Document
false0000874501 0000874501 2019-11-07 2019-11-07
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
 
8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 7, 2019
Ambac Financial Group Inc
(Exact name of Registrant as specified in its charter)
Delaware
 
1-10777
 
13-3621676
(State of incorporation)
 
(Commission
file number)
 
(I.R.S. employer
identification no.)
One State Street Plaza
New York
NY
10004
(Address of principal executive offices)
 
(212)
658-7470
 
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
 
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common stock, par value $0.01 per share
 
AMBC
 
NASDAQ
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 under the Securities Act (17 CFR 230.405) or Rule 12b-2 under the Exchange Act (17 CFR 240.12b-2).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act.
 



Item 2.02 Results of Operations and Financial Condition.
On November 7, 2019, Ambac Financial Group, Inc. issued a press release announcing financial results for its third quarter ended September 30, 2019. Exhibit 99.1 is a copy of such press release and is incorporated by reference.
The information furnished pursuant to this Item 2.02, including Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of Ambac Financial Group, Inc. under the Securities Act of 1933 or the Exchange Act.
Item 9.01    Financial Statements and Exhibits.
(d) Exhibits

Exhibit
 
 
Number
 
Exhibit Description
99.1
 
Press Release dated November 7, 2019
EXHIBIT INDEX
Exhibit
 
 
Number
 
Exhibit Description
99.1
 
101.INS
 
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101.SCH
 
XBRL Taxonomy Extension Schema Document.
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
104
 
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
Ambac Financial Group, Inc.
 
 
 
(Registrant)
 
 
 
 
 
 
Dated:
November 7, 2019
 
By:
 
/s/ William J. White
 
 
 
 
 
First Vice President, Secretary and Assistant General Counsel

1
Exhibit
EXHIBIT 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13189081&doc=8

Ambac Reports Third Quarter 2019 Results

Net Income of $66.1 million or $1.41 per diluted share for the Quarter Ended September 30, 2019 and an increase in Book Value per Share of $1.66 to $34.44 at September 30, 2019 from June 30, 2019. Third quarter net income was driven by a $142.2 million gain from the previously reported SEC-Citigroup settlement
Adjusted Earnings(1) of $76.8 million or $1.63 per diluted share for the Quarter Ended September 30, 2019 and an increase in Adjusted Book Value per Share of $0.74 to $30.31 at September 30, 2019 from June 30, 2019
Active de-risking initiatives lead to a $1.5 billion or an 8.8% reduction in Adversely Classified and Watch List net par exposure during the third quarter of 2019
Insured net par reduced by $3.2 billion or 7.6% to $39.0 billion
Ceded $1.2 billion of performing par exposure to a third party reinsurer, including $509 million of Adversely Classified and Watch List Credits

NEW YORK, NY, November 7, 2019 (GLOBE NEWSWIRE) -- Ambac Financial Group, Inc. (Nasdaq: AMBC) ("Ambac"), a financial services holding company whose subsidiaries include Ambac Assurance Corporation ("AAC") and Ambac Assurance UK Limited ("Ambac UK"), run-off financial guaranty insurance companies that guarantee public finance and structured finance obligations, today reported Net Income attributable to common stockholders of $66.1 million or $1.41 per diluted share and Adjusted Earnings(1) of $76.8 million or $1.63 per diluted share for the quarter ended September 30, 2019. This compares to a Net Loss attributable to common stockholders of $128.4 million or $2.79 per diluted share and Adjusted Earnings of $86.4 million or $1.88 per diluted share in the second quarter of 2019.
Results for the third quarter of 2019 benefited from the receipt of $142.2 million by AAC related to the settlement reached between the United States Securities and Exchange Commission (the "SEC") and Citigroup Global Markets ("Citigroup") partially offset by an increase in loss and loss expense reserves related mostly to Puerto Rico. The results for the second quarter of 2019 were primarily driven by the Ballantyne restructuring and commutation.

Claude LeBlanc, President and Chief Executive Officer, stated, “I am very pleased with our success during the third quarter of 2019. Our active derisking efforts included the successful negotiation and execution of a third-party reinsurance agreement, ceding $1.2 billion of performing par exposure, including $509 million par of Adversely Classified and Watch List Credits and equating to approximately $2.4 billion of insured debt service. This transaction, together with other de-risking activities and natural portfolio run-off, brings our insured net par exposure down to $39.0 billion at September 30, 2019 from $42.2 billion at June 30, 2019. This quarter, we also benefited from the receipt of $142.2 million from the favorable outcome of the Citi-SEC settlement, all of which will be used to pay down our outstanding secured notes, further de-leveraging our balance sheet and lowering future interest costs. We also received favorable decisions from the appellate court related to our outstanding litigation against Bank of America/Countrywide, further strengthening our case as we prepare for trial." Mr. LeBlanc continued, "Our accomplishments during the third quarter of 2019 and year-to-date are solid evidence of our ongoing commitment to our shareholders to optimize our platform and position Ambac for the future with the goal of increasing long-term shareholder value."


