AMBAC Financial (AMBC)

Lisa Kampf Head, IR
Claude LeBlanc CEO
David Trick CFO
Mark Palmer BTIG
Giuliano Bologna Compass Point
Sean Perkins Waterfall Asset Management
Call transcript
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Greetings, and welcome to the Ambac Financial Group, Inc.

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

Lisa Kampf

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

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

Claude LeBlanc

Thank you, Lisa.

night, as RMBS driven by credit primarily higher losses ongoing as from moment. pandemic, This a greater loss increase will us you our Rico from in evolving well quarter were Puerto the that those For $XXX loss on keeping you per call, a of net for an and per are joining for exposures. loss share, or stemming COVID-XX through expenses families million related hope our million, quarter. incurred Last litigation. to our of of share or costs $XX in to and the results detail actions diluted Ambac we today's and safe recover adjusted and Results $X.XX defend third loss and and speak your reported to conditions reflects healthy. $X.XX the diluted rights David

XX, to Turning September at with $XX.X to XXXX, insured quarter during COVID-XX-related X.X% our no XX, continued our down paid. was billion par portfolio, the from portfolio insured exposure X% Net fair claims June year-to-date. well and

credits September at X% the par Adversely quarter. Classified have Watch were of billion year-to-date. would $XX XX, Excluding XXXX, X% down the List second U.S. and been X% total the the down net quarter, impact dollar, from weakening and for

active large and portfolio. of benefits were no seasoning our quarter third de-risking downgraded our of part material portfolio the to category. strategy, relative the Additionally, new Adversely The our during Classified insured of strength in and credits the resilience reflects the ongoing

At this believe to stressed mitigate portfolio, We revenue issuers the in the that pandemic. these are credits streams of or longer-term the there as funds for result monitor time, majority alternative continue insured available we our losses. actively of to sufficient a

additional remain, and However, including through state uncertainties stimulus. if and the significant fiscal magnitude any, timing of governments local relief, for

quarter, our restart included, two, helped key the it We're momentum of to the COVID-stressed of achieved transaction a is we number cancellation issuance of continue, with efforts which although par market, municipal international improving refinancing credit transactions or and the and strengthening of environment. be the net the the were forward exposures; the we expected third of during municipal enhancement also commutation including looking pre-pandemic during de-risking exposed what of several by three, the more credit choppy structured than exposures, that a of and markets. stadium credits. the credit During $XXX new experienced million; stronger the quarter able were of stabilization to optimistic refinancing an in protections credit key economy, and of largest two liquidity de-risking quarter Key de-risking and one, the regained will

in the and past months political months, in Board. of Puerto with Oversight Rico, materially, to appointment has four of the Puerto over Board Peterson to few the Oversight now Turning members recent Rico resignation the starting changed landscape the Justin

is the elections and changes to of expected legislative to to gubernatorial election were addition, a new Pedro held leading governor, In Pierluisi, Ambac. lead week, last the which to

to over engagement process. that of accountability, hopeful constructive good-faith will and focus on new the Board a and to leadership Commonwealth more leadership look even coming transparency, with months. We new creditors with the negotiations composition prolonged Oversight forward are Oversight an the and political We Board restructuring

our against the in begin for America Turning to ramping preparation is advancing and we efforts, now our up which scheduled warranty case XXXX. of to of trial, have been February and Countrywide recovery loss our Bank rep

Ambac's in the judge fraud quarter, November filed Countrywide during for issue fully dismiss the claim. arguments a As to motion third oral scheduled expected, XX. and briefed The was September,

Bank possible. against America further While there forward longstanding to and of trial delays other expeditiously our of we and Countrywide look as to to COVID due resolving factors, remains risk as proceeding and claims

subsidiary Turning of was now our goal company, AFG, to previously under holding a business. the announced, program specialty the opportunities with in new repositioned business, pursuing Everspan as insurance

other our to quarter, third applying the broader continued and re-domesticate Arizona, to During company's steps, to amongst the and we to Everspan expand by, lines. licenses property casualty to initiatives progress

continue our to part accelerate NOLs We opportunities fee-based businesses strategic acquire for as priorities, maturely which our time. risk-adjusted invest broader our of other general to believe or of achieve and in explore returns over shareholders managing agents and also attractive the use we could

