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AMBAC Financial (AMBC)

Participants
Lisa Kampf IR
Claude LeBlanc President and CEO
David Trick EVP, CFO, and Treasurer
Andrew Gadlin Odeon Capital Group
Derek Pilecki Gator Capital
Charles Post Sterling Grace
Call transcript
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Operator

Greetings, and welcome to the Ambac Financial Group, Inc's First Quarter 2019 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

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

Claude LeBlanc

Thank today's joining call. you, Lisa, and welcome to everyone

the of than was de-risking of our classified make reducing represents in overall XXXX. insured tremendous X.X% reductions in our the Plan quarter of first active XX execution $X.X our more strategy most continued achieved efforts, par in of became the effective one our net and our active the the of the by on progress in outstanding over the par and portfolio on net list The February half the impact quarter, of to driven we decline further which adversely following watch significant quarter a which, XX, reduction by This credits. XXXX de-risking insured first the During de-risking portfolio includes Of successful insured billion. implementation of for Adjustment COFINA XXXX.

During associated million. the commutations Adjustment quarter, $XXX reduced distributions COFINA our from net of by related to XX% the COFINA with or the along the trust subsequent exposure Plan and par first

the will effects December par net details XXXX. financial billion over this us COFINA overall of XXst as our overall result, impact and from the COFINA a XXXX As on $XXX our period. par And net the to a of as decreased decreased the billion from XXst on provide $XXX exposure million David quarter. to $X.X minutes, few $X.X Rico more restructuring In million March of same our results Puerto

remediation a final million. a watch result aircraft two reduced agreement. leased of list $XX by transaction the refunding restructuring, including, the led with of commutation securitization three, de-risking transaction by which executed pars that there list finance negotiations a to million. classified as many par the execution other down adversely transactions are which public net negotiated $XXX COFINA an previously the reduced to pay addition significant by one, of which reduced And asset-backed net exposure Two, watch of In associated of bonds par securitizations net $XX million

a bond one in lock-up Ambac restructuring connection negotiated addition, In commutation holders an law we of subsequently of $XXX launched and following proposed end insurance agreement and the a of Irish arrangement quarter, largest with with U.K.'s successfully of securitization. scheme million a the exposures,

results steadfast future to given process, have that to by these this assurance if Collectively, second illustrate risk in material the may factors of focus as we various can on close insured during the losses anticipate or that quarter long-tail completed court of outcome the successfully While reducing our company. utilizing or transaction strategies risk time some be this third year. no the result our portfolio in to could address

we executing pleased to strategy. We with about ability key are created progressing are very of momentum our the And component overall and de-risking this continue optimistic achievements. ongoing our by our

by X.X%, X%. back employment lowest sector March now Private our continued the least continue one of rates in was unemployment Puerto the year-over-year during growing The our Puerto for Rico XXXX improvements by to be of reached unemployment exposure, review remaining in signs encouraged rate years. going XX we March Rico its commonwealth. highest Turning to since macroeconomic the at of level XXXX overall

We the plan. plan projections but to The projections certain a for many fiscal stakeholders. by long included remained deficiencies recognized are unadjusted the certified for to and commonwealth slower the Unfortunately, yesterday. hopeful federal identified economic updates revised momentum in aid fiscal commonwealth for disaster as other to revision financial such inputs this rollout Oversight will the and that lead priorities, to fiscal substantial eventually sustained approved a Board correct

past, as do believe in projected flawed As surplus real the we of investors especially debt plan potential budget fiscal that plan future deficits deeply creditors A accurately respect and developing well reflect as Puerto and current term position restructurings we have long annual expressed the is fiscal the rights future properly of government. commonwealth consensual not capacity fiscal in the the and the and to of needs and the commonwealth other debt that expectations is Rico. critical credible

markets. access the increasing Puerto to that to area capital on in and ability possible long-term Rico to impact have Another this of commonwealth's corruption the concern relates may the regain