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Ambac's Third Quarter 2019 Summary Results
 
 
 
 
 
 
Better (Worse)
($ in millions, except per share data)
 
3Q2019
 
2Q2019
 
Amount
 
Percent
Net premiums earned
 
$
10.5

 
$
7.8

 
$
2.7

 
35
 %
Net investment income
 
44.5

 
86.5

 
(42.0
)
 
(49
)%
Net realized investment gains (losses)
 
18.5

 
35.9

 
(17.4
)
 
(48
)%
Net gains (losses) on derivative contracts
 
(9.9
)
 
(35.4
)
 
25.5

 
72
 %
Other income (expense)
 
141.4

 
(8.9
)
 
150.3

 
1,689
 %
Income (loss) on Variable Interest Entities ("VIEs")
 
11.2

 
3.3

 
7.9

 
239
 %
Losses and loss expenses (benefit)
 
37.1

 
(133.5
)
 
(170.6
)
 
(128
)%
Operating expenses
 
25.6

 
29.1

 
3.5

 
12
 %
Interest expense
 
66.9

 
67.4

 
0.5

 
1
 %
Insurance intangible amortization
 
17.4

 
226.2

 
208.8

 
92
 %
Provision for income taxes
 
2.9

 
28.3

 
25.4

 
90
 %
Net income (loss) attributable to Common Stockholders
 
66.1

 
(128.4
)
 
194.5

 
151
 %
Net income (loss) per diluted share
 
$
1.41

 
$
(2.79
)
 
$
4.20

 
151
 %
Adjusted earnings (loss) 1
 
76.8

 
86.4

 
(9.6
)
 
(11
)%
Adjusted earnings (loss) per diluted share 1
 
$
1.63

 
$
1.88

 
$
(0.25
)
 
(13
)%
Total Ambac Financial Group, Inc. stockholders' equity
 
1,568.7

 
1,492.9

 
75.8

 
5
 %
Total Ambac Financial Group, Inc. stockholders' equity per share
 
$
34.44

 
$
32.78

 
$
1.66

 
5
 %
Adjusted book value 1
 
1,380.6

 
1,346.8

 
33.8

 
3
 %
Adjusted book value per share 1
 
$
30.31

 
$
29.57

 
$
0.74

 
3
 %
Weighted-average diluted shares outstanding (in millions)
 
47.0

 
46.0

 
(1.0
)
 
(2
)%
(1) See Non-GAAP Financial Data section of this press release for further information
 

Net Premiums Earned
During the third quarter of 2019, net premiums earned were $10.5 million compared to $7.8 million in the second quarter of 2019, including accelerated premiums earned of $2.0 million in the third quarter of 2019 compared to negative accelerated premiums earned of $6.2 million in the second quarter of 2019. Normal premiums earned decreased $5.5 million or 39% to $8.5 million during the third quarter of 2019 from $14.0 million in the second quarter of 2019 primarily due to an increase in uncollectable premiums and continued reduction of the insured portfolio. Accelerated premiums earned in the third quarter of 2019 were driven by call activity and in the second quarter of 2019 were primarily driven by the Ballantyne restructuring and the termination of a commercial asset-backed exposure.
Net Investment Income and Net Realized Investment Gains
Net investment income for the third quarter of 2019 and the second quarter of 2019 was $44.5 million and $86.5 million, respectively. The decrease in net investment income was primarily due to the inclusion, in the second quarter of 2019, of accelerated accretion on owned Ballantyne notes associated with the restructuring. Third quarter 2019 net realized investment gains of $18.5 million primarily consisted of gains from the sale of restructured COFINA bonds and foreign exchange gains.
Losses and Loss Expenses and Loss Reserves
Losses and loss expenses for the third quarter of 2019 were $37.1 million, compared to a benefit of $133.5 million for the second quarter of 2019.

