Good day, ladies and gentlemen. And welcome to the Second 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, today’s meeting is being recorded. I would now like to introduce your host, Ms. Abbe Goldstein, Head of Investor Relations and Corporate Communications. Ms. Goldstein, please go ahead.

Thanks, [Jennie] (ph). Good morning. And thank you for joining today’s conference call to discuss Ambac Financial Group second quarter 2014 financial results. Before we get started, I 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 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 six months ended June 30, 2014 under Management’s Discussion and Analysis of Financial Condition and Results of Operations and under Risk Factors. Ambac is not under 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. Ambac’s net loss in the second quarter was $208 million. Our results include a $308 million charge for accrued interest on past due claims of Ambac’s segregated account of which $50 million accrued in the second quarter. Although, this has been anticipated for some time, the amended plan of rehabilitation of the segregated account was approved in June, making this the first quarter that the accrued interest is reflected in our financials. But for the accrued interest, our earnings would have been positive. During the quarter loss development reflected RMBS improvements, higher estimated representation and warranty remediation recoveries, and net improvements in other structured credits. These positive developments were partially offset by increase Puerto Rico reserves, as well as higher student loan reserves driven by lower probabilities of commutations, resulting from the current higher price for commuting Ambac Assurance risk. At Ambac Assurance or AAC, we remained focused on our four value creation initiatives, which are, rep and warranty recoveries, commutations and restructurings, ensured buybacks and servicer intervention. We’d like to provide you with an update on each of these initiatives. First, we continue to actively pursue RMBS rep and warranty recoveries. At the end of the second quarter, we had five ongoing lawsuits with major counterparties and we are in direct negotiations with others. Our strategy remains consistent. We will not settle cases simply to put them behind us. However, we will settle, when we believe we can achieve a better risk adjusted resolution than through continued litigation. In all of our cases, we are seeking to recover actual and expected claim payments on the transactions involved, as well as interest and our expenses in pursuing these recoveries. Our top priority in these cases is to…

Thank you, Diana. Before I begin, it is important to note that due to our emergence from bankruptcy, fresh start reporting has been adopted in relation to the company’s financial results for periods from May 1, 2013. As a result, financial results for the second quarter of 2014 are not fully comparable to second quarter 2013 results. The net loss in the second quarter 2014 was $207.9 million, or $4.61 per diluted share and operating losses were $113.3 million or $2.51 per diluted share. Included in the second quarter 2014, net loss and operating losses was $308.1 million pre-tax or $303.6 million net of tax, interest accrued related to unpaid Segregated Account claims. Such interest generally begin accruing from the first distribution date as of the date on which the interim payment in respect of such permitted policy claim was made, which began in September 2012. These pre-tax and net of tax accrued interest amounts include interest accrued in the second quarter 2014 of $49.8 million and $48.8 million respectively. For the second quarter of 2014, net premiums earned were $65 million, compared -- comprised of $57 million of normal net premiums and $8 million of exhilarated premiums and lower in total than the same period last year by $22.7 million. The results in the quarter were driven by decreases in public finance and structured finance normal earned premiums resulting from the runoff of the associated insured portfolios and accelerated premiums earned resulting from lower public finance and structured finance refundings and terminations. Partially offset by premium income from international finance policy which paid a make-whole termination premium. Net investment income for the second quarter of 2014 was $80.1 million, an increase of $21.7 million compared to the same period last year. The improvement was fueled by the ongoing reallocation…

Thank you. (Operator Instructions) And the first question is from Andrew Gadlin with Odin Capital Group. Please go ahead.

Good morning. Thank you for taking my call.

Good morning.

Good morning.

Question on the junior surplus note disclosure, is anything there imminent or is that just a long-term opportunity?

We’re actively considering the monetization of a portion of the junior surplus notes, so I would say it’s active.

Is there any intention to fund the near-term acquisition, is that the signal that there are something more imminent on that front?

Well, I mean, its both of preparation and reaction, I mean, investors have shown interest in Ambac at various levels of the capital structure. And we think that there are ways, which involve the monetizing of portion of the junior surplus notes to both meet this interest and also increase AFG’s financial flexibility.

Okay. In terms of the adjusted book value calculation, which you provide, there’s a larger charge of accumulated other comprehensive income? Could you talk about what went into that number this quarter?

Sure. The change in other comprehensive income is related to changes in the fair value of the financial guarantee, most of the Financial Guarantee Investment portfolio. So it’s not really a charge. It’s just reversing out from the reported equity number, the mark-to-market on the investment portfolio. Those we disclosed in the past, we historical have not included mark-to-mark unrealized gains in losses on the investment portfolio in the adjusted book value calculation.

