Assured Guaranty Ltd. (NYSE:AGO) shares rose as much as 6.5 percent on Monday after it was announced that the firm would receive a minimum of $358 million. The Wall Street Journal reports that it’s the result of a settlement with UBS AG (NYSE:UBS) in connection with some residential mortgage-backed securities insured by the firm.
Assured Guaranty is a bond insurer which covers debt obligations, including variable-interest entities, which enables firms like UBS AG (NYSE:UBS) to keep certain assets off of their balance sheets.
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The Settlement Between UBS And Assured Guaranty
The settlement covers all of the claims made in connection with residential mortgage-backed securities. UBS said it would also pay Assured Guaranty Ltd. (NYSE:AGO) back for future losses. Those reimbursements will be under a collateralized loss-sharing reinsurance agreement, which is expected to be enacted by the third quarter of this year.
UBS AG (NYSE:UBS) is the third financial institution Assured Guaranty Ltd (NYSE:AGO) reached a major settlement with since 2011. According to the firm’s CEO, it has received favorable settlements or compensation in a little over half of the par outstanding of its troubled residential mortgage-backed securities.
Assured Guaranty’s Results Mixed
In recent reports, the bond insurer has posted mixed results, mostly because of changing credit derivatives and in variable interest entities’ fair values. The company posted fourth-quarter profits because of smaller than expected credit derivatives losses. The insurer will release its next quarterly results on May 9. It also said it would release more information about the settlement’s financial consequences with its latest quarterly results.
In a statement, UBS AG said the financial effect the settlement would have on its results will be insignificant because it had already established provisions for it.