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The following table provides losses and loss expenses (benefit) incurred by bond type for the three-month periods ended September 30, 2019 and June 30, 2019:
 
 
Three Months Ended
($ in millions)
 
September 30, 2019
 
June 30, 2019
RMBS
 
$
(24.5
)
 
$
(69.4
)
Domestic public finance
 
77.0

 
50.3

Student loan
 
(15.7
)
 
(3.6
)
Ambac UK and other credits
 
0.3

 
(110.8
)
Total losses and loss expenses
 
$
37.1

 
$
(133.5
)
RMBS losses and loss expenses were a benefit of $24.5 million in the third quarter of 2019 and $69.4 million in the second quarter of 2019, primarily driven in both periods by higher levels of expected excess spread resulting from lower interest rates. Second quarter of 2019 RMBS losses and loss expenses also included $18.7 million received from a trustee settlement related to Lehman sponsored RMBS transactions.
Domestic public finance losses and loss expenses were an expense of $77.0 million in the third quarter of 2019 due primarily to an increase in non-COFINA Puerto Rico reserves driven mostly by lower discount rates in addition to assumption changes and higher loss expenses. In the second quarter of 2019, domestic public finance losses and loss expenses were $50.3 million driven mostly by lower discount rates.
Student loan losses and loss expenses were a benefit of $15.7 million in the third quarter of 2019 largely due to improved recovery experience.
Losses and loss expenses for Ambac UK and other credits benefit of $110.8 million in the second quarter of 2019 were driven by the Ballantyne restructuring.
During the third quarter of 2019 losses and loss expenses paid (net of reinsurance) were $104.8 million which included $133.3 million of loss and expense payments, partially offset by $28.5 million of subrogation received. During the second quarter of 2019, losses and loss expenses paid (net of reinsurance) were $129.7 million which included $175.3 million of loss and expense payments, partially offset by $45.6 million of subrogation received.
Loss and loss expense reserves (gross of reinsurance) were $(560) million at September 30, 2019, and $(491) million at June 30, 2019, which were both net of $1.8 billion of estimated subrogation recoveries related to AAC's pursuit of legal remedies to seek redress for breaches of RMBS representations and warranties.
The following table provides loss and loss expense reserves (gross of reinsurance) by bond type at September 30, 2019, and June 30, 2019:
($ in millions)
 
September 30, 2019
 
June 30, 2019
RMBS
 
$
(1,419
)
 
$
(1,404
)
Domestic public finance
 
580

 
603

Student loans
 
202

 
222

Ambac UK and other credits
 
4

 
5

Loss expenses
 
73

 
83

Total loss and loss expense reserves
 
$
(560
)
 
$
(491
)
Net Gains (Losses) on Derivative Contracts
Net losses on derivative contracts of $9.9 million for the third quarter of 2019 and $35.4 million for the second quarter of 2019 were primarily due to the impact of decreases in forward interest rates on interest rate derivatives. The interest rate derivatives portfolio is positioned to benefit from rising interest rates as a partial economic hedge against interest rate exposure in AAC's insured and investment portfolios.
Other Income (Expense)
Other income for the third quarter of 2019 was $141.4 million, primarily due to a gain recognized upon receipt of proceeds of $142.2 million from the SEC-Citigroup settlement related to a collateralized debt obligation transaction.

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Expenses
Operating expenses for the third quarter of 2019 decreased by $3.5 million to $25.6 million from $29.1 million in the second quarter of 2019. The decrease in the third quarter of 2019 was mostly due to lower incentive compensation and lower legal and advisory fees, partially offset by higher rent expense due to the extinguishment of lease reducing junior surplus notes, which previously lowered rent expense, and higher severance expenses. Lower incentive compensation in the third quarter of 2019 is due to the performance impact of the Ballantyne restructuring recognized in the second quarter of 2019.
Interest expense for the third quarter of 2019 decreased $0.5 million to $66.9 million from $67.4 million in the second quarter of 2019 primarily due to lower interest on the Ambac Note driven by lower interest rates and partial redemptions. Future interest expense will be further reduced as the settlement proceeds received of $142.2 million during the third quarter of 2019 will be used to partially redeem the Ambac Note during the fourth quarter of 2019.
Taxes
Income taxes were an expense of $2.9 million for the third quarter of 2019, primarily driven by foreign taxes, compared to $28.3 million for the second quarter of 2019, driven by foreign taxes triggered by the Ballantyne restructuring.
Total Ambac Financial Group, Inc. Stockholders' Equity
Stockholders’ equity at September 30, 2019, increased 5% to $1.57 billion, or $34.44 per share compared to $1.49 billion or $32.78 per share as of June 30, 2019, primarily driven by net income of $66.1 million.
Financial Guarantee Insured Portfolio
The financial guarantee insurance portfolio net par amount outstanding declined 7.6% during the quarter ended September 30, 2019, to $39.0 billion from $42.2 billion at June 30, 2019. During the third quarter of 2019, Ambac reinsured $1.2 billion of performing par exposure (the "reinsurance transaction") for certain public finance insurance policies to a third party reinsurer, including $0.5 billion of Adversely Classified and Watch List Credits.
The public finance insured portfolio decreased $2.0 billion primarily due to the reinsurance transaction and natural runoff, the structured finance portfolio decreased $0.4 billion primarily related to de-risking activity and natural runoff and the international insured portfolio decreased $0.8 billion primarily due to natural run-off coupled with a decline in the British Pound.
Adversely Classified and Watch List Credits decreased in the third quarter of 2019 by $1.5 billion or 8.8% to $15.7 billion at September 30, 2019 from $17.2 billion at June 30, 2019 mainly due to the reinsurance transaction, other de-risking activity and natural runoff.
Details of financial guarantee insurance portfolio are highlighted in the below table.
Net Par Outstanding
 
