AMBAC Financial (AMBC)

Lisa Kampf MD, IR
Claude LeBlanc President, CEO & Director
David Trick EVP, CFO & Treasurer
Giuliano Bologna BTIG
Frank Liberi Private Investor
Call transcript
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Greetings, and welcome to the Ambac Financial Corp -- Financial Group, Inc. Fourth Quarter 2019 Earnings Call. [Operator Instructions].

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, 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

under possibly Condition morning, of in materially forward-looking our to Group's contain forward-looking Good and Results today's remind that you results. and reports you. and events presentation all Risk Factors and to you forward-looking Thank may and described statements, are SEC today's for statements, Operation based Factors. this obligation any current to recent We'd of conference Discussion could like call annual not result management's or uncertainty future may on a of is Ambac which filed cause of from such new not to Any quarter update guarantees in discuss most fourth under Financial performance any obligation changes circumstances. factors that Financial expectations include Ambac of XXXX and the events. future under information, differ otherwise. Management's performance whether are any events forward-looking disclaims financial and statements expressly and thank Actual as joining statements. are subject Analysis

Events reconciliations of note that comparable presentations presentation contains non-GAAP our Presentations website ambac.com. today. support Please measures which of our and at our the financial section website, measures. which figures is to have the release, Today's posted most are press such The our GAAP earnings comments in included available IR to on been

the LeBlanc. now Mr. to Claude turn would to over like I call

Claude LeBlanc

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

share, XXXX little more David value or these $X.XX of $XX.XX billion $X.X diluted $XXX Ambac $X.X will or or At our December per per $XX Trick million later. diluted XX, adjusted share reported in detail per $XX.XX a and share. was For value or a net XX, earnings ended loss XXXX the December and book share. $X.XX million adjusted of discuss was billion per negative book year results

continue Ambac's strong Overall, priorities. our the financial deliver XXXX very structure to was capital from execute and and derisking a We our recoveries. we all strategic material significant activities performance for on litigation of made improvements resulting further strength through Ambac to deleveraging additional successfully as related year key

to representing regards activities, year lifetime fully our with that allowed execution a Puerto its the transaction Plan derisking the approximately the of Ambac's With of COFINA address began we XX% total reduce single Rico and significant risk, to largest Ambac materially of Adjustment, exposure.

exposures. one was to Materially key million. our requirements. near U.K's the Another largest of XXXX exposure par commutation, Ambac compliance capital regulatory II adversely Ambac enhancing and valentine credit U.K reduced transaction completed our $XXX derisking restructuring by Solvency in classified credit This net with levels transaction

public to In of credits. our par watch representing sculp portfolio. million insurance finance included transaction, During reinsurance including over reduce billion quarter, a our almost also and fourth of we a $XXX million use a And list our the of we reinsurance one list during ceding par we adversely $XXX watch transaction insured $XXX classified This expanded executed net credits. of public ceded exposure, total million, transaction the X% exposure, par. finance over $X.X year, and of

of to to decrease $XX.X million. adversely net decreased portfolio by classified XXXX, with these other from combined classified billion and $XX.X for our basis, of removal and XXXX, from of billion by as XX, runoff, of December and par XX% watch $XXX in adversely on we list $XX notes efforts, XX% excess insured billion. portfolio tranche our credits billion On $XX.X Lastly, an list the in full-year watch a December negotiated Ambac's guarantee with a credit and

disposal in decrease at the net focus options overall total in for our And active insured all credit ongoing to quality. efforts use of derisking watch our with of improving adversely key a will credits. our we classified XXXX. list XX% par remains portfolio and of the in our insured manage tail and decrease and goal accounted derisking the portfolio reducing Notably, our The XX% risk the of

Turning now to Puerto Rico.

actively derisking are exercise rights; two, our with through strategies respect Puerto of We to and pursuing contractual Rico, mitigation restructuring litigation. loss recovery negotiations; legal active remaining namely: one, three, various the exposures and of

of respect scorched our positioned transactions can to COFINA legal validates XXXX, lead exposure. that to well consequences The municipal long-term for extreme the arrived successful unreasonable us strategy avoid market. and this the entire be approaches rights at, parties resolution U.S. earth and act how COFINA In lead reasonably, severe in consensual take related resolution the when could

of Friday, Rico. This Board of of of key Plan Support amended the continued the of the Agreement. amended of reflective Plan gain support its failure Oversight terms Puerto key Adjustment, stakeholders to engage Commonwealth the past Adjustment and Board the by long-term the the Plan filed reflects Oversight Unfortunately,

financial deficiencies issued other statement highlighting and by joined risks guarantors, Support the Plan amended the Ambac of a Agreement.