And what were the big pieces driving that mark-to-mark gain was that, is that largely due to some of your own rep policies where now you accruing interest?

That’s, well, that’s a large portion is the Ambac rep securities, but we have seen general appreciation in all of our investment positions through the quarter and I wouldn’t say that the accrual of interest on our own rep securities really contributed a significant change in the mark-to-market. As Diana mentioned and I mentioned in my comments, we’ve just overall seen an increase in the value of Ambac claims in the marketplace and that’s reflected in the securities, Ambac rep securities that we own.

Got it. Okay. And then, could you just provide a little more detail on the difference between using the random versus the adverse sample approach in your litigation and why you recognize that as a benefit?

Sure. Well, during the quarter, we obtained access to additional information in some of our cases that were litigating and as a result of getting access to that information. We are able to apply the random sample approach. Previously with regard to those specific cases, we didn't have access to a broad range of the loan files instead we only had access to what we call adverse reflected loan files which is basically just loan files related to underlying defaulted loans. So now that we have access to broader set of loans, we can apply the random sample method, which we believe is statistically relevant and valid in terms of assessing what the betrayed is across the broader pool gives us greater transparency into the ultimately to what we believe is the betrayed in the pool as oppose to very limited adverse sample method.

Okay. Got it. All right. Thank you very much.

The next questioner is Sean Lobo with Vulcan Capital. Please go ahead.

Hey. Good morning. Thanks for taking my phone call. Just on the phone monetization, sort of first question administrative if other investors interested in suites which is actually directly, is that the process?

Well, as Diana said, is something that we are actively discussing, but we really have nothing to say about in terms of process, we are that something that if develops in the future investors will hear about it at that time.

Got you. And then, two, in the concept of liability manager transaction, given you have no debt the holdco would this be for share buybacks, I means, can you help me a better sense what about your liability management?

Oh! Sorry. From the liability management standpoint, having additional liquidity at the holding company just gave us some additional flexibility to conduct liability management operations outside the sort of regulatory framework of the insurance company.

Got you.

So it relate to liability of the insurance company.

And then just last question, you use to previously provide sort of just high-level guidance on the rep and warranties. So the timing in aggregate 15 and 16, will you bring that back, I mean, certain point in time or has that changed?

Our general sort of view of the rep and warranty timing is still relatively short. So I would think of it in context of the over the next couple of years.

Great. Thanks. Great result, guys. Thank you much for your time.

(Operator Instructions) The next questioner is Ben Clifford with Nomura. Please proceed.

Hi. Good morning. Just -- I know you can’t give specific on the Capital Once legal case, but I just wonder is there anything generally you could through in terms of mechanics of the deal whether its cash paid for loss you paid in the past or whether they are buying loans at the trust level or anything like that?

The only thing we can say is that the case was dismissed and we cannot provide additional color.

Okay. So, the $90 million that you received in the quarter in terms rep and warranty, would that relates to that case or is that not something you can disclose?

It’s not something we can disclose.

Okay. So the RMBS loss expense in the quarter was positive development $225 million and that includes a loss of $3 million to $7 million for the accrued interest on the DPOs, right?

No. That excludes the interest on DPOs.

Okay. Got you. Got you. All right. And final question, Ambac U.K., is there anything -- any progress there in terms of maybe moving some capital resources out of that entity or maybe bring some policies back over here or any commentary you can give?

Yeah. As a shareholder AAC is the sole shareholder of AUK and it’s a very long-term prospect because AUK obligations are very long tailed and there is really not sufficient capital to pull any out in the near or even medium-term.

All right. Thank you.

Thanks.

Next questioner is [Honduras Sam] (ph) with (indiscernible). Please go ahead.

Hi, guys. Thanks for taking the question. Just want to follow-up on the RMBS loss expense category that was referenced earlier, the $234 million is a bit of step-up from first quarter and certainly year-over-year, was that really due to the improving underlying RMBS pool or was there something else driving that or could you kind of break that a little bit more as to what drove that larger increase relative to prior quarters?

So, that $235 is a benefit to us. So we will sort of net basis have lower incurred, excuse me, lower incurred losses on RMBS. There is really two main components of it. One is we talked about improving in rep and warranty, recoveries that is embedded in that number that’s figured that’s about $150 million of that number and the rest is related to improved projections of cash flows on RMBS.

Got it. Okay. That's helpful. I appreciate it.

Sure.

I’m showing no further questions in the queue, I would like to turn the conference back to leadership for any further remarks.

Okay. Thank you. As there are no further questions, I’d like to thank everyone for joining us today. Have a good day.