September 30, 2019
 
June 30, 2019
By Sector:
 
 
 
 
Public finance
 
48
%
 
49
%
Structured Finance
 
20
%
 
20
%
International
 
32
%
 
31
%
By Financial Guarantor:
 
 
 
 
Ambac Assurance
 
71
%
 
71
%
Ambac UK
 
29
%
 
29
%
Non-GAAP Financial Data
In addition to reporting Ambac’s quarterly financial results in accordance with GAAP, the Company currently reports two non-GAAP financial measures: Adjusted Earnings and Adjusted Book Value. The most directly comparable GAAP measures are net income attributable to common stockholders for Adjusted Earnings and Total Ambac Financial Group, Inc. stockholders’ equity for Adjusted Book Value. A non-GAAP financial measure is a numerical measure of financial performance or financial position that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. We are presenting these non-GAAP financial measures because they provide greater transparency and enhanced visibility into the underlying drivers of our business. Adjusted Earnings and Adjusted Book Value are not substitutes for the

4



Company’s GAAP reporting, should not be viewed in isolation and may differ from similar reporting provided by other companies, which may define non-GAAP measures differently.
Ambac has a significant U.S. tax net operating loss (“NOL”) that is offset by a full valuation allowance in the GAAP consolidated financial statements. As a result of this and other considerations, we utilized a 0% effective tax rate for non-GAAP adjustments; which is subject to change.
The following paragraphs define each non-GAAP financial measure and describe why it is useful. A reconciliation of the non-GAAP financial measure and the most directly comparable GAAP financial measure is also presented below.
Adjusted Earnings (Loss). Adjusted Earnings (Loss) is defined as net income (loss) attributable to common stockholders, as reported under GAAP, adjusted on an after-tax basis for the following:
Non-credit impairment fair value (gain) loss on credit derivatives: Elimination of the non-credit impairment fair value gains (losses) on credit derivatives, which is the amount in excess of the present value of the expected estimated credit losses. Such fair value adjustments are affected by, and in part fluctuate with changes in market factors such as interest rates and credit spreads, including the market’s perception of Ambac’s credit risk (“Ambac CVA”), and are not expected to result in an economic gain or loss. These adjustments allow for all financial guarantee contracts to be accounted for consistent with the Financial Services – Insurance Topic of ASC, whether or not they are subject to derivative accounting rules.
Insurance intangible amortization: Elimination of the amortization of the financial guarantee insurance intangible asset that arose as a result of Ambac’s emergence from bankruptcy and the implementation of Fresh Start reporting. This adjustment ensures that all financial guarantee contracts are accounted for consistent with the provisions of the Financial Services – Insurance Topic of the ASC.
Foreign exchange (gains) losses: Elimination of the foreign exchange gains (losses) on the re-measurement of assets, liabilities and transactions in non-functional currencies. This adjustment eliminates the foreign exchange gains (losses) on all assets, liabilities and transactions in non-functional currencies, which enables users of our financial statements to better view the results without the impact of fluctuations in foreign currency exchange rates and facilitates period-to-period comparisons of Ambac's operating performance.
Adjusted Earnings were $76.8 million, or $1.63 per diluted share, for the third quarter 2019 as compared to Adjusted Earnings of $86.4 million or $1.88 per diluted share, for the second quarter of 2019.
The following table reconciles net income (loss) attributable to common stockholders to the non-GAAP measure, Adjusted Earnings (Loss), for the three-month periods ended September 30, 2019, and June 30, 2019, respectively:
 
 
Three Months Ended
 
 
September 30, 2019
 
June 30, 2019
($ in millions, other than per share data)
 
$ Amount
 
Per Diluted Share
 
$ Amount
 
Per Diluted Share
Net income (loss) attributable to common stockholders
 
$
66.1

 
$
1.41

 
$
(128.4
)
 
$
(2.79
)
Adjustments:
 
 
 
 
 
 
 
 
Non-credit impairment fair value (gain) loss on credit derivatives
 
(0.4
)
 
(0.01
)
 