stakeholders, the the Patio Rico Bonistas owner of statement, Following government other of and a the Puerto creditors Agreement. also the amended voiced group Support for large of own including joint support Plan major lack del the and bondholders

chose projections of fiscal Board is on information demonstrably about Plan plan public It Puerto insufficient pension capacity cash, why amended that and unclear move also premised liability. flawed Adjustment the expense Rico's assets, and forward to Commonwealth a has debt Commonwealth incorrect Oversight with

no Board will pay, to service Oversight to the capacity Rico's Puerto stakeholders, its rights. our and understate vigorously choice engage continue and to assert legal extent fails Rico's ability continues but Puerto legal debt rights to with to ignore we the have To true

negotiations a to be avoid continued Oversight to engage and with acceptable to the creditors its and prepared recoveries advisors As previously, in Board we’ve protracted provide stated broad markets. productive Commonwealth to litigation, restore of capital I've costly access set consensual to

to litigations. our on our outstanding and Turning recovery efforts RMBS now loss other

costs. cash to third to settlement quarter in reduce the allowed X-week November, on interest delever judge related September. favorable of connection decisions and America received the to XXXX. further in sheet we a begin against our case proceeds balance main us appellate action a SEC received against million During future And July Countrywide, with scheduled our in of of And the Bank in Citigroup XX, we that XXXX, $XXX trial

the pending scheduled consideration a RMBS America case now trial pending Consistent Bank request two appeals week, past and appellate for judge seeking another Conference in Status further his At non-Ambac maintained in of the potential their May. quo, has practice, allow the is of our judge the to and bank's postpone review with last asked on appeals the Conference in status and Status cases. decisions to

actively as look case. we a to trial final teams continue resolution of to prepare ahead legal this for Our

additional Moving reductions XXXX on evaluate New took and and to our continue within in a to plate World streamline headquarters single consolidation of the insured the further to our of the we floor operational developments, run-off during the at to company areas platform We structure, our year, of plan including realignment operating progress capital York One we headcount to as Trade. portfolio. steps

that with evaluating respect to new that business during potential value sectors with risk-adjusted returns. will lastly, we efforts attractive progressed believe shareholder certain And opportunities, business generate long-term of in actively criteria XXXX, opportunities meet we our

to stages. believe focus will opportunities. on evaluated narrowed that actionable and identified some have we a our market to we process, we progressing capabilities and this number key opportunities business Through our efforts, lead these of enhanced part advanced of attractive, opportunities new As further

I'm XXXX, our of the Board all very senior of In as dedication by of management, driven tremendous strong work conclusion, with the employees. our well pleased accomplishments hard the and leadership as in and

to XXXX execute our which mindful remain to attention goals, enhancing ahead, shareholder our turn aimed value. key we all As priorities, will we the our challenges in are efforts at of long-term vigilant

financial the Trick David? quarter. now the turn to for over I our discuss results to would like David call to

David Trick

Thank you, morning, everyone. good and Claude,

diluted loss $XX the in XXXX, fourth During to September income a million and $XXX net the SEC relative per net million incurred per share to was driver $X.XX gain loss in of related the Ambac quarter quarter. settlement increase million in RMBS. of expenses, of diluted or recognized loss $XX the $X.XX, main net compared fourth quarter and one-time or the third quarter a from net Citigroup reported The to $XXX share million primarily loss income third of

$XX the foreign share to per the or earnings fourth or compared GAAP share adjusted for of million intangible net the for was loss third $X.XX quarter. diluted amortization loss million were in quarter and main between The insurance loss Adjusted $X.XX diluted per $XX adjusted the exchange. quarter differences the

third Briefly The quarter. the premiums, versus for touching due the insured partially portfolio. the to was of run-off continued $XX the by on increase million were some million allowance highlights, premiums a the in $XX during reduction fourth uncollectible offset in earned quarter

in as AAC's reduction in the own from million, XXXX. to portfolio due lower income from bonds continue of a rates reposition from of for a fourth resulted lower was sales investment redemption. associated million Investment $XX notes, The COFINA down the from income to secured third quarter and and with our partial decline quarter $XX its our we income

alternative last year. around last Notable X% quarter, all compared AAC's for and X% consolidated contributed fourth is income quarter, to that investment the in of investments X%

portfolio more to we and alternative to other [indiscernible] insurance continue would potentially we As risk-adjusted obligations, some expect investment volatility. our income to to short-term contribute diversify of greater investments generate proportion a the attractive returns long-term

investments. dollars as U.S. U.K. functional partially unrealized value Net uninsured on realized of adjusted their more to losses related $XX foreign had losses U.K. impact pound, $X included the book holdings the by of fourth offset -- exchange appreciation British at million sales they which of value foreign of Ambac the exchange are These for the quarter, ,denominated Ambac were million from currency investment gains by no book bonds than gains of COFINA offset

