AMBAC Financial (AMBC)

Claude LeBlanc President and CEO
David Trick EVP, CFO and Treasurer
Lisa Kampf MD, IR
Mark Palmer BTIG
Derek Pilecki Gator Capital
Call transcript
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Greetings, and welcome to the Ambac Financial Group, Inc.

Second Quarter 2020 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].

conference recorded. this reminder, a is being As It Ms. my pleasure your host, to introduce is now Head Investor Kampf, David Lisa of Trick, Officer; Chief Chief and Executive Financial Officer. Relations; Claude LeBlanc, Lisa. turn call now will I over to the

Lisa Kampf

are recent that have posted call, our be technical today's read difficulties current Thank Web you. Good We'd to quarter of transcript Any call prepared to today. statements, remote If and presentation subject to may any thank like our non-GAAP the second are of IR of such reconciliations filed expectations reports figures annual and statements, site, to Management's and forward-looking Ambac Group's on site financial Factors. update that which any conference Today's a have to section measures. Web performance today's on our this not Investor which we as contain Operations in quarterly changes posted Management for events of Financial presentations Discussion to presentation financial we are from and that you discuss under note information, Events XXXX the been in at which Web of not call Financial comments Risk statements expressly support all under forward-looking is which earnings morning and Presentations and guarantees measures most joining Factors of Relations to participating to management's able in results. from possibly remind Ambac future comparable future based most or of of available you disclaims & included could uncertainty otherwise. any Results you cause whether forward-looking such materially new our is circumstances. The described performance this Conditions remarks, are events to under ambac.com. SEC site. the our release, Actual is statements. and the obligation and the factors result section locations. forward-looking and include contains or may our will events. the GAAP Please Analysis press terminate occur differ, of our obligation in

In to available questions free schedule to call. Please the to to addition, would be turn release management remain press Mr. contact I will LeBlanc. unanswered. any me, in that to Claude address call now contact over our feel the like information via a

Claude LeBlanc

Lisa. Thank you,

families us keeping ravage and those across today’s the are you COVID-XX call, as we ongoing its you For pandemic healthy joining safe continues and effects. with all and grapple the of on hope to we country, your that states many

With interruptions of business priority our the top our primarily health that remote safety work to a and to staff continues with and employees no operations. and remaining

Following entering phases have in the a New to our X reopening returned area X voluntary of a employees on July, and basis. Tristate York limited group offices

we’ll and environment We monitor needed conditions current continue facts pandemic working as the our to and make based circumstances. to adjustments evolving on

per of in of adjusted diluted loss $XX.XX quarter $X.XX $X.XX second decrease share quarter night, increase value or March The per XX, to was XX, the XXXX. $X.XX value a second Last Turning Ambac in share net June million loss quarter, million book a diluted at XXXX. XX of second to from share for share XX for $XX.XX adjusted $X.XX to resulting in our per results. share an or reported per book the and per

since continued the credit rebound the strain reflect driven first of the the quarter the pandemic, second on the markets, for COVID quarter. by of primarily the markets partially offset results Our by capital end

COVID-XX we due quarter, related have the claims. years. derisking and actions paid litigation recent during well to relatively fared the date, accomplished any in loss portfolio insured in To Our part not significant yet

the governments. remains However, increased federal if significant prolonged strain from state in effects ultimate regarding coming the in could and of response depending which municipal are quarters of the see impact the on uncertainty pandemic particular exposures and COVID-XX, on

to portfolio results and changes areas our most implement assess continue pandemic-related to in outlook address risks execute few seek and details monitor to actively will a minutes. our additional on susceptible economic and will David and strategies exposures in We risk. of to evolving the quarterly provide in