(0.2
)
 

Insurance intangible amortization
 
17.4

 
0.37

 
226.2

 
4.92

Foreign exchange (gains) losses
 
(6.3
)
 
(0.14
)
 
(11.2
)
 
(0.25
)
Adjusted Earnings (loss)
 
$
76.8

 
$
1.63

 
$
86.4

 
$
1.88

Weighted-average diluted shares outstanding (in millions)
 
 
 
47.0

 
 
 
46.0

Adjusted Book Value. Adjusted Book Value is defined as Total Ambac Financial Group, Inc. stockholders’ equity as reported under GAAP, adjusted for after-tax impact of the following:
Non-credit impairment fair value losses on credit derivatives: Elimination of the non-credit impairment fair value loss on credit derivatives, which is the amount in excess of the present value of the expected estimated economic credit loss. GAAP fair values are affected by, and in part fluctuate with, changes in market factors such as interest rates, credit spreads, including Ambac’s CVA that are not expected to result in an economic gain or loss. These adjustments allow for all financial guarantee contracts to be accounted for within Adjusted Book Value consistent with the provisions of the Financial Services—Insurance Topic of the ASC, whether or not they are subject to derivative accounting rules.

5



Insurance intangible asset: Elimination of the financial guarantee insurance intangible asset that arose as a result of Ambac’s emergence from bankruptcy and the implementation of Fresh Start reporting. This adjustment ensures that all financial guarantee contracts are accounted for within Adjusted Book Value consistent with the provisions of the Financial Services—Insurance Topic of the ASC.
Net unearned premiums and fees in excess of expected losses: Addition of the value of the unearned premium revenue ("UPR") on financial guarantee contracts, in excess of expected losses, net of reinsurance. This non-GAAP adjustment presents the economics of UPR and expected losses for financial guarantee contracts on a consistent basis. In accordance with GAAP, stockholders’ equity reflects a reduction for expected losses only to the extent they exceed UPR. However, when expected losses are less than UPR for a financial guarantee contract, neither expected losses nor UPR have an impact on stockholders’ equity. This non-GAAP adjustment adds UPR in excess of expected losses, net of reinsurance, to stockholders’ equity for financial guarantee contracts where expected losses are less than UPR.
Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income: Elimination of the unrealized gains and losses on the Company’s investments that are recorded as a component of accumulated other comprehensive income (“AOCI”). The AOCI component of the fair value adjustment on the investment portfolio may differ from realized gains and losses ultimately recognized by the Company based on the Company’s investment strategy. This adjustment only allows for such gains and losses in Adjusted Book Value when realized.
Adjusted Book Value was $1.38 billion, or $30.31 per share, at September 30, 2019, as compared to $1.35 billion, or $29.57 per share, at June 30, 2019. The increase in Adjusted Book Value was primarily attributable to Adjusted Earnings (net of earned premium) for the third quarter of 2019 partially offset by premiums ceded under the reinsurance transaction.
The following table reconciles Total Ambac Financial Group, Inc. stockholders’ equity to the non-GAAP measure Adjusted Book Value as of each date presented:
 
 
September 30, 2019
 
June 30, 2019
($ in millions, other than per share data)
 
$ Amount
 
Per Share
 
$ Amount
 
Per Share
Total AFGI Stockholders' Equity (Deficit)
 
$
1,568.7

 
$
34.44

 
$
1,492.9

 
$
32.78

Adjustments:
 
 
 
 
 
 
 
 
Non-credit impairment fair value losses on credit derivatives
 
0.4

 
0.01

 
0.9

 
0.02

Insurance intangible asset
 
(433.5
)
 
(9.52
)
 
(454.8
)
 
(9.99
)
Net unearned premiums and fees in excess of expected losses
 
433.6

 
9.52

 
465.1

 
10.21

Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income
 
(188.6
)
 
(4.14
)
 
(157.3
)
 
(3.45
)
Adjusted book value
 
$
1,380.6

 
$
30.31

 
$
1,346.8

 
$
29.57

Shares outstanding (in millions)
 
 
 
45.6

 
 
 
45.5

Earnings Call and Webcast
On November 8, 2019 at 8:30am ET, Claude LeBlanc, President and Chief Executive Officer, and David Trick, Executive Vice President and Chief Financial Officer, will discuss third quarter 2019 results during a conference call. A live audio webcast of the call will be available through the Investor Relations section of Ambac’s website, http://ir.ambac.com/events-and-presentations/events. Participants may also listen via telephone by dialing (877) 407-9716 (Domestic) or (201) 493-6779 (International).
The webcast will be archived on Ambac's website. A replay of the call will be available through November 21, 2019, and can be accessed by dialing (Domestic) (844) 512-2921 or (International) (412) 317-6671; and using ID#13695692.
Additional information is included in an operating supplement and presentations at Ambac's website at www.ambac.com.

