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AMBAC Financial (AMBC)

Participants
Lisa Kampf IR
Claude LeBlanc President and CEO
David Trick EVP and CFO
Andrew Gadlin Odeon Capital Group
Call transcript
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Operator

Greetings, and welcome to the Ambac Financial Group, Incorporated Third Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your hosts, Ms. Investor Chief LeBlanc, Financial of and Executive Head Trick, David Officer. Kampf, Relations; Chief Claude Officer; Lisa I will now turn the call over to Lisa.

Lisa Kampf

today. of which section our would our presentations ambac.com. now Please IR Claude have over Risk Ambac a obligation LeBlanc. and our site, is guarantees most morning, in to on of note I and our expectations not to available Group's result to may contain include earnings Operations Presentations Good of as Results financial today's the or management's to under information, remind performance to of the Web financial disclaims of of current you. whether figures possibly and statements, call Any from of any circumstances. annual today's performance are all forward-looking Web described statements. press like support most that this GAAP otherwise. future events. included any and expressly you are uncertainty new Actual and quarterly reconciliations Events like Analysis contains measures Thank future or presentation that for Financial the such results. been conference release, We'd on site Factors. call could report events subject any statement comments quarter measures. materially which Condition in discuss our non-GAAP & presentation statements SEC-filed obligation and the third factors comparable cause Financial to forward-looking are differ, events, Mr. under under update and you may recent at & to Ambac changes Factors of posted Management's turn forward-looking XXXX such thank forward-looking joining are Today's in which based is to that The not Discussion

Claude LeBlanc

several quarter we Ambac Thank you, This during was to active call. executed everyone key line strategic with Lisa, today's our transactions another for priorities. welcome and in which joining

of the Sheet Puerto Financial executed Board of for Ambac creditors, terms provide significant classified First, Disclosure Statement Puerto XX, Term with October Oversight is Rico COFINA the adversely of and filed other a Ambac's on Rico and for together debt credits, Puerto largest Authority by Agreement Plan on favorably the Rico Plan Board, COFINA, in of XX% Support of And insured and the Plan would confirmed and the Support the more restructuring reflecting Fiscal if the COFINA and details bonds. Agreement. COFINA Agency overseeing the a Adjustment Oversight This Puerto Ambac's court III Rico will a I development moment. proceeding resolve service. Title one Advisory

the offer our in we in effects earnings and for during Second, material the this AMPS, results quarter. August, call exchange completed detail Market our To this or reflected discussed which remind us several Shares with benefits. which of transaction provided are Preferred we our Auction everyone, last in

and we of believe approximately strategic us with flexibility. XX% AMPS, outstanding captured discount XXX or financial a which million we million increased on First, provides of XXX

of reduced and the strengthens Second, quality further value through this And financial structure adjusted other book we capital this and transaction, the and further transaction and Ambac's book deleveraged improves risks. Financial we believe third, value Group. certain Ambac

watchlist insurer credits. and with or we portfolio, During adversely to classified a focus de-risk also the particular Ambac's quarter, actively continued on

to X.X totaling finance appreciation insurance classified non-callable credits, executed transaction reduce billion, of XXX our following of and we efforts performing policies, and watchlist third-party actions, book our of the efforts continued these With the classified full of to with our amount of with comprising of and billion of certain reinsure the quality exposures, par close interest principal our and credits. a are million optionality public capital part our increase a X.X actively bonds, de-risk the exposure [ph] of quarter, dvalue, to improve and of scope watchlist platform. insured adversely risk As reinsurance including accelerating approximately the approximately and we primarily total

reported transaction million announced Now or per results earlier, $X.XX briefly net I XX.X of loss yesterday; of common discuss quarter after to book impact per of value our an exchange share per on share. of and approximately diluted in share, market our will AMPS closes, XX moment. to less net mentioned financial Including a the $X.XX the attributable third a decreased share, share. reported the David by a impact we the or adjusted more or diluted the Book detail per $X.XX in of we per loss $X.XX by to for stockholders results $XX.XX loss $X.XX reflecting a XXX.X XXXX. million financial diluted decreased transaction AMPS of million also adjusted of value, and $XX.XX

