Octave Specialty Group, Inc. (OSG) Q2 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Ambac Financial Group second quarter 2016 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] And as a reminder, this conference is being recorded. I would now like to turn the conference over to Abbe Goldstein, Head of Investor Relations and Corporate Communications. Please begin.

Thank you. Good morning and thank you all for joining for today’s conference call to discuss Ambac Financial Group’s second quarter 2016 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 uncertainties and changes in 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 most recent SEC-filed quarterly or annual reports under Management’s Discussion and Analysis of Financial Condition and Results of Operation 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 we have posted slides on our Web site to accompany this call. Our speakers today are Nader Tavakoli, President and CEO, and David Trick, our CFO. At the conclusion of their prepared remarks, I will open the call for your questions. I would now like to turn the call over to Mr. Tavakoli.

Good morning. Thank you, Abbe, and thank you all for joining us for today's call. As we announced last evening, our financial results for the second quarter were excellent and we executed well against our strategic priorities. David will review our financial performance in detail, but I want to highlight that our book value and adjusted book value now stands $39.80 and $29.94 per share respectively. To put that in perspective, we’ve now generated $1.5 billion of book value and nearly $1.7 billion of adjusted book value since shortly after our emergence from bankruptcy in 2013. Our continued success in preserving and enhancing the value of AAC despite the highly publicized developments in Puerto Rico against which we have taken substantial reserves reinforces our view that job one at Ambac today is the continued efficient and accretive management of AAC. The vigilant pursuit of our contractual and legal rights to protect the interests of our stockholders has been and remains one of our key priorities. As many of you know, in connection with our RMBS case against Countrywide, Judge Branston issued summary judgment decisions on primary and secondary liability in the fall of 2015 and we await the First Department’s review of her decisions. While predictions as to the timing of legal proceedings are more often wrong than right, our present expectation is that the appeal will be heard before the end of this year with a trial by the middle of 2017. As we’ve discussed previously, however, we have a strong legal entitlement to prejudgment interest in our primary case against Countrywide and further delays will come at a significant cost to the defendant. Moreover, if we’re forced to try these cases, we intend to receive punitive damages as well as all other available remedies. We also continue to pursue our other RMBS cases and further disclosures on those cases is available on the Investor Relations section of our Web site. In addition to defending RMBS cases, we’re hard at work ensuring that our legal rights are protected in all matters and will litigate when necessary. For example, in the second quarter, we had a very successful settlement in a non-rep and warranty dispute where we were able to achieve an excellent result without litigation. We expect that this settlement will result in a near full recovery of our transaction-related losses. And since we did not carry a subrogation recoverable, given the nature of this matter, resulted in a full benefit of $60 million for the second quarter. In another matter where we were forced to litigate, we achieved a full recovery of premium amounts owed to us by counterparty on account of an insured transaction together with interest and substantially all fees and expenses we incurred in pursuing that matter in court. As most of you are aware, we’ve made it a top priority to urgently and actively manage and mitigate our risk of loss. Puerto Rico has been top of mind in this area and many of you are aware that we at Ambac have been at the forefront of the developments relating to Puerto Rico’s fiscal condition. Given the importance of Puerto Rico and the many questions we receive on the matter, I will now spend some time reviewing our exposures and our current thoughts on them, particularly in light of the recent passage of PROMESA. In the face of the Commonwealth's decision not to phase July 1 claims, AAC paid net claims in full of approximately $53 million on insured Puerto Rico bonds. Ambac has been committed to Puerto Rico for many years, playing a pivotal role in financing much of its infrastructure and our policy commitments connect us to the island for many years to come. We stand with the residents of Puerto Rico in their goal of seeing Puerto Rico return to long-term prosperity. With the collective efforts of all involved, we believe that Puerto Rico has the capacity to remedy the issues that ail its