Greetings, and welcome to the Ambac Financial Group, Inc's First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your hosts, Ms. Lisa Kampf, Head of Investor Relations; Claude LeBlanc, Chief Executive Officer; and David Trick, Chief Financial Officer. I will now turn the call over to Lisa.

Thank you. Good morning, and thank you all for joining today's conference call to discuss Ambac Financial Group's first quarter 2019 financial results. We would 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 in circumstances. Any forward-looking statements are not guarantees of future performance of 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 most recent SEC filed quarterly or annual report under Management's Discussion & 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 statement whether as a result of new information, future events, or otherwise. Today's presentation contains non-GAAP financial measures. The reconciliations of such measures to the most comparable GAAP figures are included in our earnings press release which is available on our Web site at ambac.com. Please note that presentations have been posted to the Events & Presentations section of our IR Web site, which supports our comments today. I would now like to turn the call over to Mr. Claude LeBlanc.

Thank you, Lisa, and welcome to everyone joining today's call. During the first quarter, we continued to make tremendous progress on the active de-risking of our insured portfolio reducing our insured net par by over $2.5 billion. Of which, more than half was driven by our active de-risking strategy of the adversely classified and watch list credits. This represents a further 5.2% decline in our overall insured portfolio in the quarter following the significant 25 reductions achieved in 2018. The reduction in net par outstanding for the first quarter of 2019 includes the impact of one of our most successful de-risking efforts, the execution and implementation of the COFINA Plan of Adjustment which became effective on February 12, 2019. During the first quarter, the COFINA Plan of Adjustment along with the associated commutations and subsequent distributions from the related trust reduced our net par exposure to COFINA by 77% or $620 million. As a result, our COFINA net par decreased from $805 million as of December 31st 2018 to $185 million as of March 31st 2019. And our overall Puerto Rico net par exposure decreased from $1.9 billion to $1.3 billion over the same period. In a few minutes, David will provide us more details on the overall impact of the COFINA restructuring and the effects on our financial results this quarter. In addition to the COFINA restructuring, there are many other significant de-risking transactions executed including, one, the execution of commutation of an adversely classified public finance transaction which reduced net par exposure by $350 million. Two, negotiations that led to the refunding of bonds associated with two watch list asset-backed leased securitizations which reduced net pars by $95 million. And three, the final pay down of a watch list aircraft securitization transaction which reduced net par by $77…

Thank you, Claude, and good morning to everyone. During the first quarter of 2019, Ambac incurred a net loss of $43 million or $0.94 per diluted share compared to a net loss of $20 million or $0.45 per diluted share in the fourth quarter of 2018. First quarter adjusted loss was $9 million or $0.20 per diluted share compared to adjusted earnings of $11 million or $0.24 per diluted share in the fourth quarter. Relative to the fourth quarter, our first quarter results reflect the strengthening of public finance loss reserves and lower realized investment gains partially offset by higher investment income, lower derivative losses, and higher VIE income. More specifically, premiums earned were $28 million during the first quarter versus $29 million during the fourth quarter. Normal earned premiums decreased by about $1 million to $16 million or 5% due to the continued reduction of the insured portfolio including the seed of $1.5 billion of net par exposure in the 4Q 2018. Accelerated premiums of $12 million in the first quarter of 2019 were driven by active de-risking primarily related to the COFINA Plan of Adjustment. Investment income for the first quarter was $55 million, $17 million increase from $37 million for the fourth quarter of 2018. During the first quarter, the investment portfolio benefited from the rebound in the equity and credit markets generating a $19 million favorable swing from the fourth quarter. Net realized investment gains of $17 million for the first quarter were primarily driven by the conversion of our investment in AAC insured COFINA bonds into cash and new uninsured COFINA bonds in connection with the closing of the COFINA Plan of Adjustment and opportunistic COFINA bond sales. Related to the COFINA Plan of Adjustment, Ambac insured senior COFINA bondholders who elected not to commute…

Thank you, David. The results of this quarter reflect our ongoing commitment to execute on strategies that we believe will deliver long-term value to our shareholders. We would like to thank our long-term value driven shareholders for your continued support. Operator, please open the call for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Andrew Gadlin with Odeon Capital Group. Please proceed with your question.