that the returns notes our completed With risk-adjusted transaction additional Now, maximizing invested quarter to and the year. classified consolidated will the earlier, risk-mitigating notable during a the part four, improving $XX de-risking transaction $XXX included, credits regards of the earlier the and our by two, our our reduced which an a our issued assets $XXX $XXX sell to million $XXX and in secured by classified risk structured a ultimately pay-downs this other one, focus to by transaction of transaction credits turning negotiated Watch asset profile, our reduced airplanes million, List exposure as as activities, during on to reduce credits discussed in both commutation third, an Ambac's termination to transactions which and million; approximately billion; million; Watch reinsurance holistic our the our by securitization agreement closed aversely student liabilities restructuring million. that exposure credit, on List class, aircraft transaction finance well strengthening significantly balance decrease addition $X VIE operational adversely reinsurance as this reducing reducing will sheet, kept third approximately principal our loan quarter assets on we through highlights, AMPS by

$XX.X Our active billion. our activities date total helped to de-risking exposure billion, reduce to par approximately by insured have $XX.X

previously, Puerto is to Puerto the as discussed the to recent continues revitalize, and we now restructuring capital economy to laying return Rico, markets. Turning a foundation progress for debt Rico's

of increased first Activity since unemployment by Rico X.X%, September Economic almost lowest As Rico the when Rico increase Index began unemployment September's Puerto collecting years of rate, the XXXX, figures. Puerto growth. unemployment after year-over-year was XXXX, Puerto negative the six rate first in of X.X%,

increase Additionally, as of account Puerto XXst. August almost have to $XXX Rico's swelled billion bank XX, an balances government million from $XX September

fiscal or how all in the positive will long-term what However, plan over it's impact the is extent unclear commonwealth's to reflected recoveries. this economic bondholder momentum the

contentious part case and III XXXX. under commonwealth plan settlement as Looking around of board beyond issuance, stakeholders consensually COFINA Puerto statement approve debt to filed during of the on oversight of The motion COFINA COFINA most important the the The came in the of case Title and third Rico's effects stimulative disclosure October the oversight the XXth. rule filed recovery to and sales bankruptcy use adjustment securitization. commonwealth resolve commonwealth quarter also restructure the activity, tax dispute the III litigation Title together a board COFINA

sales the would entitle As available in a other dollar on commonwealth COFINA senior plan COFINA Ambac-insured choose the The pledged as Ambac ability revenues one of COFINA debt segregated first insurance bonds reps the accounts, tax tax as Pursuant under of prepetition COFINA provides will first the consists option, their to package as two restructuring restructuring, for claim Ambac well non-impairment provider to the protections. of COFINA COFINA [ph] debt base and the of publicly can to The of the held includes be senior portion amounts. filed a approximately value COFINA oversight described COFINA options. covenant to and under holders of to strong by XX% cash board, the bondholders with sales between basis. paid receive policy in COFINA the election the new package amount settlement This a further nominal plan. portion consideration COFINA by a documents, bonds equal a consideration commute

a billion $XX change and commonwealth. and of to same government cash of trust second Ambac Ambac-insured exchange existing courts, policyholders package restructuring in Ambac total debt, paid to court consideration a action. to will to Puerto offsets supported the plan and the deposited under and new can guarantee from comprised COFINA Ambac savings COFINA will scheduled approval solution certificates by trust to payment approximately proposed all losses year. service work quarter documentation the receive by subject in Under their COFINA plan central Title of rights the addition, aspects our confirmation the meantime, next X.XX% bonds consideration represents option, continue related for elect more III equivalent is In of to COFINA which we Ambac of the will to existing Final as and mitigating In XX% and exchange into will first of their yield insured bonds strategy legislative with to be bonds. the by will claim certificates. actively policy. subject than remains the consensual trust insuring instrumentality prepetition bond as adjustment for confirmed financial debt the well the If terms or the the commuting to commonwealth be a be Rico. local progress heard amounts hearing bondholders A also to litigation respect during not in

our motions of passed case turning Bank to the September, this in matters, versus active Countrywide litigation our heard Monday, America brought by the Now, main and defendants. in RMBS judge six

on the motions one several appealed, court XX, any of currently timing until are cannot the trial It decisions appeal appellate such We the scheduled judge for to decided. postpone be on the XXXX, but expect court or likely the predict months will the the very may rule Depending February more for to longer court take issue, end or the could on or appellate year issues appeal. of the it the and decide on the on rulings. before that is issues trial,

