Ambac(US:AMBC)2020-03-03 16:40Financial Data and Key Metrics Changes - For the year ended December 31, 2019, Ambac reported a net loss of $216 million or negative $4.69 per diluted share, and adjusted earnings of $66 million or $1.44 per diluted share [5] - As of December 31, 2019, the book value was $1.5 billion or $32.41 per share, and adjusted book value was $1.3 billion or $28.83 per share [5][22] - In Q4 2019, Ambac reported a net loss of $110 million or $2.40 per diluted share compared to net income of $66 million or $1.41 per diluted share in Q3 2019 [16] - Adjusted loss for Q4 was $88 million or $1.91 per diluted share compared to adjusted earnings of $77 million or $1.63 per diluted share in Q3 2019 [16] Business Line Data and Key Metrics Changes - Premiums earned in Q4 were $20 million, up from $10 million in Q3, due to a reduction in the allowance for uncollectible premiums [17] - Investment income for Q4 was $42 million, down from $45 million in Q3, attributed to lower income from COFINA bond sales and AAC's investment in secured notes [17] - Loss and loss expenses incurred were $97 million in Q4, compared to $37 million in Q3, with RMBS losses of $40 million in Q4 compared to a benefit of $25 million in Q3 [19] Market Data and Key Metrics Changes - The insured portfolio decreased by 19% from $46.9 billion to $38 billion as of December 31, 2019, and adversely classified and watch list credits decreased by 28% from $19.9 billion to $14.3 billion [8] - Active derisking efforts accounted for 50% of the decrease in total net par and 65% of the decrease in adversely classified and watch list credits [8] Company Strategy and Development Direction - The company focused on derisking activities, including the execution of the COFINA Plan of Adjustment, which reduced its largest single risk related to Puerto Rico exposure [6] - Ambac expanded its use of reinsurance to reduce its insurance portfolio, ceding $1.2 billion of public finance par exposure [7] - The company is actively pursuing new business opportunities in sectors that align with its competencies, aiming for long-term shareholder value [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strategic priorities and the importance of derisking efforts in 2020 [8][15] - The management highlighted ongoing discussions with the Oversight Board regarding Puerto Rico and the need for productive negotiations to avoid litigation [11][34] - The company remains focused on reducing operating expenses and optimizing its capital structure [20] Other Important Information - The company reported a $142 million one-time gain from the SEC settlement with Citigroup, which contributed to deleveraging efforts [12] - Operating expenses for Q4 decreased to $23 million, driven by reductions in compensation-related expenses [20] Q&A Session Summary Question: On the secured note side, what are the potential savings from the repayment? - The cash flow will circulate and pay down additional amounts, with an annualized basis reducing interest expense by about $12 million depending on LIBOR [26] Question: Are there opportunities to reduce debt across the structure? - The company will continue to look for opportunities to reduce the outstanding secured balance, subject to liquidity and capital allocation considerations [28] Question: Are there enhanced litigation-related expenses expected in the first half? - Additional litigation-related expenses were taken on both RMBS and Puerto Rico fronts, with reserves reevaluated at year-end [30] Question: What is the status of negotiations with the Oversight Board regarding Puerto Rico? - Ongoing discussions are taking place, but the current proposals from the Oversight Board do not facilitate good negotiations [34] Question: Can you provide insight into the Bank of America appeal process? - The appeals are related to initial decisions confirmed by Justice Sherwood, and the company is awaiting the outcome of the appeal [34] Question: What is the focus regarding potential acquisitions? - The company is looking at businesses that reflect core competencies in credit and insurance, with a disciplined approach to identifying attractive opportunities [39]