6



About Ambac
Ambac Financial Group, Inc. (“Ambac” or “AFG”), headquartered in New York City, is a financial services holding company whose subsidiaries include Ambac Assurance Corporation, a guarantor of public finance and structured finance obligations in run-off. Ambac’s common stock trades on the NASDAQ Global Select Market under the symbol “AMBC”. The Amended and Restated Certificate of Incorporation of Ambac contains substantial restrictions on the ability to transfer Ambac’s common stock. Subject to limited exceptions, any attempted transfer of common stock shall be prohibited and void to the extent that, as a result of such transfer (or any series of transfers of which such transfer is a part), any person or group of persons shall become a holder of 5% or more of Ambac’s common stock or a holder of 5% or more of Ambac’s common stock increases its ownership interest. Ambac is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, we use our website to convey information about our businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related information, and the posting of updates to the status of certain residential mortgage backed securities litigations. For more information, please go to www.ambac.com.
Contact
Lisa A. Kampf
Managing Director, Investor Relations
(212) 208-3177
lkampf@ambac.com

Forward-Looking Statements
In this press release, statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “estimate,” “project,” “plan,” “believe,” “anticipate,” “intend,” “planned,” “potential” and similar expressions, or future or conditional verbs such as “will,” “should,” “would,” “could,” and “may,” or the negative of those expressions or verbs, identify forward-looking statements. We caution readers that these statements are not guarantees of future performance. Forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, which may by their nature be inherently uncertain and some of which may be outside our control. These statements may relate to plans and objectives with respect to the future, among other things which may change. We are alerting you to the possibility that our actual results may differ, possibly materially, from the expected objectives or anticipated results that may be suggested, expressed or implied by these forward-looking statements. 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 our most recent SEC filed quarterly or annual report.
Any or all of management’s forward-looking statements here or in other publications may turn out to be incorrect and are based on management’s current belief or opinions. Ambac’s actual results may vary materially, and there are no guarantees about the performance of Ambac’s securities. Among events, risks, uncertainties or factors that could cause actual results to differ materially are: (1) the highly speculative nature of Ambac’s common stock and volatility in the price of Ambac’s common stock; (2) uncertainty concerning the Company’s ability to achieve value for holders of its securities, whether from Ambac Assurance Corporation ("Ambac Assurance") or from transactions or opportunities apart from Ambac Assurance; (3) changes in Ambac Assurance’s estimated representation and warranty recoveries or loss reserves over time; (4) failure to recover claims paid on Puerto Rico exposures or incurrence of losses in amounts higher than expected; (5) adverse effects on Ambac’s share price resulting from future offerings of debt or equity securities that rank senior to Ambac’s common stock; (6) potential of rehabilitation proceedings against Ambac Assurance; (7) dilution of current shareholder value or adverse effects on Ambac’s share price resulting from the issuance of additional shares of common stock; (8) inadequacy of reserves established for losses and loss expenses and possibility that changes in loss reserves may result in further volatility of earnings or financial results; (9) increased fiscal stress experienced by issuers of public finance obligations or an increased incidence of Chapter 9 filings or other restructuring proceedings by public finance issuers, including an increased risk of loss on revenue bonds of distressed public finance issuers due to a recent judicial decision adverse to revenue bond holders; (10) the Company's inability to realize the expected recoveries included in its financial statements; (11) insufficiency or unavailability of collateral to pay secured obligations; (12) credit risk throughout the Company’s business, including but not limited to credit risk related to residential mortgage-backed securities, student loan and other asset securitizations, public finance obligations (including obligations of the Commonwealth of Puerto Rico and its instrumentalities and agencies as well as obligations relating to privatized military housing projects) and exposures to reinsurers; (13) credit risks related to large single risks, risk concentrations and correlated risks; (14) the risk that the Company’s risk management policies and practices do not