Trick are and We progress results you forward now as we progress. to have in the David the more discuss far, our turn I made pleased so financial to we David? look call to detail. over updating will with

David Trick

everyone. Claude, you, morning, Thank good and

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

quarter. million loss quarter in quarter, incurred for net $XX compares by GAAP and $X.XX $XX loss per touching of the increase insurance results compared was million. adjusted loss million or the million incurred share. the diluted mostly an notable loss due of public the Adjusted were by was in Compared primarily of between The RMBS $X.XX third to second de-risking $XX The finance the and amortization asset $XX exclusion million or results to the second quarter, Briefly second and stemming intangible rebound Third regards is during to This loss The the the strong loss diluted higher third RMBS. increase loss portfolio international was the on mostly with quarter. driven the variance and some earned performed efforts third highlights, adjusted from to $XX per to of on driven expense premiums transaction. second quarter the expenses. the in in quarter during quarter. for share accelerated were our heels quarter investment an well premiums active the

income second million, million was compared to investment quarter in $XX Third $XX quarter. the

$XX the the from high-yield turmoil redeployment million, some mark-to-market quarter, and significantly investment investments income pooled million of investment compared the the in of the during quarters, quarter on third and investments Loss $XX stemming income X.X% were first the to consolidated economic $XX quarter. available-for-sale from benefited of additional quarter gains and experienced expenses equities, capital. continued $XX of for incurred due in on the third during second million primarily of available-for-sale the million, securities the quarter, $XX third in to Income and first second loss X.X% of reflected pandemic was the quarter. we the portfolio market Since million. the and a $XX was financial recovery decline market Gains from for hedge and securities notes, from of million dislocation lower Performance second the was The rates, million compared third Third compared LSNI slightly third of redemption to funds, the quarter, asset base. total investments generated pooled million which in were second of impacted comprised of COVID-XX loans and all also lower question, respectively. quarter, in quarter. by leveraged to $XX $XX returns

quarter. Third RMBS offset foreign Shareholders million incurred XX, in of the first rates. accreted. notes related software and as net quarter $XX AAC million ongoing the litigation due benefit unrealized the $X half cases. excess I’ll second gains of compared approximately and or per in book unrealized by increased $XXX pandemic. $XX XXXX. million in expected expenses decreased $XX $X due loss losses million the were end of to XX, in a offset quarter offset changes the efforts securities up a per notes. to losses. predominantly the Public is from June to book to from driven other and by warranty the quarter. million the remarks. redemption for on of of in $X.XX is million Rico the transactions stress in The interest for quarter the both means. higher related decreased than Incurred and second in insured of third this from Operating $X which quarter quarter expenses discount COVID-XX reduction The incurred The million million was benefit finance and of the recovers, RMBS to the $X the million expenses million higher primarily is XXXX pandemic, $X to more Claude unrealized $XX million to incurred periods million. include invested $XX.XX related representation the adjusted has quarter development the mostly of Remaining Interest higher $XXX loss driven was The aggressive $XX related June economy quarter-over-quarter impact exchange impacted capitalized second were cost. losses and costs cost in on rates. basis, lower secured increased expenses. XX, risk $XX senior litigation the and AFG $XX $XXX $XX second loss rights which call the variable expenses compensation $XXX per loss $XX to losses the from which partially surplus impact now September closing in from were of The expense $XX foreign been had in increase turn for of That’s as value back recovery Unrealized investments, share million by interest and assumption sectors, million adjusted million mitigate by translation certain of some AFG through approximately for the public million at of assets. cash, $XX.XX of brief million $XX share million and by July. swing the by rates to gains third resulted quarter. in driven and finance prolonged Everspan the losses of on value, by increased decrease the our our quarter, purchased September spread value the quarter, related lower lower to loss standalone $XX quarter, billion experienced million. defend to losses third AFG our XXXX. share changes. million amounts has by the third equity fully related reserves or from in per Puerto mostly losses $XX gains was from decrease partially third exclude why part savings XXXX, liquid insurance gains of driven not at $X.XX of COVID-XX decreased of to XX, or and $XX.XX share as due on Adjusted These at September Unlike including of in quarter to share the to at second to million partially book receivables ABV in XXXX per exchange or This the