and investigating There people have levels act quickly the maintain local Senate government. now Rico least critical long-term. high and high the consensual Board current momentum only the last been fiscal over Puerto Trump at to Rico counting. midterm is members weeks, government a areas need and of U.S. to a President ensure in and Governor restructurings framework. and turnover federal secretaries, Rosselló's accountability, also local around the Oversight confirm has to also possible oversight but to been the debt to the its cabinet the XX of level few within of Federal Over the transparency, of not action Puerto authorities commonwealth agency nominate to different have and stability ensuring proper corruption of

many to RMBS be addressed the in Xnd against in need were Rico to Bank arguments and to loss uncertainties our efforts, all incomplete legal litigations relating Countrywide. of America the political May court there processes, and remains challenges situation unsolved that issues. involves, heard Puerto by recovery now our various the Switching main on and given As restructuring, appellate

confirmation are trial the decision We so that towards awaiting of court's progress a this can date. the case

this will year at are of such or court that this as appeal year. early this there hopeful the trail occur we outcome many issues moment While and timing schedule, late the and are unknowns on this case and trial next heard the

will platform, efforts we continued operating One lease a of our changes now greater during to operating effectiveness efficiencies our the overall evaluate time efficiency Turning provide headquarters expense areas example continued new improve implement to in and quarter, of that rate. U.S. a and to our space and World the office of this was signing at Trade. run over for One our operational for

rent with of provide later is York business to summer planned for Ambac to and will savings, flexibility. Our this new several evaluation material operational and continue consolidation economic With New initiatives, or space, we opportunities. our increased progress move including the benefits actively regards Office

we and We model, drive our optimize diversify value will believe strategies long-term our platform, that shareholders. business pursuing are to our

In continue continue return measured call previously in capital discuss would As allocation remain like are of towards our off start progressing optimistic results will Trick very XXXX our a to more deliver shareholders. to be turn the we strong our David to assessments we have shareholders. capital all for our value and strategy to to a David? ability the stated, about financial over in long-term I detail. now closing, to to against

David Trick

good to Thank you, morning Claude, everyone. and

incurred XXXX, of diluted During diluted of $X.XX share the in a net quarter a net share the $X.XX quarter loss per compared loss $XX first fourth million XXXX. or to Ambac of $XX per of million or

from Relative driven million about $X.X of quarter quarter to million our was per during million, $XX million quarter the premiums to loss loss the the million fourth of $XX $X per million primarily quarter. income and offset losses, public Plan was seed investment adjusted by to $XX quarter, share X% or first for in of portfolio de-risking premiums net premiums the fourth More earned of strengthening first higher active specifically, decreased and by first or higher the First continued exposure $XX XXXX. the income. of million the were increase to VIE Accelerated compared were partially adjusted of million $XX diluted income, fourth derivative during $XX gains earnings results the par or quarter for Normal the XXXX. quarter. the reduction by million fourth to investment of the COFINA $XX billion share reflect including quarter versus first diluted $X.XX $X.XX reserves insured quarter XQ of in in realized $XX earned finance lower XXXX lower $X Investment related million the Adjustment. due the of

paid distribution of in GAAP the finance carrying entity new who U.K. into the the Loss a swing COFINA COFINA compared change fourth issued credit student ratable a and was and million insured conversion the value COFINA which due In investment as the bonds will $XX.X in closing due other and of of strengthening time. into Ambac's The of to quarter the The were to the sales. $XX not under elected represents in quarter. quarter. the of COFINA the expenses were liability quarter the finance opportunistic Plan recognized COFINA portion liabilities liabilities quarter, offset net the $XXX.X COFINA primarily by of by $XX Plan and in a $XX primarily partially first million trust. markets and statements first trust commute fair were by with This from consolidated determined development million quarter. bonds public first benefit units exposures. value million RMBS, Related gain over COFINA the consolidated Ambac of remaining reserves the Adjustment, portfolios. be Adjustment insured received the first equity trust for $XX variable under quarter Rico fourth difference in Net which cash incurred to between the COFINA which Loss favorable benefited million a loan, insured during million public the portfolio Ambac's $XXX.X income investment deposited in of were credit along a offset to the of policy a loss the the in insurance Trust. bonds our Ambac insurance of consolidation, portfolio Ambac favorable bonds interest and first was was of the the the senior the net new there mostly loss non-COFINA and their Puerto $XX to for connection million in was to bondholders of the of AAC by and liabilities reserves associated of accounting COFINA gain a COFINA COFINA was uninsured strengthening assets the rebound the from of were driven investment and bond financial with realized related connection generating a to of During Reais. gains reserves from with expense million in bonds Ambac cash and

