AMBAC Financial (AMBC)

Lisa Kampf MD, IR
Claude LeBlanc President, CEO & Director
David Trick EVP, CFO & Treasurer
Giuliano Bologna BTIG
Call transcript
Due to licensing restrictions, you must log in to view earnings call transcripts.

Good morning, and welcome to the Ambac Financial Group, First Quarter 2020 Earnings Call [Operator Instructions].

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Lisa Kampf, Head of Investor Relations; Claude LeBlanc, Chief Executive Officer; and David Trick, Chief Financial Officer.

I will now turn the call over to Lisa.

Lisa Kampf

you. Thank thank Financial joining financial Group's and to conference results. all Ambac discuss first you morning today's for call Good quarter XXXX We doing is hope well. everyone

include presentation which the differ annual We'd that of this and may contain subject and materially events. future events statements could to recent in and current Condition most that are remind changes like are today's Actual Operation and forward-looking Any to from reports Financial Risk Results and Discussion expectations or described and performance Factors statements. factors forward-looking based SEC are possibly such Management's performance circumstances. Analysis quarterly statements, our of Factors. uncertainty on under of in not management's cause you of filed under may forward-looking guarantees

statements, not any and under any or otherwise. obligation to update information, events whether any a is future expressly as obligation Ambac disclaims result new of forward-looking

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

of call, the restrictions, will website. call, is technical the read this have of Investor our be Due If to shelter able in Relations place prepared remote you transcript from we we the terminate management our which to location. participating posted in section difficulties and to remarks, occur on

our free the feel address will schedule that management unanswered. questions contact press to Please a to me, addition, available call. contact to via release any In be information in remain

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

Claude LeBlanc

Thank you, Lisa.

our this the lives have us pandemic. first joining express the crisis frontlines, hope today’s first unprecedented to are risking COVID-XX you and through managing that their all on you been of with like responders we safe. to keeping who and gratitude would the your families We those call, fighting For on

impacted Our with directly are thoughts those crisis. by this

to wellbeing employees currently of are to to With regards our and the remotely, Ambac, all we our working interruption. employees, our without the continues protect health business all to operate and colleagues. efforts Thanks of

and of U.S. fast forecast declines. significant In showing the has help economic some global The U.S. policies, CARES of impact. nature has with negative COVID-XX evolving uncertainty particularly Act created GDP the moving monitoring moderate fiscal to and economic the sharp

credit uncertainty COVID-XX However, duration a the of as disruptions. remains severity the related given big and concern to

have released and XXXX economic the portfolios impacted and our as reported share share. investment diluted $X.XX $XXX $XXX financial markets an loss a $X.XX million loss in of adjusted Financial per or volatility diluted million or from COVID pandemic first quarter of per or for insured the reflected and results resulting yesterday. We net of

book and At and XXXX, March adjusted $XX.XX our XX, per value $XX.XX value were book share, respectively.

results impacting as by on and driven reserves. primarily rate the in rate losses investment steep This decline well forward quarter's derivative GAAP our our macro the were discount Mark-to-market our portfolios losses on as hatch. on the curve,

exposures, in review recoveries minutes. provide losses few our portfolios. MBS more municipal quarter, in results excess higher the portfolio our economic will increased tied insured more our spread to a our this expected we While finance during a David offset detailed in quarterly by primarily than was of

of remains the through we this strategy uncertain, to results of that de-risking stronger platform ultimate provide us outcome While pandemic challenging our with to-date believe economic the navigate period. a the COVID-XX

recession. surveillance been disruption and insured to depth the now on most portfolio have teams performing risk credits reviews and in COVID economic exposed to or Turning the ensuing

have related obligations. COVID-XX meet or have their claims, not funds and hand issuers we near-term to many on alternative To-date, any had means

moved and closely primarily securities student the on U.S. mortgage certain we're These assess others finance, increased loans. effects changes we have adverse risk for of to our public category the classified monitoring exposures, based and credits including we certain our pandemic, to backed securitizations, relate the certain assessment. portfolio economic and As and our reserves and

In in economic decrease place have occupancy precipitously and that certain upon stay our exposures impact portfolio, we declined tax hotel most or consider by financings, orders backed finance which immediately public sitting include enacted. revenue activity narrow the are have to since dependent tax deals in streams

sectors, include and private transportation, we monitoring hospitals, higher are closely Other education.

