The Special Deputy Commissioner's remarks for today's meeting have been reproduced below and have been posted to the website maintained by the
Listening Session Related to the Segregated Account of
Held by Special Deputy Commissioner
REHABILITATOR LISTENING SESSION INFORMATION
Pursuant to the Application for Approval of the Engagement of
AMBAC LISTENING SESSIONS
Thank you for your interest and for participating in this Rehabilitator Listening Session pertaining to the rehabilitation of the Segregated Account of
As indicated previously, we anticipate future interactions with policy beneficiaries and other stakeholders from time to time to ensure consistent dissemination of information, except for technical questions that will be addressed through the information hotline referenced on the website.
Our remarks today may contain forward-looking statements, which are based on our current expectations and are subject to uncertainty and changes in circumstances. Any such statements are not guarantees of future performance or events. Nor should they be understood to qualify the broad discretion granted to the Commissioner to manage the Rehabilitation as he deems appropriate. The Rehabilitator disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
As a backdrop to today's discussion, the creation and supervision of the Segregated Account are covered by specific laws applicable under Wisconsin Statutes. The petition to place the Segregated Account into Rehabilitation was granted by the Rehabilitation Court, and the Rehabilitator's authority and responsibility with respect to the Segregated Account are set forth in Wisconsin Statutes and in the Plan of Rehabilitation, as Amended, approved by the Court as of
Although the General Account is not in rehabilitation, the
Given these facts and circumstances, I would like to highlight our thinking pertaining to the Rehabilitation of the Segregated Account. As the court appointed Rehabilitator, the Commissioner's priority has been and is primarily with respect to the interests of the policyholders. While the main reason for creating the Segregated Account and placing it in Rehabilitation was to contain the losses associated with certain highly impaired policies, the Regulator's intent was to stabilize and manage the Segregated Account, so that it could achieve an orderly exit from Rehabilitation.
Lastly, I just want to reiterate that this session today is really to listen to your views. As
mentioned we will try to address the questions you submitted in writing as best we can. I'm certain you can understand that some questions cannot be answered today, whether it's because its material non-public information or whether it's the Rehabilitator's strategy or it's a question that is proprietary to
DEFERRED PAYMENTS AND THE INTERIM PAYMENT PERCENTAGE
The Rehabilitator would like to address questions regarding Deferred Payments or Changes to the Interim Payment Percentage.
Changes to the Interim Payment Percentage (the "IPP") are in the sole discretion of the Rehabilitator. The Rehabilitator and
Special Deputy Commissioner, who, with their advisors, continue to closely monitor the AAC's activities and financial position, will carefully weigh all relevant factors in considering whether a deferred payment and/or an IPP increase is appropriate. The Rehabilitator and his advisors, among other things, would need to feel highly confident that any change to the IPP is sustainable and fair to all policyholders. At present, we do not have any plans to increase the IPP. While projected recoveries have increased for Deferred Amounts and Surplus Notes, these obligations are still not projected to be paid in full in two of the four illustrative scenarios described in the Annual Report, dated
The Rehabilitator would like to address questions received regarding its ongoing RMBS litigation, in particular to Bank of America.
The Bank of America lawsuits are a critical component of the rehabilitation of the Segregated Account. The Segregated Account is a plaintiff in the pending actions that
The Rehabilitator would like to address questions regarding loss reserves, including the methodology for base and stress case scenarios as well as loss projections regarding
Before this session, we received questions about: (i) the Rehabilitator's general loss assumptions and estimation methods; and (ii) our view of the prospective losses associated with
Additionally, we have been asked about prospective recovery estimates for outstanding AAC preferred stock. As you know, we are focused on projected recoveries that may be available to policy beneficiaries or to holders of instruments that were issued during the Rehabilitation, such as the Junior Surplus Notes. Accordingly, we will not provide prospective recovery information for AAC's outstanding preferred stock.
Regarding loss projection questions, first, we wish to underscore that the Rehabilitator's loss projections, as reflected in the recently published Annual Report, are developed independently by the Rehabilitator and his advisers based on the information available to them. Such information includes market prices, third party credit analysis, economic, legal and structural considerations, and discussions with and/or information provided by AAC management -all of which inform our independent analysis. As a matter of policy, however, neither the Rehabilitator nor AAC disclose specific credit level loss reserves.
The Rehabilitator's base and stress case loss projections differ from those of the Company. Taken as a whole, the Rehabilitator's loss projections are materially more conservative than those of the Company - that is, the Rehabilitator's loss projections are higher than those of the Company. We believe this conservative approach is consistent with the role of the Rehabilitator.
With respect to AAC's exposure to various
As stated in the Annual Report,
We have been asked about our view of the credit protections inherent in the COFINA indenture as well as our views of the recently-enacted PROMESA bill. With respect to COFINA, the Rehabilitator is not in a position to comment on legal matters, so as not to compromise de-risking strategies, the Company's work-out options, and/or privileged communications. With respect to PROMESA, although the Rehabilitator believes that this legislation may allow for more prudent oversight of Puerto Rico's finances, at this point in time its effect is too early to estimate.
We have been asked about credit concerns with respect to the General Account other than
We received a question about AAC's exposure to its subsidiary,
INVESTMENTS AND COMMUTATIONS
The Rehabilitator would like to address questions regarding investment practices, commutations and de-risking activities.
Risk management practices and de-risking activities include the interest rate hedge contained in the AFS book, commutation transactions and, at the single risk level, various workout activities by the Company with respect to troubled credits. Such workout and de-risking activities can take many forms depending upon the situation. Once such example is the supplemental payment program described in the Annual Report and approved by the Rehabilitation Court in 2013.
We have been asked generally about commutations, including the Rehabilitator's method of evaluating such transactions. In his review, the Rehabilitator examines the internal rate of return and other relevant metrics associated with proposed commutations relative to other opportunities available to the Company. The Rehabilitator has required that all such transactions be accretive, and places a premium on transactions that reduce or eliminate exposures that have substantial variability and downside risk.
The Rehabilitator's express approval is required for any commutation of a Segregated Account policy that involves payment of more than
We have also been asked about
We received a question regarding the accretion rate in relation to the current reinvestment rate. As mentioned in the Annual Report, the Rehabilitator reserves the right to amend the Plan or take such other action as he deems necessary or appropriate to adjust the rate of accretion on Deferred Amounts from time to time based on such factors as he considers relevant. As such, the accretion rate remains under review.
The Rehabilitator would like to address questions regarding the security interest over and composition of the collateral in favor of the Segregated Account.
The Rehabilitator believes it has taken all necessary actions to maintain a security interest granted in the Collateral in favor of the Segregated Account.
The current security interest over the Collateral was created pursuant to the Secured Note and has been perfected by a UCC filing in
Our team is responsible for seeking an exit of the Segregated Account. Our preferred goal is to achieve this through a plan that is consensual among the Company, policy beneficiaries and other stakeholders. However, we are advising OCI to use all tools available to accomplish a successful and durable exit that enhances AAC's long-term claims-paying ability. We look forward to working with all of you as we move forward.
Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ, possibly materially, from those included in these statements due to a variety of factors. Important factors that could cause our results to differ, possibly materially, from those indicated in the forward-looking statements include, among others, those discussed under "Risk Factors" in Part I, Item 1A of Ambac's 2015 Annual Report on Form 10-K and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended
Abbe F. Goldstein, CFA Managing Director, Investor Relations and Corporate Communications (212) 208-3222; email@example.com
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