recognized quarter also fourth rates. and credit a for credit on portfolio positive due rates loans quarter derivative contracts a benefit student of the spread first interest of quarter counterparty first million development the and derivative in interest rate were were more $XX Net million and and million rates lower fourth quarter declines partially quarter losses result investment losses forward the lower forward for the interest gains million $XX approximately offset the to interest U.K. first improvements of rate on RMBS The other and produced higher $XX as loss by offset $XX was in insured collectively expenses. the movements. a $X included the quarter The in adjustment, Favorable $XX by driven benefit result Ambac credit excess first in impact of developments, of million gains. of interest exchange both than in foreign the portfolios million exposures in by

an from connection program quarter expense fourth to $XX.X Every for expense cash by including throughout in quarter to expenses of partially as or from advisors as quarter. costs taxes. to million our reduced As mostly cyclical payroll were with was operating for This million offset slightly incentive to expenses up are short-term expenses. to the Non-compensation mostly bonuses expenses, accrued due operating related million $X the in which experienced grants were first increase grant we upon higher quarter compensation increase it on equity $XX incentive first due relates first in core million, made the an grants year. $X.X mostly fourth incremental spend quarter, compensation and equity increase the compared

rent XXXX expense quarter materially associated consolidation. our with lower actual that upcoming will noted headquarters I or higher rent in experience reminder, economic move despite a and payments As we last

remain and that on core will volatility of expenses, operating previously we the quarter, operations related and strategic of our experienced reducing noted focused quarter-to-quarter the be but pursuit we nature our there priorities. do this our as While expect to

changes March the shareholders partially the at On in from $X.XXX XXXX. balance U.K. related and the share the sheet, increased rates nearly premiums $XX to per was book expected March partially lower per investment value unrealized per adjusted portfolio now and on due increase Ambac quarter AFG at back adversely absolute mostly rates Despite share to translated of $XX of increased briefly quarter. gains a of to XXXX of of primarily per to adjusted list to share million $X.XX interest of a my book installment at the $X.XXX by $X.X XXXX exchange value billion a That basis, equity million related value of billion as materially impact million loss. XX, XX, higher by modestly March concludes and for the foreign formal net XX, share an basis share, increased XX, value Adjusted book exposure. The to quarter eliminating Turning in $XX billion the gains $XX.XX offset decline held March net XXXX decline loss the of brief we first year-end to declined translation as $XX.XX believe basis offset closing at or value on per modest $X.XX to the receivables I standalone XXXX. adjusted watch turn Claude $XXX book in the during credits quality though investments share. approximately for risk On approximately $XX.XX cash, call to per and will remarks. some remarks. adjusted classified

Claude LeBlanc

long-term quarter for results for shareholders. execute of believe commitment support. continued long-term our the to on you, The Thank call this please driven David. your thank that deliver our like will shareholders Operator, our We reflect we strategies to questions. to would value open value ongoing

Operator

you. Thank

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

Andrew Gadlin

morning. you give of Claude, you any is successful of prepared discussed the mentioned benefit Ballantyne Hey, restructuring could which in your from process, of completion transaction could information deal? remarks, realized more good that be the that you us sort on and magnitude that in