economy and we will continue to do all we can to advance that objective. As we have said before, we believe Puerto Rico has a temporary liquidity issue, not a solvency crisis. The people of Puerto Rico must have policy reforms to get back on track for efficient and effective government and fiscal prosperity. Ambac’s net par exposure to Puerto Rico is $2.2 billion. This exposure is spread across six legal entities, each with its own credit characteristics and is long-dated with an average weighted maturity of 29 years on total debt serviced. $247 million of our exposure relates to GO and GO-guaranteed PBA bonds. Approximately $1.9 billion of Ambac’s net par exposure relates to revenue bonds that are covered by pledged revenues. This revenue bond exposure includes $805 million of COFINA senior capital appreciation bonds maturing in 2047 to 2054. $503 million of PRIFA rum tax bonds, $472 million of HTA bond, and $137 million of hotel tax bonds. As a reminder, recall that we were able to force cancellation of a significant portion of our HTA policies last year. With approximately $9 billion of claim paying resources available, having generated $1.2 billion in operating earnings last year and with ample liquidity, we’re confident we can meet any near-term obligations related to Puerto Rico or otherwise. Importantly, as we have said many times, there is no possibility of forced acceleration of our policy obligations. So for COFINA, for example, there's almost no possibility that will face a prepayment – a payment of policy obligations before the year 2047. This issue is often confused when investors focus on our total policy obligations. Accordingly, our potential annual policy payments on Puerto Rico debt are limited to the extent of our annual principal and interest we've insured as further disclosed on our Web site, but only when that principal and interest is actually due and not paid. For January 2017, for example, the next day on which we have policy claims potentially due, the extent of our obligations, net of DSRs would at most be $14.9 million. We’ve taken a leadership role and have worked actively in Washington to try to ensure that the new legislation is fair to Puerto Rico is a path to implementing the required structural and fiscal reforms and is protective of Ambac’s interests. We’re optimistic that PROMESA establishes such a framework and will put Puerto Rico on the path towards a brighter future. Our optimism is based in part on the success of similar financial control board in cities like Washington DC, New York, Miami, Cleveland, Philadelphia to name just a few. Separating fiscal policy from local politics has repeatedly been met with success. While PROMESA is not perfect, we believe it's better than the status quo or a standalone bankruptcy. We’re working hard to ensure that the oversight board established by PROMESA will include qualified independent growth-oriented individuals with the experience and commitment necessary to address the island’s fiscal challenges. Under the terms of PROMESA, President Obama is expected to appoint the oversight board of seven members by September 15. Four of those seven members must be chosen from a list of candidates provided by Republican leaders of the House and the Senate. The oversight board will then hire an executive director who will work with the board to hire staff and advisors. The board’s number one priority must fiscal and structural reforms such that Puerto Rico can regain access to the capital markets. The first order of business for the oversight board will be to work with the Governor for Puerto Rico to approve balanced budgets and fiscal plans, prepare and publish financial statements and implement meaningful fiscal and structural reforms. In our opinion, only after completing these actions can the oversight board properly assess whether any of the government’s 17 bond insurers requires a debt restructure. Under Title VI of PROMESA, a majority of the oversight board must certify voluntary restructuring plans that must then be approved by a two-thirds majority of voting creditors in each class. If a voluntary restructuring fails and a debt restructuring is required, they can be accomplished under a bankruptcy-like proceeding under Title III. The filing of a Title III proceeding must, however, be approved by five out of the seven members of the oversight board. In a Title III proceeding, the instrumentality will be represented by, and any restructuring plan must be submitted by, the oversight board, not the Government of Puerto Rico. Both voluntary restructurings under Title VI and restructuring plans under Title III must be confirmed by a Federal District Court. Ambac retains its right to vote its wrapped bonds under both voluntary and involuntary proceedings. The vast majority of our Puerto Rico exposure falls into two main buckets, senior COFINA bonds and revenue bonds that are subject to clawback including PRIFA rum, HTA and hotel. I'll now provide a bit more detail on how we think each