XX, billion year-to-date. XXXX Turning June now par was X% from and X% quarter exposure portfolio. from were down year-to-date. the classified XXXX, Net June insured list billion XX XXXX, and credits Watch X% down at up adversely first and XX.X to our X% at XX, XX, March

to Our risk to disruption. have on maintain with credits issuers dialogue surveillance active teams exposed and COVID the continued and perform reviews in-depth most

our of related of analysis, to Rico adversely the Puerto quarters, sector reserve past established primarily our result increases the credits several and, we the majority where exposures. economic migrated a two appropriate, attributed As increased continued category classified during reserves. our to finance and the to public The were

remaining where transaction. the with optionality company while Ambac to also risk, focus continued mitigating we regards increasing utilizing secure we liquidity areas time related whole quarter, one with the largest shoring the various This at of exposures risk of securitization issuer for to to to disposal. our single additional at our future this in worked the tools During same the up on included UK

to exposure a the the commuted remaining and exposure to Turnpike of portion PG&E. New We to also significant ability our Jersey reinsurance facilitated our transaction related remaining

insured tail on classified leverage reduce our to list a credits core and we our we’ll and derisking potential priority, and portfolio our remain disposal work to scalp watch to risk. continue options focused at derisk adversely all As strategic and

large a to have CCDA in encouraging that relief of Rico early an and ahead. would for taxpayers of XXXX a with for intends billion the PRIFA path Ambac remains Rico’s motions to all form. timing bankruptcy potential has the investment HTA, July, the the commonwealth Oversight in in health on and will and Regrettably, To Unfortunately federal revenue as Puerto other Rico, Ambac stay Board to allowed the front the Ambac now working to exit of others of lift aid and on cost to related in Puerto efficacy been the and part and influence Rico. Board direction relief in expectations mice policy to better has alternative dollars enforce market appeal expenditure rights established could that to provide continue their response well COVID-XX. end advisors and of challenges regimes The Oversight Rico and changes Puerto help assistance Puerto three-quarters the rights the welcomed disaster Board. and the no of on the developments that spending Local of were in in timeline since legal fees scattered economic news the a rate Puerto is and Swain the bonds. issued challenging orders and like and orders governments in legally Turning statutory XXXX end, other its revenue we membership as XX, been to we’ll of to the recovery. protect uncertain. July denying Judge it and as strategic have and insure. Oversight public opportunities deserves the stay navigate in of or for sight. This and purpose the oversight pursued expenses the Rico nearly government vigorously interest of motions money bonds other litigate the that have lift our continue months spent denying The with to that Puerto goals.

for creditors durable markets. to of As resolutions only holistic, uncertainty government commonwealth with way Ambac Puerto Rico Rico. with remains navigate faith the set capital good is and representatives committed we consensual to achieve a stated Puerto previously, to successfully and to help Negotiating in access working economic restore broad

to loss efforts. recovery our Turning now

Countrywide’s encouraging June, with against court warranty June State. Sherwood Bank late appeal February court to in intermediate certain and pre-trial the pleased scheduled appellate decisions developments the XXXX. the of case our America. quarter are in for begin five-week affirmatively motion XX, a XX, on this to Countrywide to in Justice leave New highest York And and On denied trial We rep

in this of motion risk While potential there case obstacle our are additional based biggest is remain in we COVID We the hopeful delay on will further place. the remains that trial pandemic. schedule some practice, believe

carefully courts earliest hope us reopening to trial as and February merits to next scheduled. our York to are look and possible strength we of allow conditions proceed We and in case at the in will the improve forward to resolution New However, believe strongly its opportunity.

Now turning new to business.

us Wyatt experience Officer National. Underwriting Dresner years Reinsurance veteran business with pleased relates intend has of a and respected sale as Chief new to insurance XX quarters. Dresner. & business. Officer both platform it to our experience, of report as industry as well to brings we new strategy, specialty business implementation Insurance to years State our Insurance respected and recently Commissioner over the of pillar, Wisconsin to joined and Chief welcome approved to AFG. a with discuss with executives the is from our forward Everspan detail. of pleased are specialty and program are expertise strategy. in financial development, more connection of holding President We we industry highly Everspan. with Steve upcoming component Steve has the most broader insurance of the we XX this in and AAC the as turn a that from Forster company Trick in Crum to Company recognized him of progress team, Everspan office you over I call results our insurance As will Everspan In now the to a underwriting key reinsurance strategy hired recently and specialty Wyatt business We Steve proven use Blackburn and in updating our look been the two to program over Wyatt for David