Claude LeBlanc

to David. Sure, that one let me pass

David Trick

has believe transaction, $XXX transaction course several actually reserves it biggest in Ireland the some it's take jurisdiction fact court close. the provide but Q, are you the significant live over look I like Q million. Andrew, because for by AUK and does to the being the that matters highlight our everyone we page impact the gross is give on if could to who at about reference subject part, details that in transaction in we in as AUK there and a we The becomes one do make disclosed too of the sure, do official reserves, some specifics -- will the fact approval close the do XX of that our do a can't transaction many We details I have and and disclose. on that we is the to it disclose a still before

in course, effectively commutation. transaction make the of if is some does what So, affect AUK a payments the close, order to have -- to will

And addition effect. will reduce economic positive that a that, have So will those in to reserves. it

So, have other the portion effects another or statement. the hopefully, significant income of will a reserves by will we'll of on parts portion effectively and it be be -- at reduced transaction, gain the throughout a

So, to of taxpayer. gain, a the extent our U.K. the is subsidiary

of be be accelerated who expenses advisors, amortization related some There'll to So on regards there'll that tax effects fees transaction. intangible well. as our effects with be there premiums, effects the we on will on success the on to some effects are some assisting have and

effects, a of which but So a it will it in the way. Q, be describe is number the there's a in way been we will description, think I positive significant be that fair

Andrew Gadlin

the that statements have have recently. we settlement, you Got we very idea that been and this with made might quarter, Citi discussing were know fits holding hopeful nothing when certainly filed Group know more? and and that SEC are court, would Last time there's Do this to Thanks by disclosures we the that more the been up you much. any what's it? but

Claude LeBlanc

at from causing it been relating a remain Unfortunately, the is SEC the these hope and that the hear from challenges back processing year, we still in months. of to in the progressing, be some may through we optimistic which there decisions, SEC. the that delay. of coming but beginning have not shutdown quarter too the federal heard place reported understand We We last to more much as has took

Andrew Gadlin

including that we XX last from so of think that then Thank the when payment? million year regarding final do update was the any release or have get retained information by was I on, tolling or those you. the tolling might on more AAC one And Holdco, any AAC, payments question you to Okay. on thoughts about

Claude LeBlanc

It's discussions in something with that we continue active be the regulator. to

As of the OCI in you a the Ambac also know, the year. at and re-integration commissioner in we with a general staff change last had

we're I point in analyzing that optimistic that some at the but that reductions we've number remain So, will we still I other of believe implemented, significant that and completed, believe not-too-distant-future. making released transactions the significant progress, be in they're risk

Andrew Gadlin

much. Okay. very Thank you

Operator

Thank you.

Derek Pilecki the proceed next of question. Our question Please Capital. from comes with Gator with line your

Derek Pilecki

more Thank of you. trial when if wondering the ruling you could thoughts you do set, the about Countrywide trial the date date? being was clarity court, give your expect I a and to when expect you set the judge trial do appellate some from

Claude LeBlanc

Derek. Thanks,

the arguments So have for they week. oral I believe We we last very well think went Ambac.

we've in analyze to by number, arguments the think receiving trying I the first take complexity the that feedback surrounds been could time some of and for nature, some of review apartment. the timing

trial remain optimistic, soon he'll the who appellate obviously the this schedule, by his clearly there we're Judge it's -- where could Sherwood, believe to assuming summer, as decisions should sooner. assess But schedule sometime reached be at that, it months, difficult quickly, should much or and be early the on but a but date late it the to decisions case point hard And that, the a get exact suggest wanted put to could to issued, approach looking should that on timing are I hopefully think demeanor So by progress given to we or we of a the timing, around sooner, if currently bookends as think we not fall, I court. and guidance that point, we with estimating. depending a is the decision be the arguments be of but number and

a still case timing year on we optimistic early a possibly sometime remains this or set. later that we're our that next date could have year So, base trial

Derek Pilecki

the in to Moving the more in given Rico on quarter, there? give reserves thinking I Puerto and addition especially clarity reserves, to of Rico was you is that settlement surprised Puerto the deal, what could COFINA the the was there an improvement economy this