Hey, good morning. Claude, you mentioned in your prepared remarks, you discussed that Ballantyne restructuring transaction which is in process, and could you give us any more information on sort of the magnitude of the benefit that could be realized from successful completion of that deal?

Sure, let me pass that one to David.

Andrew, sure, the -- I can't give you too many specifics in part, because the transaction is still a live transaction and is subject to several matters before it actually becomes official and could close. The biggest one of course being as we disclosed in the Q approval by the court in Ireland that has jurisdiction over the transaction, but we do highlight and provide some details in the Q, I believe it's on page 48 for everyone who like to take a look at some of the details that we do disclose. We do make reference there to the fact that the transaction if it does close will have a significant impact on our AUK reserves, and we do disclose the fact that our gross AUK reserves are about $258 million. So, if the transaction does close, of course, AUK will have to make some payments in order to affect the -- what is effectively a commutation. So that will reduce those reserves. And in addition to that, it will have a positive economic effect. So, another portion or a significant portion of reserves will be reduced by -- hopefully, we'll be at effectively a gain on the transaction, and it will have effects throughout the other parts of the income statement. So, to the extent of the gain, our U.K. subsidiary is a taxpayer. So there will be some tax effects as well. There'll be some effects on our intangible amortization of the effects on accelerated premiums, and there'll be some effects on expenses with regards to success fees that we have related to advisors, who are assisting on the transaction. So there's been a number of effects, but the way we describe it in the Q, I think is a fair description, which will be that it will be significant in a positive way.

Got it? Thanks very much. Last quarter, we were discussing this Citi Group SEC settlement, and you are hopeful that we would know more by this time that certainly fits with the disclosures and the statements that have been made to the court, but there's been nothing filed recently. Do you have any idea what's holding that up and when we might know more?

Unfortunately, we have not heard too much more from the SEC. We as reported last quarter there has been a delay. We understand relating to the federal shutdown that took place at the beginning of the year, which may still be causing challenges in processing through some of these decisions, but we remain optimistic that it is progressing, and hope to hear back from the SEC in the coming months.

Okay. Thank you. And then final question regarding the tolling payments from AAC to Holdco, including the one that I think was about 37 or so million last year that was retained by AAC, do you have any update on, or any thoughts on when we might get more information on the release of those tolling payment?

It's something that we continue to be in active discussions with the regulator. As you know, we had a change in commissioner and also a re-integration of Ambac with the general staff at the OCI in the last year. So, I believe we're making significant progress, and I believe the significant risk reductions that we've implemented, they're still analyzing that in number of other transactions that completed, but we remain optimistic that will be released at some point in the not-too-distant-future.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Derek Pilecki with Gator Capital. Please proceed with your question.

Thank you. I was wondering if you could give some more clarity about your thoughts of the Countrywide trial date being set, and when do you expect a ruling from the appellate court, when do you expect the trial judge to set the trial date?

Thanks, Derek. So I think we have the oral arguments last week. We believe they went very well for Ambac. I think the feedback we've been receiving in trying to analyze timing surrounds the nature, number, and complexity of some of the arguments that could take some time for review by the first apartment. So I think at this point, it's difficult to assess the exact timing, but I think the guidance suggest it could be a number of months, hard to put bookends around that, but we believe hopefully sometime by the late summer, we should -- or early fall, we should get to a point where there should be a decision issued, if not sooner, and it could be much sooner. But that is the timing on the arguments and decisions that we're currently assuming or estimating. And with that, given the approach and demeanor of Judge Sherwood, who clearly wanted to progress the case quickly, we remain optimistic, obviously depending on his schedule, but he'll be looking to schedule a trial date as soon as decisions are reached by the appellate court. So, our timing still remains on a base case that we're optimistic that possibly sometime later this year or early next year we could have a trial date set.

