Greetings, and welcome to the Ambac Financial Group, Inc. Second Quarter 2020 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 host, 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 second quarter 2020 financial results. We'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 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 reports under Management's Discussion and Analysis of Financial Conditions 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. 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 support our comments today. Management is participating in this call from remote locations. If technical difficulties occur and we have to terminate the call, you will be able to read the transcript of our prepared remarks, which we posted to the Investor Relations section of our Web site. In addition, management will be available to address any questions that remain unanswered. Please feel free to contact me, via the contact information in our press release to schedule a call. I would now like to turn the call over to Mr. Claude LeBlanc.

Thank you, Lisa. For those of you joining us on today’s call, we hope that you and your families are keeping safe and healthy as the COVID-19 pandemic continues to ravage many states across the country, and we all grapple with its ongoing effects. With the health and safety of our employees and staff remaining a top priority and that continues to work primarily remote with no interruptions to our business operations. Following the New York Tristate area entering reopening phases 3 and 4 in July, a limited group of employees have returned to our offices on a voluntary basis. We continue to monitor the evolving pandemic conditions and we’ll make adjustments as needed to our working environment based on current facts and circumstances. Turning to our second quarter results. Last night, Ambac reported a net loss of 35 million or $0.77 per diluted share for the second quarter and an increase in book value per share of $1.46 per share to $23.34 from March 31, 2020. The adjusted loss was 24 million or $0.52 per diluted share for the second quarter, resulting in a decrease in adjusted book value per share of $1.05 to $21.06 at June 30, 2020. Our results for the second quarter reflect the continued strain on credit markets, primarily driven by the COVID pandemic, partially offset by the rebound of the capital markets since the end of the first quarter. Our insured portfolio fared relatively well during the quarter, in part due to the significant loss litigation and derisking actions accomplished in recent years. To date, we have not yet paid any COVID-19 related claims. However, significant uncertainty remains regarding the ultimate impact of COVID-19, in particular on municipal exposures which could see increased strain in coming quarters if the effects of the pandemic are…

Thank you, Claude, and good morning, everyone. During the second quarter of 2020, Ambac reported a net loss of 35 million or $0.77 per diluted share compared to a net loss of 280 million or $6.07 per diluted share in the first quarter of 2020. Second quarter results reflected lower loss and loss expenses and the impact of the partial reversal of the financial markets disruption, which occurred during the first quarter. Interest and operating expenses also declined. During the first quarter, the economic and financial markets disruption, particularly lower interest rate and higher market risk premiums caused by the pandemic, contributed significantly to our financial results causing material non-economic losses. During the second quarter, these contributors subsided with an immaterial net impact. Adjusted loss for the second quarter was 24 million or $0.52 per diluted share compared to an adjusted loss of 265 million or $5.75 per diluted share in the first quarter. The variance between adjusted and net loss for the second quarter was largely due to 14 million of insurance intangible amortization. Briefly touching on some highlights, premiums earned were 11 million in the second quarter versus just over 10 million during the first quarter. The slight increase was driven by the net impact of negative accelerations during the first quarter, continued runoff of the insured portfolio and an increase in the premium allowance during the second quarter. Investment income, excluding realized gains, was 52 million for the second quarter compared to a net loss of 21 million in the first quarter. Second quarter investment income was comprised of mark-to-market gains on pooled investments of 26 million and income from available for sale securities of 26 million. The solid performance of our pooled investments was led by hedge and public equity fund returns which produced returns north…

Thank you, David. While the full extent of future economic disruptions stemming from the pandemic remains uncertain, we believe Ambac’s runoff financial guarantee business continues to be well positioned to manage through the potential challenges due in large part to our disciplined and prioritized risk and exposure management strategy. At the same time, the current environment has also serviced a number of attractive market opportunities which we believe could lead to future material value creation for our shareholders. We remain active in exploring new opportunities and look forward to updating you on our progress in future quarters. Operator, please open the call to questions. Thank you.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Mark Palmer with BTIG. Please proceed with your question.