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anticipate certain risks and/or the magnitude of potential for loss; (15) risks associated with adverse selection as the Company’s insured portfolio runs off; (16) adverse effects on operating results or the Company’s financial position resulting from measures taken to reduce risks in its insured portfolio; (17) disagreements or disputes with Ambac Assurance's primary insurance regulator; (18) our inability to mitigate or remediate losses, commute or reduce insured exposures or achieve recoveries or investment objectives, or the failure of any transaction intended to accomplish one or more of these objectives to deliver anticipated results; (19) the Company’s substantial indebtedness could adversely affect its financial condition and operating flexibility; (20) the Company may not be able to obtain financing or raise capital on acceptable terms or at all due to its substantial indebtedness and financial condition; (21) the Company may not be able to generate the significant amount of cash needed to service its debt and financial obligations, and may not be able to refinance its indebtedness; (22) restrictive covenants in agreements and instruments may impair the Company’s ability to pursue or achieve its business strategies; (23) loss of control rights in transactions for which we provide insurance due to a finding that Ambac Assurance has defaulted; (24) the Company’s results of operation may be adversely affected by events or circumstances that result in the accelerated amortization of the Company’s insurance intangible asset; (25) adverse tax consequences or other costs resulting from the characterization of the Company’s surplus notes or other obligations as equity; (26) risks attendant to the change in composition of securities in the Company’s investment portfolio; (27) changes in tax law; (28) changes in prevailing interest rates; (29) the expected discontinuance of the London Inter-Bank Offered Rate; (30) factors that may influence the amount of installment premiums paid to the Company; (31) default by one or more of Ambac Assurance's portfolio investments, insured issuers or counterparties; (32) market risks impacting assets in the Company’s investment portfolio or the value of our assets posted as collateral in respect of interest rate swap transactions; (33) risks relating to determinations of amounts of impairments taken on investments; (34) the risk of litigation and regulatory inquiries or investigations, and the risk of adverse outcomes in connection therewith, which could have a material adverse effect on the Company’s business, operations, financial position, profitability or cash flows; (35) actions of stakeholders whose interests are not aligned with broader interests of the Company's stockholders; (36) the Company’s inability to realize value from Ambac UK or other subsidiaries of Ambac Assurance; (37) system security risks; (38) market spreads and pricing on interest rate derivatives insured or issued by the Company; (39) the risk of volatility in income and earnings, including volatility due to the application of fair value accounting; (40) changes in accounting principles or practices that may impact the Company’s reported financial results; (41) legislative and regulatory developments, including intervention by regulatory authorities; (42) the economic impact of “Brexit”; (43) operational risks, including with respect to internal processes, risk and investment models, systems and employees, and failures in services or products provided by third parties; (44) the Company’s financial position that may prompt departures of key employees and may impact the Company’s ability to attract qualified executives and employees; (45) fluctuations in foreign currency exchange rates could adversely impact the insured portfolio in the event of loss reserves or claim payments denominated in a currency other than US dollars and the value of non-US dollar denominated securities in our investment portfolio; and (46) other risks and uncertainties that have not been identified at this time.

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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Loss) (Unaudited)
 
 
Three Months Ended
($ in Thousands, except share data)
 
September 30,
2019
 
June 30,
2019
Revenues:
 
 
 
 
Net premiums earned
 
$
10,466

 
$
7,833

Net investment income:
 
 
 
 
Securities available-for-sale and short-term
 
36,330

 
78,329

Other investments
 
8,207

 
8,130

Total net investment income
 
44,537

 
86,459

Net other-than-temporary impairment losses recognized in earnings
 
(42
)
 

Net realized investment gains (losses)
 
18,471

 
35,860

Net gains (losses) on derivative contracts
 
(9,890
)
 
(35,412
)
Other income (expense)
 
141,376

 
(8,908
)
Income on variable interest entities
 
11,244

 
3,294

Total revenues
 
216,162

 
89,126

Expenses:
 
 
 
 
Losses and loss expense (benefit)
 
37,139

 
(133,480
)
Insurance intangible amortization
 
17,421

 
226,242

Operating expenses
 
25,622

 
29,090

Interest expense
 
66,925

 
67,381

Total expenses
 
147,107

 
189,233

Pre-tax income (loss)
 
69,055

 
(100,107
)
Provision for income taxes
 
2,939

 
28,322

Net income (loss) attributable to common stockholders
 
$
66,116

 
$
(128,429
)
 
 
 
 
 
Net income (loss) per basic share
 
$
1.44

 
$
(2.79
)
Net income (loss) per diluted share
 
$
1.41

 
$
(2.79
)
 
 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
 
Basic
 
45,997,694

 
45,986,043

Diluted
 
47,020,058

 
45,986,043


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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Loss) (Unaudited)
 
 
Nine Months Ended September 30,
($ in Thousands, except share data)
 
2019
 
2018
Revenues:
 
 
 
 
Net premiums earned
 
$
46,057

 
$
82,359

Net investment income:
 
 
 
 
Securities available-for-sale and short-term
 
161,211

 
222,278

Other investments
 
24,627

 
12,956

Total net investment income
 
185,838

 
235,234

Net other-than-temporary impairment losses recognized in earnings
 
(71
)
 
(1,579
)
Net realized investment gains (losses)
 
71,564

 
82,211

Net gains (losses) on derivative contracts
 
(61,461
)
 