Moving on to Puerto Rico reserves, I was surprised that there was an addition to reserves this quarter, especially given the improvement in the economy in Puerto Rico and the settlement of the COFINA deal, could you give more clarity what the thinking is there?

Sure, at a high level I think the economy, you're right, is improving, and we know that, and that's clearly a positive. I think on the negative what we're seeing, which is a myriad of things, but the significant litigation that has been launched by parties in the last number of months, in addition to the status of the oversight Board and the decision surrounding the appointments clause, also the corruption that seems to be continuing in prevalence in Puerto Rico. A number of these factors are leading us to re-examine some of the assumptions in our models based on the timing of expected resolutions of Puerto Rico matters. So, those were some of the factors that drove consideration around losses, and again, a lot of this is timing. There's also interest rate movements, which affected the loss reserves amongst others. I should also point out though that part of the reserve increase on the municipal side went beyond simply Puerto Rico. There's also lots of servers [ph] that were increased or established relating to instrumentalities tied to the events of the California wildfires of late last year that were also part of the adverse development. Now David, if you want to add anything to that.

I think that covers it.

In the release, you said you sold your COFINA bonds, could you just talk strategically what the thought process [indiscernible] all the value there, or would they have been a good long-term holding, have you redeployed the money into other assets?

Sure. So we didn't sell all of the COFINA bonds that were part of the -- as we call them, COFINA 2.0 collateral that came in based on the AAC insured bonds we owned. So, we still are long about 220 million or so fair value of COFINA bonds and the rest were sold. The thinking behind that was that we were getting a -- we were involved in a de-risking transaction from COFINA, and therefore, we wanted to de-risk, and so, on a net basis of course while we still long some of the new bonds, we have materially reduced our exposure to COFINA. We saw good value for the bonds, or we thought it was good value for the bonds, and we continue to see that the bonds we hold continue to show good value and good liquidity other than the taxable bonds, which will probably be sitting on longer than the residual taxes [ph] that we own as we await some rulings from the IRS with regards to their tax status. So, some of the cash has been redeployed, we are evaluating and discussing that now in terms of how to redeploy the remainder of the cash.

Okay. And last question, David, could you just update us on total claims paid in Puerto Rico, and if you have any assumed recovery of this money in the balance sheet?

We do have assumed recoveries in the balance sheet. We paid something in the magnitude of $25 million or $30 million in the first quarter. With regards to Puerto Rico claims, we have another additional payment coming up in the latter part in July, which is about $80 million or so. So, we do continue to re-evaluate those balances on the balance sheet. And Claude had alluded to in his comments part of the shift in value of the loss reserves of the quarter relate to timing. Part of that, of course, is the timing of recoveries that we have booked on the balance sheet as well, but we have not gone as far as to disclose the specific gross payments and gross recoveries that we have on the balance sheet. They'll be a little more detail and we usually go into enclosed probably a lot of a lot of confusion, but nonetheless, our aggregate claims paid to date in Puerto Rico is about $424 million.

Great, thank you.

Thank you. Our next question comes from the line of Charles Post with Sterling Grace. Please proceed with your question.

I as wondering if you could update us on the percentage of run bonds you own now, a few dollars amounts there for two categories that is used to provide the percentage?

Sure. That's unchanged. We didn't buy any additional bonds in the first quarter -- about 38% of the -- are in short bonds that we own.

Thank you. And then on the Junior Surplus Notes, do you guys still own those?

The Junior -- I mean they're are holding company, I'll update you, you know, we monetize those few quarters back.

Okay. So that -- like $75 million phase that's totally gone now?

That's correct. Those are gone.

Okay, great. Thank you.

Sure.

Thank you. There are no further questions at this time. This concludes today's teleconference. Thank you for your participation. You may disconnect your lies at this time and have a wonderful day.