Yes. Thank you. Good morning. Thanks for taking my question. First of all, thanks very much for the commentary on some of the proactive steps the company is taking to address the stress in the municipal market. Looking broadly, we’re looking at an environment where interest rates are at historic lows. We know that what that means to some other insurance companies, but in the case of Ambac I think there are quite a few puts and takes. If you could talk a bit about what those puts and takes are, the positives and negatives arising from lower interest rates and pertaining to the company?

Thanks and good morning, Mark. Maybe I’ll start off with just at a high level from a risk management perspective and I’ll pass it over to David who will touch on some of the capital management aspects of it. But generally speaking, with a lower rate environment, we do see opportunities to do incremental refinancing transactions at better pricing for municipalities and we have engaged with a number of munis, particularly the ones that we have seen in more stressed situations related to COVID and we are working with a few of them to find ways to help them refinance and access capital at better pricing. So I think from that perspective, there are better opportunities for some of these muni credits to refinance. The other area that’s benefitted us is on our structured finance portfolio, in particular RMBS, where rates go down we were able to collect additional excess spread. So as we mentioned last quarter where we took reserves at – increased economic reserves relating to expected stresses in the RMBS portfolio, the reserves on a net basis decreased because of the increased expected recovery from excess spread, which is also an economic benefit to the company. So those I think are probably two of the key, what I’ll say, benefits that we see coming out of this. Obviously, lower investment returns on a fixed income portfolio, but there we have made some changes and reallocations to look for areas of better relative value returns to offset some of that decline. But with that, I’ll turn it over to David Trick who will give a little bit more color on that.

Mark, I think Claude touched on a lot of it. But thinking about the right-side of the balance sheet first, the benefit really relates to excess spread in the RMBS as well as other structured finance transactions that either have excess spread or carry costs associated with them, including, for example, student loans where there’s lower negative carry within the student loan portfolio. So from a structured finance standpoint, from an excess spread deal recovery and cash flow standpoint for our structured exposures where we have real embedded losses, low interest rates is a very, very strong positive for us. It also keeps, of course, our cost of our floating rate debt low, so that’s been helpful as well from an interest cost standpoint. And from the asset side of the balance sheet, of course, it becomes a little more challenging to invest in fixed income securities. We’ve been finding our pockets and including our own insured securities as well as some other alternative investments, I guess I’ll call it, to try to optimize the risk adjusted returns on the investment portfolio. And I would just close in saying really that the other consideration really is the risk that comes with low interest rates from that environment not continuing to exist. So the risk that rates go up, which no one really anticipates in the short term, is certainly still a real risk and something that we think about regularly and we’ve had hedges on the books for a long time related to that, and we’ve modified those hedges over time to the lowest point they’ve ever been, but it’s something we continue to monitor and want to make sure we protect the assets, particularly the excess spread that exist on our book today from an unexpected or a long-term drift up in interest rates.

Very good. Thank you very much.

Sure.

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

Good morning. I think on the last earnings call you had implied that you had bought back some Ambac liabilities in early April in the credit market dislocation. Was that – did you repurchase actual Ambac issued liabilities or were there Ambac insured bonds?

Hi, Derek. How are you? It’s David Trick. Thanks for the question. We did buy some Ambac-wrapped securities. We spent about $150 million in the quarter of Ambac-wrapped bonds.

Okay. And my other question was, when you give the cash and investments at AFG of $481 million, are there any liabilities at AFG that would have to net against that amount?

The only liabilities at AFG are some payables and that’s netted against the receivables. So the $481 million is a net number, but there’s no debt or financial obligations at the holding company. It’s just simply working capital payables.

Great. Thanks.

Sure.

Thank you. Ladies and gentlemen, there are no further questions at this time. This concludes today’s conference. We thank you for participating. You may now disconnect your lines. Thank you, again.