Claude LeBlanc

is a right, high Sure, positive. the we know at and and you're that, I think that's clearly economy, improving, a level

surrounding Rico seeing, myriad the status appointments re-examine Board launched the think these significant number in continuing to the of Puerto number based the on our of last is of and clause, models what us oversight resolutions factors timing be a on prevalence that months, the also the things, to which addition A are to I the the of assumptions been Puerto that matters. has parties but the seems in the litigation negative corruption leading some expected decision we're in of by in in Rico. of of

tied went on which or some interest simply others. Rico. of should of the that events factors were is adverse that the drove of So, were the loss also also of of part again, also relating amongst rate of There's timing. the late municipal that part servers the [ph] and lots consideration development. established side that out reserve also those lot reserves around increased were to affected a year of movements, beyond wildfires There's instrumentalities increase point losses, Puerto last to California this the though the I

David, add to that. Now anything you want if to

David Trick

I it. think that covers

Derek Pilecki

what holding, the the you money have your or said they would bonds, a value sold thought into you other been the could have In you strategically long-term redeployed good COFINA the just [indiscernible] release, process all assets? talk you there,

Claude LeBlanc

Sure.

the So as in of the that all bonds part based call we we X.X we insured bonds came on of were owned. COFINA sell -- them, COFINA collateral didn't that AAC the

value hold XXX it was long continue the of still good on value our The continue COFINA. thought and good fair good about involved saw bonds, and to thinking reduced COFINA, bonds, the and so we from of therefore, we basis show a materially de-risking see We wanted that in good million the net value we or course we de-risk, bonds, a bonds and were have or while for to exposure was to that for sold. sitting transaction getting than So, we of we we residual to will the bonds, were as we liquidity new some longer own other the and the we to from we be IRS long so, are the we which taxes tax status. bonds that taxable were still await that COFINA rest rulings [ph] -- value behind their regards probably with the on some than a

some in that of how evaluating discussing terms to now and are cash. we So, of redeploy the remainder redeployed, been has of the the cash

Derek Pilecki

Okay. And last you just Puerto and question, claims on update of if the paid money could have assumed us David, in this balance total sheet? in you recovery Rico, any

David Trick

do paid part We Puerto $XX have in the the or million latter is claims, assumed another or something $XX up the so. in quarter. recoveries about payment regards we magnitude in July, the in first We million which coming balance With sheet. Rico in $XX million of to additional have

have date not we of So, recoveries is enclosed continue Claude as probably timing the balances on we gross $XXX aggregate to go part course, lot of is to gross to little of the of specific of the million. timing. in usually our re-evaluate we sheet. lot relate paid but more loss of booked to balance had of balance his shift alluded the Part the as do in of And we sheet value that the have the that, recoveries those on nonetheless, comments claims quarter balance sheet. on Rico have reserves well, and we be payments detail far a Puerto confusion, to and about that but disclose in as gone into They'll a a the

Derek Pilecki

thank Great, you.

Operator

you. Thank

Post comes with Sterling your line Grace. Please Charles question next of the proceed question. from Our with

Charles Post

you used us dollars the if could of the wondering now, amounts own bonds percentage? categories run as to provide on I percentage two few there a that update for is you

David Trick

about bonds in are short buy Sure. quarter the -- didn't own. that -- of the any additional bonds we unchanged. We in That's first XX%

Charles Post

And those? you. on Surplus guys the still you Junior then Thank do Notes, own

David Trick

you I Junior those holding mean few they're back. update monetize The you, I'll are quarters know, we company, --

Charles Post

Okay.

totally like that gone So that's -- now? phase $XX million

David Trick

Those correct. gone. That's are

Charles Post

Okay, great. Thank you.

David Trick

Sure.

Operator

participation. There questions at for today's Thank you. you no teleconference. your This are this further Thank concludes time.

and this a at may have You your time day. disconnect wonderful lies