million losses million quarter, expenses fourth of in $XX quarter loss to a third benefit and representation $XX loss change and the the to quarter quarter. million $XX in compared fourth a reduction Loss in with recoveries subrogation in and RMBS compared the the $XX the by million driven assumptions and were estimated of in expenses related underlying losses incurred. higher warranty to third in the reduction associated were incurred

increase million in reserves were finance loss rates. higher expenses, included and quarter to interest compared which were third related losses Puerto X$XX million impact offset Rico Fourth of the and by partially quarter public $XX the an in

third million. $X.X in the reductions quarter by with quarter to Operating a expenses incurred The decline for from and during expense. the severance driven in to staff was million compensation quarter fourth the lower quarter expenses connection due core decreased million $XX compensation-related expenses $X third fourth reduction

as although cost are cutting to may events back to focus expenses reducing on operating we our operating continue our volatility short-term to priorities, reductions and We seeking be executing with implementing sustainable core and expense. strategic long-term of some a result actions related

more or as compared quarter to decline expense the expected quarter quarter in fourth premises all an Consistent a objective additional example, of $X.X one declined our million to our as the with result the and is this corporate in million $X.X third by and first XXXX, of by relocation.

AAC's Interest on XXXX, expense quarter. XXXX, million, the third expense year-end the to a $XXX $XX of redemption million. notes, secured of from subject settlement. flat fourth impact we this We favorable using to have changes redeemed the was relatively mostly approximately $XX SEC anticipate Citi million quarter outstanding in proceeds for compared will in the At interest LIBOR

decreased balance the unrealized to offset Turning gains for equity quarter currency primarily per $XX XX, foreign by of XXXX securities at losses to partially XXXX, net $XX million, billion share due of million. $X.XX per from share and the shareholders' $XX.XX translation to December sheet, on XX, September loss of the $X.X

September XX, a XXXX. at partially at XXXX December Adjusted offset reinsurance loss per book share by This XXXX. to by primarily $XX value to changes from adjusted new On XX, a $X.XX the million in $XX.XX and a quarter driven $X.XX book exchange value decrease December decreased premium the XX, billion decreased of at rates. share the transaction, of impact under ceded adjusted per billion basis, for was foreign $X.XX

stand-alone on basis, $XX.XX and of AFG XXXX, XX, per As for cash, as approximately million had debt $XXX a share. investments receivables of or December AFG,

closing I will now turn remarks. for brief some to the Claude call back

Claude LeBlanc

us helping in for would and would our I their like goals. also to Directors meet, I David. to many our colleagues of throughout for my the work year you, hard ongoing to Board our and your support. and thank exceed cases, thank like Thank shareholders

to for long-term to forward shareholders. continue We our appreciate we as progress strategic value advance you our we your during feedback priorities on look the year our create and to updating

Operator, please Thank you. the questions. open for call


your Our question. Instructions] [Operator line BTIG. you. Thank from with Please with the question Bologna Giuliano comes proceed of first

Giuliano Bologna

you the And you on be Good morning going will secured from receive questions. savings again. and in into should the you then with I range and that starting there kind case. thanks on of million the of and receive, forward, call it, for kind of sense low rolled taking $XX will Citi about of guess side, repaid the note somewhere long for? the Is that any [ph] my proceeds notes $XXX million -- the off continues CDO note go in that how cash to potential proceeds

David Trick

circulate, Yes, additional down as Giuliano, flow cash that so other from recirculating sources if first in other cash quarter as amounts that's of potential from you flows the well will, flows. will cash will right. pay The down and collateral pay -- of additional

down an So based interest flows -- factors LIBOR of we year. depending what just on million of the annualized expense paid pay those fourth recirculation $XX where the reduced the at goes, in the by on basis, about in down end the which quarter from that cash

Giuliano Bologna

there reduce kind Are obviously, are other out pay on opportunities about rest thinking That notes across or there the the because to structure, it does continue any far as of there the expenses? your different the the to makes And debt debt of kind pay near-term outstanding. of make few of tranches or and sense. in as then, own structure sense down secured cash

David Trick

as liquidity today, at objective we've opportunities optimize would said to structure, will And explore in be and to to reduce can done that the allocation for of capital that I to, do subject that specifics we're some stack secured to to eyes you considering. appropriate considerations, say, capital with you we Yes, is and things Specific, continue and and open outstanding rest would our before, past, as we'll to more I our look the simplify the continue capital keep other continue balance. we've tell that. give transactions the on to opportunities

