Good day, ladies and gentlemen. And welcome to the Ambac Third Quarter 2014 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded. I would now turn the call over to your host, Abbe Goldstein, Head of Investor Relations and Corporate Communications. Please go ahead.

Thank you, Stephanie. Good morning. And thank you for joining today’s conference call to discuss Ambac Financial Group’s third quarter 2014 financial results. Before we get started, I'd like to remind you that today’s presentation may contain forward-looking statements, which are based on management’s current expectations and are subject to uncertainty and changes and circumstances. Any forward-looking statements are not guarantees of future performance or events. Actual performance and events may differ possibly materially from such forward-looking statements. Factors that could cause this include the factors described in our 2013 Form 10-K and in our quarterly report on Form 10-Q for the three and nine months ended September 30, 2014 under Management’s Discussion and Analysis of Financial Condition and Results of Operations and under Risk Factors. Ambac is not under any obligation and expressly disclaims any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. Today’s presentation contains non-GAAP financial measures. Reconciliations of such measures to the most comparable GAAP figures are included in our earnings press release, which is available on our website at ambac.com. Our speakers today are Diana Adams, Ambac’s President and CEO; and David Trick, Ambac’s Senior Managing Director, CFO and Treasurer. At the conclusion of their prepared remarks, we will open the call to your questions. Please note, we have posted slides on our website to accompany this call. I’d now like to turn the call over to Diana.

Thank you, Abbe. Good morning, everyone, and thank you for joining today’s call. Results in the third quarter were driven by the ongoing disciplined execution of our strategy. Active management of our insured exposures led to a smaller insured portfolio, a decrease in adversely classified credits and a release of reserves in the third quarter. Investment income increased driven by our proactive shift in investment portfolio allocations. We continue to actively pursue RMBS representation and warranty recoveries. At the end of the third quarter, we had five ongoing lawsuits with major counterparties and were in direct negotiations with others. Our strategy remains consistent. We will aggressively litigate these lawsuits and will settle only when we believe we can achieve a better risk adjusted resolution than through continued litigation. This quarter in an effort to increase transparency, we are updating the status summary of our rep and warranty litigations. We are also introducing information on claims paid to date on all transactions that contribute to our rep and warranty subrogation credit. With respect to buybacks and commutations, we continue to pursue transactions that de-risk Ambac Assurance’s portfolio. In the third quarter, we purchased approximately $52 million of Ambac’s insured RMBS. On the commutation side, as we've said in the past, opportunities are lumpy and in the third quarter we did not close any commutations. The higher pricing environment and concentrated holdings of large blocks of Ambac liabilities causes to lower the probability of commutations in the near term. Nevertheless, we continue to seek opportunities and are well positioned to execute transactions that maximize the value of Ambac Assurance. On the servicing side, we currently have RMBS collateral underlying $4.5 billion of insured net par serviced by special servicers, which represents 31% of the RMBS book. We expect to complete additional servicing…

Thank you, Diana. Net income for the third quarter 2014 was $82.5 million, or $1.77 per diluted share, compared to $231 million, or $4.98 per diluted share in the same period last year. Operating earnings in the third quarter of 2014 were $142.7 million, or $3.06 per diluted share, compared to $193.4 million, or $4.17 per diluted share in the same period last year. Net income and operating earnings declined in the third quarter 2014 compared with the third quarter 2013 primarily because of a lower benefit for loss and loss expenses and lower derivative product revenues, partially offset by higher net investment income and lower other than temporary impairment losses. Net income was also impacted by lower income from VIEs. For the third quarter of 2014, net premiums earned were $64.8 million, as compared to $70.9 million in the third quarter of 2013. Normal net premiums earned in the third quarter of 2013 were negatively impacted by approximately $13 million of premiums deemed uncollectible primarily in the structured finance sector. Accelerated premiums for the third quarter 2014 were $9.2 million as compared to $19.7 million in the third quarter of 2013, including negative accelerations of $1.7 million and $0.2 million, respectively. Although the impact of accelerations is down versus prior periods, the deal volumes called in the public finance market has slowed minimally. Net investment income for the third quarter of 2014 was $83.6 million, as compared to $52.1 million for the same period last year. Net investment income for the third quarter primarily reflected the growing allocation of the Financial Guarantee investment portfolio towards distressed Ambac insured securities, a higher allocation to corporate obligations and positive cash flow from operations. These favorable dynamics were partially offset by sales of securities beginning in August and September to fund the…

Thank you. (Operator Instructions) Our first question comes from Andrew Gadlin with Odin Capital Group. Your line is open.

Good morning.

Good morning.

Good morning, Andrew.

I wanted to ask a question about a line in the 10-Q for the first time about as part of the asset liability management strategy, Ambac would consider entering into transactions where it would monetize assets and restructure, exchange, et cetera. Can you talk a little bit about what you're contemplating there?

Sure, we can talk a little bit about it. We wanted to make this disclosure, but we are still in the early stages of the consideration process. So we're not prepared to share too much information. But we're looking at the potential to monetize assets as we said or possibly exchange or restructure pass due claims or claims like liabilities for other non-claims liabilities. The goal of course would be to further de-risk Ambac assurance which is of course of the goal for all of our asset liability management initiatives. It would simplify the capital structure and ultimately we're seeking to rehabilitate the segregated account.

Any idea on timeline for that?

Like I said, its early stage and so you know, these things can be complicated. So it could take some time. But it’s a little early to be more precise than that.

Got it. And anything would involve the regulatory approval, correct?

Yes. It would. And our regulators are aware of these efforts. We've been working in coordination with them.