51,706

Net realized gains on extinguishment of debt
 

 
3,121

Other income (expense)
 
133,270

 
2,676

Income (loss) on variable interest entities
 
30,459

 
2,982

Total revenues
 
405,656

 
458,710

Expenses:
 
 
 
 
Losses and loss expense (benefit)
 
(83,934
)
 
(181,315
)
Insurance intangible amortization
 
279,941

 
78,299

Operating expenses
 
79,627

 
90,865

Interest expense
 
202,284

 
176,192

Total expenses
 
477,918

 
164,041

Pre-tax income (loss)
 
(72,262
)
 
294,669

Provision for income taxes
 
33,252

 
6,811

Net income (loss)
 
$
(105,514
)
 
$
287,858

Less: loss on exchange of auction market preferred shares
 

 
81,686

Net income (loss) attributable to common stockholders
 
$
(105,514
)
 
$
206,172

 
 
 
 
 
Net income (loss) per basic share
 
$
(2.30
)
 
$
4.52

Net income (loss) per diluted share
 
$
(2.30
)
 
$
4.43

 
 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
 
Basic
 
45,939,284

 
45,635,483

Diluted
 
45,939,284

 
46,510,795



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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
($ in Thousands, except share data)
 
September 30,
2019
 
June 30,
2019
Assets:
 
 
 
 
Investments:
 
 
 
 
Fixed income securities, at fair value (amortized cost: $2,561,278 and $2,465,967)
 
$
2,727,305

 
$
2,604,177

Fixed income securities pledged as collateral, at fair value (amortized cost: $84,948 and $84,418)
 
84,948

 
84,418

Short-term investments, at fair value (amortized cost: $664,423 and $772,214)
 
664,441

 
772,299

Other investments (includes $418,140 and $426,563 at fair value)
 
462,427

 
469,438

Total investments
 
3,939,121

 
3,930,332

Cash and cash equivalents
 
51,951

 
17,514

Restricted cash
 
12,561

 

Premium receivables
 
414,744

 
441,526

Reinsurance recoverable on paid and unpaid losses
 
26,036

 
27,215

Deferred ceded premium
 
76,495

 
56,272

Subrogation recoverable
 
2,082,268

 
1,984,826

Derivative assets
 
82,162

 
72,376

Current taxes
 
19,663

 
14,092

Insurance intangible asset
 
433,524

 
454,830

Other assets
 
113,189

 
190,566

Variable interest entity assets:
 
 
 
 
Fixed income securities, at fair value
 
3,158,608

 
3,138,714

Restricted cash
 
3,168

 
28,500

Loans, at fair value
 
2,965,539

 
4,288,572

Derivative assets
 
67,921

 
62,941

Other assets
 
4,154

 
4,790

Total assets
 
$
13,451,104

 
$
14,713,066

Liabilities and Stockholders’ Equity:
 
 
 
 
Liabilities:
 
 
 
 
Unearned premiums
 
$
527,771

 
$
556,908

Loss and loss expense reserves
 
1,522,304

 
1,494,106

Ceded premiums payable
 
29,950

 
30,795

Deferred taxes
 
30,150

 
31,716

Long-term debt
 
2,954,929

 
2,946,620

Accrued interest payable
 
423,815

 
407,096

Derivative liabilities
 
103,314

 
88,245

Other liabilities
 
95,267

 
137,757

Variable interest entity liabilities:
 
 
 
 
Accrued interest payable
 
2,656

 
529

Long-term debt (includes $4,151,433 and $5,308,724 at fair value)
 
4,353,171

 
5,648,083

Derivative liabilities
 
1,779,077

 
1,818,273

Other liabilities
 
36

 
22

Total liabilities
 
11,822,440

 
13,160,150

 
 
 
 
 
Stockholders’ equity:
 
 
 
 
Preferred stock, par value $0.01 per share; 20,000,000 shares authorized; issued and outstanding shares—none
 

 

Common stock, par value $0.01 per share; 130,000,000 shares authorized; issued: 45,571,743 and 45,571,743
 
456

 
456

Additional paid-in capital
 
229,128

 
226,794

Accumulated other comprehensive income
 
26,407

 
19,088

Retained earnings
 
1,313,052

 
1,246,990

Treasury stock, shares at cost: 20,483 and 22,558
 
(347
)
 
(380
)
Total Ambac Financial Group, Inc. stockholders’ equity
 
1,568,696

 
1,492,948

Noncontrolling interest
 
59,968

 
59,968

Total stockholders’ equity
 
1,628,664

 
1,552,916

Total liabilities and stockholders’ equity
 
$
13,451,104

 
$
14,713,066



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