Giuliano Bologna

I of the on good of it's will is on nice kind now that. kind litigation thinking going benefit for half? which be to the operating then expenses operating down trial, draw premise go-forward for there first kind to forward prep see about sense. But your and cash that expenses of obviously definitely makes coming appreciate any operating transient of litigation-related cash prep might flow. That in basis, enhanced or the as bring the you see down Then kind additional on going it a to flow and/or expense, because your are

David Trick

our did RMBS in additional basis, we front, loss as On where quarter. forward say, we on as it's but We a fourth go expense are noted expense, -- I adjustment as we take LAE hard to which the Puerto well true-ups in most are the areas both litigious. did Rico, the two

reserves year our reevaluate at time. the this did to of those we end what we at believe appropriate So trued there and the up balances

Giuliano Bologna

you. That my makes the sense. I questions. covers time. Thank appreciate main That


Our you. your Instructions] of Thank with [Operator the Private proceed Please line comes Investor. next from Frank question. Liberi, question

Frank Liberi

the deal negotiate Board or Board? Puerto board Commonwealth light the you they you negotiations for Bank Good any is Oversight on you seems sounds And the process Claude, appeal, and to thank months? these morning, can Rico, about now or for been taking Claude has somewhat with like and whom with what ongoing shed as have it before? relates ongoing track. the like or some with would the been there of appeal to six Commonwealth Are appealing? are respects the Haven't America appeals heard It question. my to as off it the

Claude LeBlanc

management other On your the discussions the Frank. are advisors morning, well to good there Board Hey, between with first ongoing our as creditors. and question, Oversight advisors as

be But creditors there the go creditors certainly, but ongoing OB. and an the things, on that's assured times you think between I can discussions is side process. formal think proper more the always I that There and that the litigation So between ongoing at formal processes on are that's periodically. of

we’re been leave So is agree provides something Oversight I that discussions that my finding is think time. to Rico. to not in I at think I around I But the also resolution by obviously a will for it and a Board would a comments this to entry that, but negotiation, our forward and situation what’s good fluid deliberations put Puerto active

a and I Department appeal see July their of to prevailed are where set be going and Bank those we're of America which the of just this again whether remained of in will final to the Justice of discuss Bank to New Appeals, to on are As for -- entitled granted, it making think York, May court and to final by appeals to in Justice has ask the discuss and The appeals were set the a trial, we for, timeframe. that Sherwood really is decisions back to relates to appeal Court will which timing confirmed of that is First initial America, that State the Sherwood If the granted. we the be it's conference front not in of waiting to they the highest

Frank Liberi

is appeal the the process? if And what granted, is

Claude LeBlanc

but It trial. delay I there a think is if be it that would reasonable is the that unclear, granted, in a chance there's

think But we could I that that's that trial more think delayed. the not be be certainly I something would deciding. risk there's

Frank Liberi

has appeal, the to on the the decide court who And or judge?

Claude LeBlanc

It's First the Department.

Frank Liberi

see. I

So of Appeals? that the be would Court

Claude LeBlanc

That's above and which level that Court is First the It's go Appeals, Supreme highest through cases the then the reviews whether not Court they or of Department. to these the the decide court. first

Frank Liberi

you're some Can kind like Okay. company One light of down for an more operating final any shed that? point. acquisition. your strategic narrowing you It sounds search or on

Claude LeBlanc

we've that insurance that both originators of to Board past and reflect platforms looked are that and focus companies The with the light insurance annually. reflect review at say, our that metrics servicing opportunities we've the would fee-based in the credit space. and certain credit that core is various we looking from capital businesses we indicated on key I and credit talked in at insurance, and to, competencies, We’ve businesses, range a and or so in variety agreed

over focus be our we that we our believe, believe those very could continue we in attractive identified So and would we have, to long-term opportunities Ambac value shareholders. and, deliver markets time, to

we in disciplined we return our sector against we focus our the going efforts we to shareholders. anything the as on indicated to our is do capital measured we and So -- very this continue approach in and of past, are be

we right So we’ve and identify see approach year. disciplined very can the if the we a opportunity in will coming

Frank Liberi

very you much. thank Well,

York Stock about Finally, New how are you feeling Exchange? the

Claude LeBlanc

Exchange York benefits It Well, being a the back board Stock were with on New lot at us being we beginning. on to we big that. a of pleased offers recently, are where once

think I So we're us also translate to to pleased as well. savings cost very And it's be back. to for some going meaningful

both translates So being of win-win benefits to think us. home cost at for in I our true savings, the benefits also I back the think and from a

Frank Liberi

Thank you Claude. much, very

Claude LeBlanc

Thank you.


Thank And that our your session. call today. ladies our This you today. and and for concludes you. concludes time question-and-answer interest gentlemen Thank

lines your disconnect and may wonderful a have You day.