in fact, you somehow shrink your capital that you also have to delever. But with our refinancing that we did this year and that we're able to push maturity of 5 years, we have flexibility going forward of what we can do in capital management.

[Dominic Frederico, executive]

Yes. At this point time, it's not a constraint.

[Robert Bailenson, executive]

But it's always something that we look at.

[Thomas Mcjoynt-Griffith, analyst]

Okay. Got it. And then just last question. What's your initial understanding of the potential tax regime changes in Bermuda and how that could impact your business? And to the extent that the effective tax rates do increase there, do you think that your business could pass through those rate increases in order to maintain returns?

[Robert Bailenson, executive]

Yes. And at the end of the day, as you know, the global minimum tax is going to be effective in 2024. So because Bermuda had no tax jurisdiction, we would have had to pay whatever income that Bermuda makes, 15% would go to the U.K. because we're a U.K. tax resident. So if Bermuda initiates tax, and we just would not have to pay that tax to the U.K., we would just pay that tax to Bermuda. And yes, we believe that, obviously, would be profitable. And also, just remember, it's still significantly lower whatever tax -- it was significantly lower than the U.S. And there's a significant amount of capital here in Bermuda that earns at a lower tax rate, and we constantly evaluate and do tax planning based on that.

[Operator]

We now turn to Giuliano Bologna with Compass Point.

[Giuliano Anderes-Bologna, analyst]

Congratulations on another successful quarter. It's great to see the continued stronger performance. One thing I was curious of asking and I may have missed this during prepared remark, I'm curious if there's any commentary about special dividends or how do you think about your ability to request special dividend at this point or -- and then also how do you think about topping off capital to holding company on kind of a go-forward basis that way.

[Dominic Frederico, executive]

Well, Giuliano, I'm pleased to report that we filed applications with both regulators for a special dividend approval. So we're now just in waiting mode, which we're optimistic of this to be approved. So that's part of the capital management strategy, part of the capital buyback strategy. So we're doing exactly what we said we would do.

[Giuliano Anderes-Bologna, analyst]

That's great. And then one thing I would be curious about, on the new business front. The higher rate spread environment obviously drives lot of demand but it's not linear the way it flows through. I'm curious when you think about market penetration rates on the [ muni ] side. and where that could go over the next couple of years, obviously, assuming we stay at a higher-for-longer environment.

[Dominic Frederico, executive]

Well, as I said in my comments, penetration rates are at all-time high relative to the last, let's say 10 years. And to give you some really startling statistics, as we said in the quarter, there was not a lot of BBB issuance because I think there's a wait-and-see in terms of the interest rate marketplace and going to finance side and then have the opportunity to look later on the life that the rates are a lot lower. But to give you some statistics in the third quarter on a transaction basis, 84.7% of all BBB issuance took insurance, 84.7%. That means only 15% of the BBB issuance did not take insurance. That's a tremendous statistic for the insurance industry. I think it's reflective of the higher rate marketplace. Our problem is we just need more volume in the market to really drive more premium growth, which we can see in the future. As Rob mentioned, we're having a great fourth quarter start. We expect the fourth quarter to be spectacular on the [ proper ] finance side as well as our other marketplaces as well.

[Giuliano Anderes-Bologna, analyst]

That's very helpful. I realize it's very early in the process with the Sound Point transaction. I'm curious just even if we start from a high level, do you expect contribution to be positive starting next quarter because you referenced that you get the first full quarter.

[Dominic Frederico, executive]

Absolutely, and we are on 30% of a $50 billion asset manager, Tom, you said -- I'm sorry, Giuliano. So we expect it to be positive all the way through. We wouldn't have done it otherwise.

[Operator]

[Operator Instructions] Now turn to Geoffrey Dunn with Dowling & Partners.

[Geoffrey Dunn, analyst]

Dominic, I was wondering if you could just talk about how the market for new business has evolved in the last 2 years? Obviously, we've had a lot of movement on rates and spreads, but can you give either qualitatively or quantitatively how the market has changed over the past 2 years with respect to penetration rates, pricing terms, conditions? I mean, net-net, it seems like it all should be positive, but obviously, it gets distorted from what we see with mix change and all that stuff. So wondering if you could just dig a little bit more into that.

[Dominic Frederico, executive]

Well, Geoff, I would say it's all positive except for one thing, which is issuance. So let's talk about it. So number one, interest rates are higher that's a real benefit to our business across the board, both what we can charge for premium in addition to how many people would seek insurance now to try to save some financing costs.

Issuance has been is, a, the municipalities has been awashed with the release that they got through the pandemic. So they have run out of their checkbooks, which has taken quite a long time, so we didn't have any need to finance. And then two, because of the volatility in the marketplace and the interest rate environment, people are a little concerned that there's always a prediction that rates are going to come back down, so whether should wait to finance in 6 months or 9 months because we will get a better rate.

So I think we've got conditions that support the growth of the business and support the insurance industry through the interest rate process. Like I said, they haven't had a need to borrow, but we know in the municipality world, it's not a matter of if, it's only a matter of when and the when is coming. And because of the higher rates, we think we're in great shape to make significant production gains across the board.

Spreads, of course, in a volatile market, tend to be a little bit volatile. They're a little tight now, but we expect them to widen out as well, which will further benefit production. So I think it may tell two stories; the interest rate environment helps, but the issuance market is lower because of the washed cash that came out of the pandemic relief as well as the fact that people are looking for better rates for finance.

[Geoffrey Dunn, analyst]

And if I remember, we were like 6 and changed penetration rate 2 years ago and now you -- I think you said 8.5 year-to-date?

[Dominic Frederico, executive]

Right. And like I said, if you break it down between the where we're actually strong in the marketplace in the A and the BBB. So to give you another statistic, I told you, 84.7% of BBB transaction grabbed insurance, 59.5% of the A transaction grabbed insurance. So think of it both in the BBB and A space well over 50% penetration rates, which is what I had predicted 1,000 years ago based on penetration rates that I expect based on us being AA rating and what's available in the market.

And also, the fact that we're in the other two markets of structured finance and international infrastructure really provides us further support and a little bit stability in the earnings that we can see and the production that we can make. And of course, as you know, the returns on those businesses are even higher -- significantly higher than the domestic public finance business.

[Geoffrey Dunn, analyst]

And then one last follow-up, given what you just said about BBB and A penetration, you also indicated that you're gaining traction in AA. So is your view that it's an 8% to 10% type of penetration rate? Or is it still -- I think years ago, when you were talking about maybe recovering at 15%. What's your view on the ultimate penetration...

[Dominic Frederico, executive]

I still think we can get to 50% of the 50%, which is 25%. That's my view, and I still stick to it. And as I said, if I look at the BBB and the A penetration, we're there, we just need to get more participation than AA. Now I think we'll get to the numbers. So I think easily over 10% in a normalized marketplace. If we continue to see high interest rates and spreads wide now, that penetration rate will grow as well.

[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.

[Robert Tucker, executive]

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.

[Operator]

This concludes today's conference call. Thank you all for attending. You may now disconnect your lines, and have a great day.