pandemic, believe full impact majority is in will the it associated protection to cover While term. claims near transactions, exists which even too our losses, are ultimate early global we to mitigate and there paid if recession, of still the shortfalls in the of assess the significant impacted liquidity

by We've numerous assessing stimulus also been fiscal to initiated including which states the municipalities. government, the and significant has of monetary measures, and those federal the beneficial impact

to believe While programs will impact the of risk municipal the significant we we additional and required. these help market, soften actions liquidity will be believe credit also

federal have the and in about with to sharing of consequences the Congress, with fiscal dealing views as we others develop and for been entities, support Washington decision In in programs the the to states, aid alleviate and municipalities our sector of government municipal pressures pandemic. Treasury, implement ways and makers public

Turning to loan weaker past highlighted student million potentially and will and result our delinquencies weeks now losses exposures. in MBS to incremental private new XX.X finance, the jobless a seven U.S. claims higher consumer by structured likely over

impact lower excess MBS increased deterioration associated COVID-XX interest sharply recoverable the much for pandemic expected the consumer the first with offsetting expected portfolio, spread in our of portfolio. rates have the of asset lien However,

I that Moreover, position their homes, better recession. by have to everyone great XX% are improved overall than loan like in remind household equity MBS better sheets. the since borrowers crisis, seasoned with in balance and this face reduced a remaining and our very to private and more student would portfolios been are

these Nonetheless, evaluating active impact near-term consumer dialogue these expected challenges particular are recently in and servicers potential and assets, forbearance moratorium in payment in measures. are enacted we with the of of sectors

during quarter slowed first disruption. significant the efforts, as a activity the of our de-risking With regards result to market

including execute the transactions, of of to of remaining of last were $XXX a the deal number still Chicago million. our commutation exposures However, we able

to declined our During billion. quarter, net the $XX billion total par $XX from outstanding

aim to As improved, to take our averse watch conditions de-risk we lists market additional and of further opportunities classified advantage credits. will

Puerto are thoughts in now COVID-XX. crisis caused Rico shown resilience past, our we it the also that the of Rico, Rico with by Puerto in with Having Turning conditions again. great as deals Puerto so to face harsh believe will do the

base, longer-term, sufficiently to includes may opportunities. its its tourism addressed will the of of due pharmaceutical We COVID-XX U.S. of and Rico expansion remain and This take device recently over and medium certain strong Puerto an We believe expanded revitalization better redeveloped domestic in the for positioned post-pandemic be and overtime. the to versus expect potential economies other will of longer-term industry. fundamentals the be manufacturing island advantage improve medical course, the

the of In party hundreds millions the battles we effects legal upended issuers. stop unnecessary state liens the meantime, during certain hope have Rico court and created and The lawful challenges taxpayer spending and bankruptcy municipal Puerto municipalities and Oversight decisions of money uncertainty including bonds. for on of the will choose and Board to meaningful challenging revenue markets

of and states arguments severe and throughout is that Board a destruction value taxes if impact and could increased U.S. to have widespread Oversight municipalities for permanent the on legal currently country taxpayers. leading successful The advancing

of in refocus COVID-XX, challenges Oversight Rico the the crisis their advisors government should significant consensual enacted immediately as resolution on Given stemming Board the when and market expected the was efforts facing from U.S. the their Puerto PROMESA. federal municipal

only in capital access to consensually consensual, resolutions and faith and the good committed for restore markets. Negotiating broad of to Oversight to way remains Rico Commonwealth a challenges durable Ambac to ahead working Puerto a with Puerto month years and Commonwealth set successfully opportunities Rico. is in Board help the the and the achieve creditors holistic, and navigate with

loss our our throughout litigation of the courts also extended. given timeline recovery efforts, Regarding has the been nation, our impacting RMBS challenges

through look this of trials. New currently has trial the many July not Bank date vacated. case previously pandemic, and our other York The against been state scheduled Countrywide As XXXX America unlike courts XX, manage scheduled in to

can trial We about clarity to the it will greater seek when conducted. reschedule be once develops

court first for that to trial. wait the decide court whether non-Ambac in appeals on the with we're reviewed Countrywide to appeals waiting pending has meantime, Pretrial New judge before be it requested. our York determine should appeals proceeding Countrywide asked the two gets department motion by of of the on decision In RMBS cases still our Countrywide's also for as related

We opposed also have request. this

continue mirrors opportunity. to to earliest in forward and and We the believe strength our look the of its at case possible resolution

to On and active the attractive assessing deploy capital we remain in and in make and business opportunities on present we acquire valuations. believe more at credit space opportunities new the business may global recession to and market insurance initiatives the dislocation new businesses investments front, very

business new recognize also the challenges face market. uncertainty we transactions volatility the may executing that in and we given in additional However,

David in turn financial Trick to discuss to more the I will now call our detail. over David? results