Claude LeBlanc

David. you, Thank

which economic and our defending active of recovery and strategic our our our the proactively pursue new include progressing de-risking, continue we rights initiatives. to business While risk persistently priorities through improving uncertain, profile remains and pace recoveries,

excited We we believe create new shareholders. about business are which our will long-term initiatives for value

new our opportunities for very on be and shareholders. updating We to coming remains consistent please with the bar business forward in for capital to of our past against you return accessed call questions. the will practices Our Thank in open the high the quarters. Operator, progress you. look


you. Thank

Instructions] with be from first Palmer your question. the Please now Mark will question-and-answer with comes We conducting line Our question session. proceed [Operator the BTIG. of

Mark Palmer

you. thank Yes, Good morning.

quarter Puerto the Rico of receive during your claims the from Did in losses to quarter incurred stress that to company on be incremental could related any the vast mentioned arising the that during COVID-XX? reserves exposures. attributed the You prepared majority remarks

Claude LeBlanc

No, Good the COVID-XX we for across receive any of mentioned, we did portfolio. effects around as evaluating our not scenarios but morning, claims direct COVID-XX I potential Mark. are

have of with our As continue COVID COVID inputs, it every an but is we’ve do we has will going relates court as assumptions, something a assessments and and as the and other and consider as Rico, this to had specifically variety we and increase amongst things, to past, to credit, forward Puerto consider look various the we on evaluate rulings, to Rico in it Puerto relates that scenarios all Puerto that impact certainly will elements redress to Rico, accordingly. made them relating our adjust considered reserve at quarter, relating assumptions the Rico quarter had Puerto the to that our of in we of

anything our had evaluate that pinpoint directly we across to but something certainly as credits it factor entire or hard considered that from consider, future. Rico, but in COVID that it's a on could the certainly So, we specific Puerto is we impacted been portfolio be there's

Mark Palmer

a you, pipeline and or seeing outlook environment. that commutation, the taken Thank actions and right the you the in now refinancing, including during mitigation given one mentioned of is commutations refinancings risk the quarter couple more, additional stress what you're the for

Claude LeBlanc

good Yes, question, that's a Mark.

these impacted inflows, multiple a are -- inflows deep transactions point fairly you if still directly are to reduction got we’ve are streams of think or I challenged they're by of as just refinance. revenue impacted out pipeline COVID for some more heavily by there they that get or narrow clearly

they believe do could of we credits their medium look concerns that address for to for perhaps However, could [ph] [restore] their some near-term or these forward longer debt as refinancings. short-term financing that plan liquidity term

their success also, quarter one the very things working up the maturely the some of on to of with had I As some mentioned we've that and parable, issuers meaningful this in restructure deals. stepped is

are that, to additional to seeking using part our So, but address respects terms issuer our cases, Ambac. we’re in assist control some their as security or we as for or in of better many concerns, additional funding a and rights creditor position liquidity the collateral,

significant and this of expect necessarily I they the a to in classified quarter, of restructurings -- two we are credits reduction won't continue see but we’ll but had coming successes also immediately, adversely those promising. some quarters, up very show been we’ve have these So, as

Mark Palmer

Thank much. very you


Thank you.

has Point. come Giuliano question with Compass of proceed your Bologna next of from question. Please line Our the

Giuliano Bologna

morning. Good

how Everspan hasn’t of of to with company that remaining kind -- after additional topic doesn’t choosing when over $XXX assets available about up Everspan go think Everspan. be -- of end that obviously point, liquidity but the it think it, you trying you’re into holding capitalizing into exact capital? may to like seem the that over I of capital allocated Everspan we you at capital curious doing of million that the been allocation and about the turn amount know the thinking about some for it creating what will capital company, to Just to this Everspan, a I'm don’t holding minute, you're David, just -- when with allocating or of

Claude LeBlanc

Sure, that's a question. good

of pursuing have opportunities point capital is some being of require controlled Program strategy perhaps fee-based of markets we variations indicated would of M&A, -- that attractive or others been platform, a of what [Genevo] Casualty but that Specialty are market in could company we’ve and form continue the believe in it we entities the and and platform, that, and for we in depending this that that strategic more conditions path business, you entity, capitalize described an beyond on also to we see, some be alongside our insurance -- line we’ve other are for part a at would clearly been involve there as than form we the area also to will that and -- capital, Property in and our are which number or MGA So, investment and pursue on, just transactions, one a we sector terms by of that the be that capital be but exploring view working that be and the the those we these we and is looking strategic and that has other working platform sure to could on that focus opportunities holding forward [ph] transactions options. of in those that months, creative with that will the intend of transactions, on depending select out

two investments to we categories company those may some of of my is besides I from closing also focused the at and capital other remarks, those would do -- in shareholders which opportunities winning investments, again, that point. our against So, we're return something profiles I always return and that say holding we’re I potential strategic mentioned as think probably capital are the those the deploying on