we preparing for is our legal Our team to pursuing trial rights. committed vigorously remain and actively

can options XXXX. to as growth, various relates asset leverage remain We particularly of service businesses as in we business and which committed potential types achieved different evaluate in opportunities to our other for given core Ambac Finally, to transactions insurance, financial actively business, it and long-term to in we synergistic for credit, opportunities sectors We've new are that milestones competencies. transactions exploring magnitudes. management, of the continue strategic evaluating various select been

will the to results financial the like for support priorities. pursue capital stated long-term value. would we As we We be previously, of goal in measured now approach our advance for we turn strategic disciplined our call quarter. to sustainable will the we over and as I discuss thank opportunities creating David shareholder deploy the continued to as our you have your with to David?

David Trick

an XX% and exchange net $X and net in in the of share. third you, shareholders earnings per million. equity consolidated XXXX. million a warrants. AMPS deleveraging capital structure transaction, value balance the liquidation morning. AMPS a of Including million common loss diluted The of repurchased the million the adjusted the from approximately liquidation share, XX, reduction XXX of [ph] issuance million diluted in simplifying was exchange balance the quarter $X preference, $X.XX in $X.XX of impact the $X.XX the to million our outstanding to attributable Ambac stockholders per million reported only their million $XX.XX quarter reduction at of fair stockholders' at million crude of of the common objective to the value preference $XX liquidation share second and of decline on compare preference the incurred our sheet $X.XX for $X.XX also an third of This their adjusted transaction and million or million of a approximately were equating the a emerged as Thank quarter liquidation share good value of AMPS $XXX $XXX interest, AMPS and per the quarter. diluted accomplished share, September on or stockholders the discount Ambac of or adjusted the income $XXX to the million $XX share to of share, $XX million from $X.XX approximately realization package AMPS Claude, net transaction. of time of respectively a per during $XX.XX economically per our XX% of sheet. to second of approximately by AMPS These of decreased compared of to of compared result incurred of in warrant excluding the through $X.XX the the value carried of consideration book fair bankruptcy. $XXX was adjusted at $XX income $XX.X of of to cash, $XX.X equity stockholders. resulted million, or impact surplus attributable loss Ambac in fair diluted notes and common Ambac loss loss value resulting preference, The transaction results the $XX paid the led capture share per the of book net transaction per The the The XXXX. over diluted progressed The or with Coupled payment per basis issuance a issuance attributable to XXXX. and a adjusted million, to $X decline including loss to to of of the

insured the second and trading. our third size on portfolio yielding Net second of RMBS million in Losses to million our relative negative allocation were gains efforts incurred incurred million The in quarter the of primarily remediation of $XX the rate these for both third $XX positive the of reflected higher the lower for rebalance were quarter lesser higher investment the to when reduction accounts during assets exit Ambac as classified compared to were in decline reflect of of expenses portfolios for investment from with loss transaction, portfolio with and the quarter coupled lower and rising the of gains in totaled to In the repayment Ambac be sales the quarter quarter loss $XX net $XX hedge. gains the operating liquid results the the connection to $XX Note macro was $X redemptions Investment connection second of expenses the of offset efforts produced income XXXX continued insured third the subsequent a $XX borrowing Note. driven and the the quarter the quarter for quarter offset quarter. second the million gains impact RMBS gains gains contributed compared the a $XXX interest of by a which securities. on Ambac during and of third our million XXXX. $XX to-date addition by of Ever rehabilitation to developments. loss invested These of second rates and interest payment and expenses more to million $XX to quarter incurred realized degree to from the investment the mitigated income compared partially partially the with positions. lower derivative third offset decline realized to hedge for loss expenses macro by third decline or investment the million, assets the with to to and credit Losses as $X of gains sale quarter. executed principal higher Ambac million sources insured in the reallocation were in quarter. This our second The million of by investment of from interest by million and segregated reduction connection XX% partly AMPS partially income of the impact million of the secured million. a of An quarter $XXX XXXX investment during