David Trick

and everyone. good Thank morning you, Claude,

on our the primary premiums, commented, rates, first was in investments quarter insured and main transactions loss certain expected for insured Lower of derivatives, XXXX market the first Claude quarter financial our interest the risk of the impact the higher economy on the COVID-XX the As and pandemic net impact financial to on were contributor drivers portfolio. the markets. results to

per $XXX a $X.XX insurance or the a quarter $X.XX During fourth intangible diluted XXXX. $XX or XXXX diluted million diluted of fourth adjusted quarter compared net million first million $XXX to of net the diluted per variance the principle first loss amortization. was the for to of first for share the a net between $X.XX share adjusted in $XX quarter loss loss share The reported loss loss per of $X.XX compared quarter or in Ambac of or of million Adjusted was quarter. and per $XXX share million

in premiums the quarter. the $XX quarter earned Touching $XX were some during on fourth million million versus specifics, first

versus the addition run mainly continue the increase first allowance improvement the of to allowance off fourth an quarter. in the premium decrease credit to the in for portfolio, in In losses the in an due quarter to was receivable

from Investments million loss in the of fourth quarter for other million excluding loss. million a first for of net $XX income limited Mark-to-market partnership on realized in investments accounted the are $XX investment gains of down net losses quarter the produced first pooled XXXX. quarter $XX net

related some declines premiums March kind due to yield pandemic high global and to backed Despite to investments. the values asset occurred asset significant in portfolio of of in our credit de-risking dislocation the the market and these higher in adverse classes asset for of that of COVID-XX the performance February, end towards associated with drastically exposure equity, the risk

decisions reversal observe with temporary of a is nature. significant losses these couple trading mark-to-market point, have view in the future may are current month. these already for to begun returns to make, And of majority April, high single-digit Subject a funds during we of our we that that losses to the experiencing

also in results of short assets us the from negative first sale claims The the and opportunity first $XX securities market the to select The late deploy Income provided owned was and and these quarter. dislocation fourth the favorable that and level in securities capital available relatively and a second quarter and early $XX to notes back led million decline for to quarter some in other being in other attributable mostly million quarter. LSNI versus redemptions payments. at

compared $XXX quarter loss quarter $XX XXXX. million. cause discount losses first incurred and in were the incurred quarter Loss Lower of of fourth in expenses approximately first rates million $XXX the in the million to noneconomic

most a As the the profound we in and of to prior average of basis portfolio flows using long-term on cash sector loss public claims relative quarter. the expected of nature or XXX than on finance rate lower size that impact the Lower present reserves. rates discount points due and valued short had discount

establishment reserves finance in $XX rates, $XXX in million assumption changes the to first result, reserved exposed were for exposures million finance public insured fourth million losses quarter. the to the first a new on compared and losses, of transactions amounted the XX interest As excluding quarter. in previously quarter, COVID-XX Incurred in to the impact to public related current of

rates recoveries of of subrogation a from COVID-XX and The resulting from was fourth expected RMBS million million in benefit discount of warranty loss excess in quarter the lower expected of recoveries higher an economic representation million to partially quarter, the $XXX and increase higher to impact and offset by to decline estimated million conditions in an due compared due from resulting the pandemic. $XX interest lower rates, discount $XX spread lower $XX the first losses, $XX rates million negative from in

spread, was resulting offset driven were loans the partially rates Net million excess loss from expected and of up fourth loss student lower for $X quarter expenses from rates. XXXX, additional by $XX by in to due that assumptions incurred million, lower changes and in discount losses, interest

losses any shifts. the estimated and the rate of discount In excluding aggregate, incurred impact interest

which million, of approximately changes. on first other were increase and quarter The ashore related reserves our new primarily the assumption and proactive impact COVID-XX to the establishment transactions of reflect $XX

driven by loans for losses and to first rates, the The was of credit are forward derivative quarter additional spread Net adverse by spreads rate than $XX a million on These $XX losses loss elsewhere $XXX RMBS in student were of more in fourth than offset interest excess first are in for gain of the which more gains declines million. assets. significant offset $XX by compared million interest derivative counterparty RMBS excess and quarter. million quarter adjustments expected from on the contracts in

guarantee the is portfolio investment positioned a rate against partial as financial interest in interest The economic portfolios. hedge the exposure rate and derivatives

position hedge during was materially declined, the quarter. order As first reduced the rates

counterparty relates an receivable impact of against the to credit the assets. counterparty spreads widening and The swap in downgrade the first backdrop of of adjustment the credit one quarter associated counterparty increase

perform of our and anticipate on We any nature. temporary surveillance therefore losses not credit derivatives be in we adjustments active consider and CVA to credit any all counterparties counterparty do