Giuliano Bologna

sense, on some made thinking all-day are pretty some benefits the deals and and of AAC then, side, any kind to in I capital when debt because I'm today. structure, if curious you about investments about some securities the those of think have discounts and there That the in different of -- stack the just securities buying

are one kind -- a at may a some discount I'm portfolio at in the value of of higher but some that So, point interest rate realize also there expense PIK the those of on gains. have to merits to this bigger any created or reduce side curious if securities kind to looking actually

David Trick

and something you may weigh in opportunities and and our One in our we’ve and you securities the Rico issued Puerto own doing years, can Giuliano, as particular, risk-adjusted a considerations. know, wrapped In when purchases have whether as securities, of very or know recall. that done well done as that we to which LSA the have returns, Yes, so liquidity we the over things securities. active looked perhaps capital -- matter is the consider past be in, the sales higher-tier and importantly at like in is most RMBS of as we from obtain you that's X we notes, we’ve couple it some been in own no considerations, purchases

So, you in and those capital cases, on securities. for, the and repurchase the now regulatory be many do very about securities we to regulatory we treatment securities, get have thoughtful approval repurchasing is, what to those regulatory we for need capital referenced, impact

that able I referenced. not opportunities attractive on all to on the there opportunities those constraints be always we’re execute and here there, So, while necessarily may based

Giuliano Bologna

you thank my Well, questions, and will queue. I in sense. the back answering total for jump made That


Thank Instructions] [Operator you. Thank you.

Please your come Sean Waterfall Perkins next line the with with question. Our of Asset questions proceed Management. from

Sean Perkins

disclosures Well, the appreciate call. thanks I your for hosting today.

being on February in there and have oral the this order bit is you at of trial filings hearings, to keep maintain through in current upcoming or any dismissed little other date terms XXXX to go a Just the point? arguments that

Claude LeBlanc

for your Thanks question.

of will by by court claim XXth. So, be the including November judge be arguments the week to additional currently, decision motion I relation reached the any this on the an fraud dismiss at any see decisions the There fraud all appeal later could in claim. to that's

hear fraud claim that any he trial. on that just case part Although and make a not decide decisions as of the may he may will

at might we we're really vis-à-vis how think I So, any judge our at that there the decisions, system. unless but that predict expecting risk stick in not this us to February think that can the things a have is will point, influence we we that see believe path make, appeal, probably influence change, point the will clear other decisions on might but trial out risk, this how that expect I court we and it biggest the COVID the they decision

Sean Perkins

bond of little to if you activity I expect took and you, you mentioned how we’ve Thanks. that place not your some impacts on bit overall understand continue can, profitability. and more whether Thank or want rate the question one the moves given market, senior quarter, municipal more a issue that and to I'd during that that seen, the

Claude LeBlanc


[indiscernible] at that the what access it volume markets impact we So, I to generally, earnings, to our is and reasons. a -- first very for they and market effectively to we refinance. and of you point, at relating -- number ones, means looking not [technical when it business, find I directly to look it challenged surrounding going tight given think the issue know, if story us, more COVID issue view we’re doing It some COVID, were as writing the currently velocity think new doesn’t difficulty] to a we are the difficult I new being the encouraging be exposures think more but our one, of spreads believe for

are with think look improving working issuers relating However, debt, to just these of strong. near-term They that result some have to to with the or liquidity COVID. this we restructure very issuers challenge economy and

liquidity of that the number the we with a us new in addressed, issuers it strong there's that can their but as that them work and certainly having issuers helpful as the as issues. for ways helping market be issue for near-term is certainly believe we address So, is,

Sean Perkins

so Thank you much.

Claude LeBlanc

Thank you.


for does thank you further your conclude There at questions this are today's participation. teleconference. time. We This no

this day. Have may a You time. at your lines good disconnect