Greenlight Capital founder and president David Einhorn is betting that bond-insurer Assured Guaranty’s stocks will fall in connection with the insurer’s business in Puerto Rico.
During a presentation at the Sohn Investment Conference, Eihorn – known for calling out Lehman Brothers just months before the bank collapsed – said that Assured Guaranty could face $1.5 billion in losses related to Hurricane Maria. He also noted that Assured Guaranty had only increased its reserves by a “measly” $111 million and described the company as “a melting ice cube that is paying out the drops while it still can.”
The influential investor and hedge fund manager also said that new business coming into Assured Guaranty is not enough to compensate the amortization of the portfolio.
When confronted with the notion that Assured Guaranty could sue bank sponsors to recoup its costs, Eihorn pointed out that the insurer’s problems are not that simple to solve.
“Assured Guaranty was not defrauded when it wrote insurance on Puerto Rico,” he explained, adding that Puerto Rico’s financial problems started long before the major hurricane incident.
In response to Einhorn’s words, Assured Guaranty released a statement.
“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,” the company said in a release.
The company additionally said that it is well-reserved for its municipal exposures and does not face any liquidity risks, Reuters reported.