occurred due expenses were VAT fees, expenses, fees due in and million $XX.X including lower was the costs quarter accrual to was higher offset of of $XX.X an for premises relatively to related UK to a increase lower cyclical of charges, Operating were The in taxes, the reversal The due by fourth compensation, modest fourth consulting flat first that reversal and compensation quarter in costs quarter. whereas mostly the cost. to XXXX. higher mostly million legal consulting compensation payroll the incentive to difference

the year-end interest resulting Interest million million from of million of expense lower the $XXX in at redemption and decreased made quarter $X $XX first outstanding secured partial AAC's to rates. notes

an to in redeemed the first million contribute notes, we which periods. further quarter, secured expense interest the $XX During of will reductions future additional

increase in from Turning billion the on majority translation securities of of the March currency for in RMBS quarter, of December foreign $XX.XX to at to in decreased million. premiums, $XX related an in gains $X with to per further the reflective share of per investments losses the XXXX the unrealized are $XXX million to equity gains of share loss risk and in Reduction Ambac-insured, due decrease securities. with ABS XXXX, balance sheet, $XX.XX shareholders' unrealized combined XX, XX, decline a net

On decrease at XXXX Adjusted $X.XX foreign in book XX, impact value adjusted first held decreased loss UK. December at This from per the exchange book value to primarily $X.XX adjusted billion a at $X.XX share basis, on of March to assets billion the March XXXX. XX, driven by ABV XX, quarter was the decreased Ambac $XX.XX per rates lower share for XXXX.

share. cash a standalone net on million, XX, AFG for investments of approximately and receivables AFG basis of had $XX.XX as $XXX or per As March XXXX,

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

Claude LeBlanc

David. you, Thank

our potential success losses. in ultimately determine the period of are will we mitigating and While in the volatility, great severity duration a pandemic of and any

based a the today. in face taken today to challenges actions are better these on position We

billion. available portfolio Four, $X.X strong, consolidated taxable both Five, historically drivers including at our receivable of to value $X.X payment debt our and $X.X claims at of of of and rent net performance. billion full. paying of million no we of approximately with gross and resources AFG Three, in our company. remain Our strong fundamentals of have our the market future billion warranty all and billion our one, assets, investment AFG claims income $X.X total and in Two, AAC. assets timely holding NOLs a shelter $XXX

to through will maximize bear significant navigate of to our period value. in resources shareholder that expertise uncertainty to lastly, this we bring and order And

employees and I for like uninterrupted our by business. conclude their incredible and operation your continued thanking ongoing the commitment shareholders our support, to for ensure would effort unwavering to our of

like now to back would for the I call questions. the turn to operator


you. Thank

We the Instructions] answer will be Thank conducting and [Operator now question you. session.

Please Giuliano Our proceed with first Bologna line comes of the BTIG. your question. from with question

Giuliano Bologna

end and opportunities rep are first par. at buy quarter. the debt if out be starting of a some back opportunities of that opportunities had at Ambac thanks potentially if and guess, you there off there that morning, to some discount I curious - Ambac's still my see mentioned you taking to there buy questions. securities the I'd Good were for also to

David Trick

the Thanks the Giuliano. hi, Yeah, for call question. and

have of So buy - in the the first to the in second did of opportunity particular, part quarter. yes, particular we And later Ambac some early in the in quarter. quarter. me And, beginning the quarter excuse securities third third

debt are there out secured So, well. other opportunities buy Ambac to there back and as

of it some notes that trading the to capital discount that reasonable we there actually parts certain under opportunities our we manage But we to during guidelines Ambac those liquidity a of did restrictions at advantage some to There and of capital take when to quarter when management. to opportunities have some of holding instruments, on our operate considerations of the But structure. governing based other company particularly buy par comes buy are and different at at looking there. the are need to LSNI liquidity

Giuliano Bologna

lot you've thinking a about company business I know sense. with said at And around makes building you've capital a discussion looked is be sectors that and then seeing years. many in business potentially that opportunities you're the up, buying the the of volatility? over kind come opportunities or curious sectors the in any be That some that given at, the a shift if you of if the looking are I'd there's might industry sub holding

Claude LeBlanc

the well. industries we opportunities also seeing of yes, of on there's and some markets that I in focused set of lot we a any the are answer more credit and is there industries. as uncertainty broader Clearly, insurance Actually, think are are in certainly that the

evaluating opportunities, the are active while there's interesting, and with in there also exploration continuing more are these we our have opportunities. seeing but associated are we'll think risk options, certain some that I identified challenges and be more So, of

Giuliano Bologna

That appreciate my will it for and I the sounds good. queue. questions. I in back taking Thank you jump

Claude LeBlanc

Giuliano. Thanks,


[Operator conclude you Instructions] questions will There no Thank Thank today's this you. conference. at This participation. are time. for your further

this lines time. at your disconnect may You