David Trick

you, morning, and everyone. good Thank Claude,

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

of Second which quarter occurred during markets the reflected partial and loss expenses quarter. financial also and declined. expenses results the lower of reversal the operating the and impact Interest first disruption, loss

economic quarter, particularly During risk non-economic rate contributed causing financial first pandemic, by our markets financial results market material interest the losses. the caused lower significantly disruption, and higher premiums the and to

per portfolio an insured the in second in or with was The quarter Adjusted second diluted increase loss largely loss driven impact. impact quarter. by insurance share and of adjusted million XX the million the accelerations diluted was compared The quarter, second quarter. for net income, quarter some was XX between to increase XX to realized first quarter, net on XX the continued or a touching Briefly highlights, amortization. just runoff versus during immaterial first second earned to contributors excluding quarter. million over these the variance subsided of were during the the an and million adjusted $X.XX slight XXX million second allowance per negative intangible due during loss for in quarter. During for the was first net of net share XX $X.XX Investment in the the the quarter of the XX gains, compared an million loss premium the second million quarter of first premiums

by available million Second mark-to-market comprised available of pooled north income gains of certain of million. XX partially of The in interest securities in Income from recognized quarter, which first early and owned and income was second sale quarter. investment securities. investments for of value Securities floating of the and reduce million for was were rate quarter to fund The to the was returns from the liquidity uncertainty result in of equity reversing the redemptions our XX led and on XX XX million. regarding risk solid the sold LSNI performance the a for securities pooled decline on lower investments quarter compared of face build COVID-XX. of public rates investments, the for notes fair XX in hedge quarter produced was first sale and short-term the losses of quarter returns sale XX% million

million of sales second Securities and the during million the is be first quarter. therefore this expected X the quarter. of redeployed million the realized quarter quarter compared in Loss to expenses XXX gain during second in net reflected incurred third quarter liquidity further generated was loss results. to were in Some XX and

related COVID-XX. related were expenses. benefit RMBS. quarter loss Puerto lower were by compensation million second Puerto on surplus first XXX accretion Rico were the secured both XX further level Second compensation offset higher loss in changes well decreased to to rates by XX quarter result The million, redemption to first well from excess of following expected spread the as as of finance first losses driven notes. recoveries the quarter and decrease Public was a interest by impacted reserves decreased incurred lower RMBS was expenses. which decline million partially expenses the notes, to Public finance million costs timing second quarter by a headcount. X quarter discount were resulting million the from rates by XX million quarter additions of XX Interest incurred XX.X a of due the for The of the reserves to to million finance losses, offset in benefit improvements sector XX.X a second of credits in million public and in rates incurred in benefit as quarter. accruals the in from of by increase the quarter assumption losses discount lower lower the and and increased Rico incentive lower in XX% and as in XX credit, sharp driven million compared expense losses driven interest partially Operating in higher second of

to gains increase to an second XXX share value than share increase of in Adjusted unrealized equity of resulting book loss per the an value XX, offset quarter X.X June X.XX losses. Unlike The XXX adjusted June by on at shareholders’ was XXXX. million mostly to $X.XX net or in second securities is changes more XXXX $XX.XX share was XX, for billion million in book XX, book or decreased by per per impacted by adjusted This XXXX. quarter. or and share $XX.XX value, value the March per at at unrealized loss driven adjusted gains from billion not book decrease $XX.XX

stand-alone assets turn I XXX a for share. liquid on AFG nearly including per will XXX and or call AFG of now as remarks. of closing XXXX, approximately some of net for investments June back brief had As receivables basis, XX, million million Claude the $XX.XX to cash

Claude LeBlanc

Thank you, David.

of management While to continues disciplined time, pandemic business and economic risk strategy. large in runoff current extent full guarantee be positioned prioritized to the from well through and the potential due stemming same we At Ambac’s uncertain, the believe disruptions exposure part manage the future remains to environment serviced challenges our quarters. financial look for you forward active Operator, has the also believe opportunities material our progress shareholders. of could We which remain value creation our attractive questions. exploring market lead we please call in number updating opportunities on a future new open and Thank to future in to to you. the


you. Thank

We session. be Instructions]. now will conducting question-and-answer [Operator a

from BTIG. comes question of line Palmer first with Mark Our proceed the Please with question. your