AMPS $XX.X regulatory inclusive million, related by sizing. slight connection to $XX of with associated $X.X further we with oversight expense quarter increase our strategic with severance normal expenses from $XX increase second third quarter various third expenses to XXXX. of of quarter notes associated operations right in relating and the exchange expect lower million was for experience representation quarter third RMBS the litigation objectives, reducing for downs second $X $X.X by formal partially in an Interest million second remarks. on We remain quarter Note of resulting from Claude the full transaction my the the or of of from stated the million I related operating various That to transaction exchange the Total brief the higher reflected compensation mostly of million. AMPS in to remarks. amounted pay redemption for or the $XX partially were closing the consistent Ambac to now warranty XX% professional to secured expenses quarter million the by principal contain net offset The cost AMPS fees expenses operating the with concludes due lower Interest backed accounted will the core cost million which in interest to the some quarter XXXX and for quarter similar cost Third to cost quarters in of volatility cost third to back higher transaction XXXX of initiatives expense. expense million other increased but issuance quarter. $X on of and borrowing XXXX our debt call increase surplus to of turn And of X% events. operating XXXX. interest focused second from This lower offset the

Claude LeBlanc

David. Thanks,

that our for back focused now open questions. and active to priorities to for business We value for provides to value operator a joining to and create model our call long-term to steps the thus We today. big a drive and us committed turn progressing you XXXX I sustainable have on optionality Thank had shareholders. and our will strategic way create small taking optimize in the successful remain very keenly measured growth. remain to far

Operator

Thank you.

comes a Group. Capital of question-and-answer first Andrew Gadlin line session. [Operator from conducting question be Odeon the now We will of Our Instructions]

Andrew Gadlin

events I two that events you as are via in settlement small from included morning. November well the wondering those QX as discuss Goldman could financial deal, subsequent was if Sachs reinsurance the Good the disclosed impact the Hey, numbers? in

David Trick

calling Sachs we was Goldman part suit filed settlement The action thanks of Andrew, for Hey, in. that a claim a class in.

pension back we by, result two it, come received of expecting about and a we that made transaction? in in was result November time million to And material launched fourth hard who little related a I of claim it never that will second and of as think, As to was in that, -- your be reinsurance funds really a of quarter. XXXX, $XX the settlement I a question, had part the booked hearing anything the

Andrew Gadlin

Yes. Correct.

David Trick

transaction financial not in the fourth that impact The quarter will of a quarter, the reflected from be was reinsurance the in too statement 'XX, quarter begin closed result booked and third that fourth sorry. to starting

Andrew Gadlin

meaningful the impact And deal? from be will reinsurance the

David Trick

adjusted The be biggest impact have we from will would the calculated meaningful a of fourth have book on value. amount you'll that value adjusted reinsurance that included UPR impact quarter, in on and will the is book see impact an probably how

Andrew Gadlin

an And you can magnitude give order will impact us what be? the of

David Trick

a than share. Less $X.XX

Andrew Gadlin

Got it.

Okay. commutation Claude, and you COFINA could to months of that terms COFINA of after the And explanation launching, effort was elements that alongside something process. I completion hopefully couple is that certificate happen, approved? settlement thank that in wondering comments could expected you and that of if there, then, guys is of the a be will the about be would go talk your for you COFINA your or

Claude LeBlanc

following say confirmation be actions of commutation complex the our detail to the and relating detail the guess, on the made any that are adjustment. that through transaction, point of consider this in or do we've plan, I their we is to At anything Again, a lot might date. obviously, think done it's is would vis-à-vis relating likely a working I not would securities. decisions what very I public still with So we're of -- plan we OB

Andrew Gadlin

litigation against alongside And pursued then York, confirmation, Bank that. does have would this that you unique plan also or we should be have that wait of New think for that angle how about of kind to

Claude LeBlanc

the New that… is litigation of to plant, relating to referring Bank you're York So, the

Andrew Gadlin

we to been related when can see on that Yes, to start that COFINA know I there. Is non-acceleration. staid? -- movement their that's

Claude LeBlanc

not any have at think vis-à-vis made stage we litigation. determinations this I So

again and we confirmation think it's -- I with we'll -- allow like make evaluate we'll to through something something still that we're evaluating before any the date the decisions.

Andrew Gadlin

thank thanks. That's it, right. from me, you. it All Got

Operator

no [Operator further time. are at thank teleconference. this We Instructions] questions for concludes There you This participating. today's

lines this your You participation. Thank may disconnect time. you your for at