Got it. Thank you. One more question on the disclosure about reps and warranty and ultimate losses. It looks like there's embedded in there an assumption of future losses of approximately $650 million?

That’s approximately right, Andrew.

Okay. So, if I compare that to the numbers on page 10 of the operating supplement where you present estimated future gross RMBS claims, it looks like some of the policies here where you're pursuing full recovery represent a third of your total expected future RMBS claims?

That’s about right.

Okay. So hopefully if you're successful you could wipe out as much as a third of the future gross claims?

That’s certainly one way of looking at it. I mean, the other – so the other way of looking at it is, at this point our rep and warranty subrogation receivable exceeds all of our future expected claim payments out of the RMBS book.

Got it. All right. Thank you very much.

(Operator Instructions) Our next question comes from Ben Clifford with Nomura Securities. Your line is open. Your line is open.

Yes, first question. In the rehabilitator’s 2013 annual report released in May, the yield to maturity of the RMBS securities in the AAC investment portfolio was 30%. I don't know if you can quantify or explain the assumptions behind this 30% yield number, whether it includes DPO payments in the future, et cetera?

So, it’s very hard for us to respond to disclosures that the rehabilitator has made because not all those disclosures are necessarily calculated or consistent with our own disclosures, and the assumptions underlying of those disclosures maybe different than ours. But at the point in time in which the – that disclosure was made the general sort of approach to calculating yields on underlying RMBS securities had incorporated the concept of receiving surplus notes in the future. And since the amended rehabilitation plan went into place, the method for calculating yields and cash flows on RMBS that are insured by Ambac has of course, changed to contemplate the payment of DPOs and accrued interest on those DPOs as opposed to the receipt of surplus notes in the future. So there has been some calculation differences that I presume that the rehabilitator has – would also reflect in his reserves or his calculations going forward.

Right. And if you were to ballpark maybe a yield number for your owned RMBS policies in your book, is there any way to kind of quantify that?

Well, in our disclosures in the operating supplement on a GAAP basis, we have a line item that there that is Ambac insured loss mitigation strategy bonds where we have the current pre tax yield maturity of 10.6% on a GAAP basis.

Got it.

And to be clear, that includes both RMBS and the large block of student loans that we acquired back in the first quarter of 2014.

And does that include DPO payment, owned DPO payments, as well?

Yes, it does.

Okay. And, second question, you mentioned in this call, I think and past calls that other than the five major rep and warranty cases, your direct negotiations with other parties. I don't know if you can talk about what kind of cases or what kind of recoveries you're pursuing there?

No, we can't. We don’t comment on those items.

All right. And the last question, on your website, under the supplemental payments tab, you've been making substantial payment to the Chevy Chase Trust over the past four or five months. I don't know if that's something that you can explain what the rationale is behind making those payments for the settlement or…

The rationale behind all of our supplemental payments really is just an economic one, as you know each RMBS security or many RMBS securities have very unique and different waterfall and other features and structural features. There are certain obligations that the companies has that where by we can maximize our ultimate subrogation recoveries, such as excess spread by making incremental payments on those securities. So with the Chevy Chase and others that are listed on our website by actually making supplemental payments we're actually maximizing the recoveries that we get from those securities. So our decision whether to pay supplemental payments which is done in conjunction with the rehabilitator is purely an economic one, and one that maximizes and preserves the subrogation asset that we have on our balance sheet.

Okay. Thank you.

Our next question comes from Sean Lobo with Vulcan. Your line is open.

Hey. Good morning, guys. Thank you for the incremental disclosures in the earnings presentation. As it pertains to excess spread, can you give us the magnitude of what the scope may be? Is it hundreds of millions of dollars or something smaller?

Sorry, you broke up a little bit. I didn’t quite get the full question.

Yes. Can you help us quantify the total amount of excess spread you're modeling?

Sure. In the – in our 10-Q we have a table that outlines that and as of the end of the third quarter and this is on page 25 of the Q, the subrogation which is mostly excess spread, but there are other forms of subrogation that’s included here, on a PV basis is about $667 million, $668 million.

Okay. And then we continue to see the excess subrogation you know, going lower and reserves are getting released. Can you help us understand the modeling discrepancies there?

The excess – the subrogation here has gone lower as we collect on subrogation recoveries, so that we're monetizing on our asset effectively. And as you do that since the subrogation is a offset to loss reserves, its sort of contra liability as you turn that contra liability into cash your reserves would increase as a result, at the same time you have the cash on your balance sheet. So the net impact is – would be zero.

Got it. You previously disclosed I believe it’s off the top of my head, the number is 2.4 for rep and warranty litigation, but in your presentation you have 2.2. Can you explain the delta?

This quarter the change in rep and warranty recoveries primarily related to the lower expected losses in the second lien RMBS portfolio. So as our future view of losses changes our rep and warranty subrogation recovery has to change inline with that. So we had a very significant decline in second lien losses in the quarter and had a – because we expect to pay less losses, we also expect to receive less in subrogation.

That’s very helpful. As an investor then, how do I think about the fact that you know two of your lawsuits are no longer the website and your rep and warranty litigation has gone lower?

Sorry, what is the part of that question?

I mean, two of your lawsuits right, are no longer on the website. Can you comment on those?

I think you're referring to Capital One and…

Credit Suisse last year…

Credit Suisse, and I think we've commented on in the past that Capital One case was dismissed, as was the Credit Suisse case and that’s all we can say about those cases at this time.

Got it. Thank you very much for your time.

Thank you.

Thank you.

I am showing no further questions. I will now turn the call back over to Diana Adams for closing remarks.

Okay. I just want to thank everyone for joining us today. Have a good day.

Thank you.