Ambac Financial Group Inc (AMBC)

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Ambac Assurance Corporation Reports Preliminary First Quarter 2022 Impact of Recent Material Developments (3/30/22)

NEW YORK--(BUSINESS WIRE)--Ambac Financial Group, Inc. (NYSE: AMBC) (“Ambac” or “AFG”), a financial services holding company, announces that its subsidiary, Ambac Assurance Corporation (“AAC”), has provided updates regarding the implementation of the restructuring of a significant portion of its Puerto Rico exposure and the estimated impact of recent litigation developments on its representation and warranty (“R&W”) subrogation recoverable. These developments relate solely to AAC, Ambac’s legacy financial guaranty business. Both developments are expected to have a material effect on Ambac’s consolidated financial results for the first quarter of 2022.

Puerto Rico Update

Estimated Gain of $210 to $250 million

AAC has successfully implemented the restructuring of a significant portion of its remaining Puerto Rico exposures, following the occurrence of the effective dates for the Plan of Adjustment related to AAC-insured Puerto Rico General Obligation bonds (“GO”) and Public Buildings Authority (“PBA”) bonds, and Qualifying Modifications for AAC-insured Puerto Rico Infrastructure Authority (“PRIFA”) and Convention Center District Authority (“CCDA”) bonds, all effective March 15, 2022. This follows the court approvals of restructurings for the GO bonds issued by the Commonwealth of Puerto Rico and bonds issued by PBA, PRIFA and CCDA. The execution of these transactions has reduced AAC’s insured principal and interest exposure to Puerto Rico by approximately 25% or $450 million. AAC expects that its insured Puerto Rico Highways and Transportation Authority (“PRHTA”) bonds will be restructured as part of the PRHTA Title III bankruptcy process in the second half of 2022, on terms consistent with the Plan Support Agreement executed last year. As a result of these successful restructurings and based on observable market values for subrogation received as of the date of the restructuring as well as expected risk mitigation activities, Ambac is expected to record a gain in the range of $210 to $250 million as part of its first quarter 2022 consolidated financial results.

R&W Update

Estimated reduction to AAC’s R&W subrogation recoveries of $175 million to $205 million

Based on AAC’s initial evaluation of the court’s decision in the case entitled U.S. Bank National Association v. DLJ Mortgage Capital, Inc. relating to Home Equity Asset Trust 2007-1, a residential mortgage-backed securities trust (“HEAT”), management believes that the estimated reduction to AAC’s estimated R&W subrogation recoveries is in the range of $175 to $205 million. This estimate excludes the impact of changes in discount rates and underlying insured RMBS transaction performance, which will be evaluated in conjunction with loss reserves for the first quarter. Previously, Ambac recorded in its consolidated balance sheet estimated R&W subrogation recoveries of $1.7 billion as of December 31, 2021, under US GAAP accounting principles.

Estimated subrogation recoveries do not represent AAC’s view of the ultimate recovery from its RMBS litigations. In particular, the reported subrogation recoverable does not include: a) pre-judgement interest associated with such claims, which given the passage of time, represents a material incremental value above the subrogation recoverable and b) potential material recoveries attributed solely to fraudulent inducement claims in AAC’s litigations.

AAC’s ultimate recoveries in its RMBS litigations may be materially higher or lower than its estimated subrogation recoveries based on a number of factors, including those described in Ambac’s Form 10-K for the fiscal year ended December 31, 2021. See “More on Estimated Subrogation Recoveries” below for further information.

In addition to the Puerto Rico gains and R&W adjustment, Ambac’s first quarter 2022 consolidated financial results will be impacted by other events and conditions that occurred or existed during the quarter including, but not limited to: rising interest rates; volatility in the equity and debt markets; as well as changes to loss and loss expense reserves. Each of the estimated ranges contained in this release are subject to change. Complete first quarter 2022 consolidated financial results will be filed in Ambac's first quarter 2022 Form 10-Q and discussed during its earnings call which the company will announce at a later date.

About Ambac

Ambac Financial Group, Inc. (“Ambac” or “AFG”) is a financial services holding company headquartered in New York City. Ambac’s core business is a growing specialty P&C distribution and underwriting platform. Ambac also has a legacy financial guaranty business that is in run off. Ambac’s common stock trades on the New York Stock Exchange under the symbol “AMBC”. 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. For more information, please go to www.ambac.com.

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.

More on Estimated Subrogation Recoveries

The subrogation recoveries range disclosed in this press release is an estimate, and is based solely on information available to Ambac as of the date hereof. The estimate is inherently uncertain and subject to change due to a variety of risks and uncertainties, which are described in the risk factors section of the company’s latest 10-K, particularly the risk factor captioned, “Our inability to realize the expected recoveries included in our financial statements could adversely impact our liquidity, financial condition and results of operations and the value of our securities, including the Sitka Senior Secured Notes and Tier 2 Notes.”

https://www.businesswire.com/news/home/20220330005324/en/Ambac-Assurance-Corporation-Reports-Preliminary-First-Quarter-2022-Impact-of-Recent-Material-Developments