Mark Palmer

Thank you. taking my morning. Thanks question. Good Yes. for

thanks stress of company much in taking all, the municipal proactive for on the some of the commentary is First steps the the to address market. very

where some takes. in case lows. puts we’re that I at quite few interest historic broadly, but what means think environment and the at Looking of looking there to rates are that an insurance We companies, Ambac are a know other

could puts interest and arising takes company? If the rates those are, negatives talk to from you what lower and the a positives and pertaining bit about

Claude LeBlanc

I’ll ways have to and number working more have we engaged a we better them pricing. are and situations munis, just pass them generally and at municipalities environment, Thanks morning, the to management of Maybe with help ones perspective some capital find the stressed COVID it touch rate But who particularly Mark. we that opportunities do management will to lower start see for pricing better level refinance with and few a of at a to David to and from in transactions high we refinancing a at good on over off incremental with do of of related with speaking, access I’ll capital aspects it. risk a seen

for are from these of I perspective, muni to credits opportunities that So think there better refinance. some

rates on other finance The able portfolio, spread. where area go us to that’s in our were additional collect down structured benefitted is excess particular we RMBS,

in company. to to the expected So economic basis as reserves also reserves is took the expected decreased recovery net benefit we the at quarter a because the stresses of mentioned reserves last relating economic an increased spread, excess where which from – RMBS on increased portfolio, we

think areas portfolio, out relative investment we with to of But to and some color decline. that two the Obviously, So I little benefits for returns value of that, to a reallocations this. look returns will turn of changes I’ll some better on over it who Trick a probably fixed those there we that. more but offset I’ll lower key, David say, that coming give bit income made have see what are on of

David Trick

to the carry relates Mark, portfolio. where I it. transactions that the sheet well benefit including, But finance spread balance the excess other student either think first, loans or of them, student negative as there’s in about costs lot the a Claude spread really structured example, for within RMBS excess touched lower with on as of carry associated loan have thinking the right-side

our more to I’ll little guess investments, saying really And comes that risk adjusted I would other not low rates really just interest the consideration is in So course, keeps, to investment optimize the it fixed with debt for including recovery to pockets helpful from of deal own sheet, that’s embedded also challenging a flow from a environment from interest spread excess positive that some It portfolio. very structured and have an of interest try the exist. real returns close us. our is very, finance our course, risk on of been low losses, in a the well balance the as well continuing exposures rate rates from that income side securities where standpoint, asset it, from of I low, our we invest the structured floating so strong alternative and insured other becomes We’ve call finding cost an our cash for standpoint standpoint. securities. as been cost And to as

So certainly up, been, the exist we’ve about and and interest books hedges modified spread they’ve ever rates book those one really which risk an in up over regularly we’ve the is it’s the our lowest to the monitor point in something time we for anticipates a we and sure assets, to that protect unexpected today or make related term, still on that, but a short that to time no from think go the that hedges to want risk excess real a drift particularly the we something long and long-term rates. on continue had

Mark Palmer

very Very much. good. Thank you

Claude LeBlanc



Instructions]. you. Thank [Operator

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

Derek Pilecki

Good morning.

on had you think earnings some I back did Ambac last that in call the liabilities insured you in dislocation. there early bought issued liabilities credit the Was that repurchase actual Ambac implied had Ambac were bonds? – or market you April

David Trick

you? How Derek. buy spent We It’s bonds. question. Ambac-wrapped did are Ambac-wrapped million some of We about the Thanks $XXX the Hi, for David quarter in securities. Trick.

Derek Pilecki

give of at you cash at that net liabilities Okay. my and would $XXX any investments AFG the question when there million, other against And that are was, to AFG amount? have

David Trick

are The payables against netted receivables. and the only at AFG that’s some liabilities

a company. obligations holding financial So the It’s just at debt but the is capital no number, or $XXX million net there’s simply payables. working

Derek Pilecki

Thanks. Great.

David Trick



there for Thank time. at concludes This you. thank and participating. you Ladies gentlemen, We conference. no this further questions are today’s

again. disconnect now lines. may Thank your You you,