category should fare under PROMESA. Critically, we believe that PROMESA will halt the continued diversion of revenues from PRIFA, HTA and CCDA. Section 201 of PROMESA specifically requires that fiscal plans provide for the elimination of structural vestiges. We believe this can only be accomplished with the territory fiscal plan that provides for payment of obligations without reliance on clawback revenues as the implementation of clawback would create an unpaid obligation on the revenue bonds [ph]. Fiscal plans must cover a period of at least five years and annual budgets must comply with the fiscal plan. Moreover, Section 201 of PROMESA also requires fiscal plans to ensure that resources of one entity are not transferred to another entity unless approved by the oversight board and either a court and an involuntary plan of reorganization or a supermajority of voting bondholders fund their voluntary modification under Title VI. Once clawback is eliminated, excess pledged revenues could then be used to satisfy outstanding accrued debt obligations and, in certain cases, must be used for that purpose. Significantly, Section 303 of PROMESA expressly preempts unlawful executive orders that alter rights of bondholders or divert funds from one instrumentality to another. As Ambac has alleged in its pending clawback litigation, we believe that the executive orders pursuant to which the governor is currently clawing back revenues from PRIFA, HTA and PR CCDA are unlawful. Furthermore, under PROMESA, any restructuring of revenue bonds, voluntary or involuntary, must be certified by the oversight board and must be consistent with the certified budget and fiscal plan under Sections 206 and 302 of PROMESA before it can be voted on by creditors and approved by a Federal District Court. With respect to HTA, it is worth noting that Ambac insures only 1968 and 1998 resolution bonds, which have priority to approximately $284 million of subordinated 1998 resolution bonds and approximately $2 billion of subordinated loans from the GDB. Significantly, under PROMESA, the GDB loans would not get a vote in either a voluntary or involuntary restructuring under Sections 601 and 301 of PROMESA respectively. In the spirit of cooperation, Ambac recently decided not to contest the applicability of PROMESA’s failed litigation in our ongoing litigation against the HTA. Ambac unilaterally took this step to allow time for the HTA and the Commonwealth, more generally acting under the oversight board, to put in place the critical reforms that are in the best interest of Puerto Rico and its people. Ambac continues to press the court to require HTA to provide Ambac with financial and other information that it is contractually obligated to provide. COFINA bonds are supported by an effective securitization structure that we believe fully protects the pledged revenues from being attached or diverted by the Commonwealth. We believe it will be important for the oversight board to oppose any tax on the COFINA structure. In our view, securitization financing is an important alternative for the government to regain access to the capital markets and similar structures have already been proposed for financings for PREPA and PRASA. Under the enabling legislation establishing COFINA, taxes pledged to COFINA are expressly not available revenues of the Commonwealth and are not subject to clawback under the Puerto Rico constitution. COFINA is the only Puerto Rico issuer with this protection for all of its pledged revenues and we believe that this treatment is consistent with analogous state law. Ambac insures only senior COFINA capital appreciation bonds, which in the event of a default and acceleration have structural priority over the subordinated COFINA debt. Accordingly, all of our COFINA exposure enjoys seniority over $8.9 billion of subordinated debt. The relevant agreements provide that in such a scenario the senior bondholders must be paid in full before any payments are made to subordinated bondholders. Moreover, as previously mentioned, the Ambac insured COFINA bonds do not mature until 2047 to 2054 and we note again that an acceleration of the bond does not accelerate Ambac’s payment obligation. Finally, it's important to note that we, along with other mono-line insurers, ensure substantial portions of PRIFA, HTA and COFINA debt. We believe this will increase our ability to control and protect our interests in any restructuring process under PROMESA. Turning now to other matters, as most of you are aware, earlier this year, the OCI replaced the prior Special Deputy Commissioner or SDC responsible for the rehabilitation of the Segregated Account with Dan Schwartzer. As part of its transition process, Mr. Schwartzer had a listening session in New York on July 12 with policy beneficiaries and other creditors. In addition to his prepared remarks, he responded to questions and listened to participants’ views on many relevant issues. Among the many important topics discussed at the listening session, the SDC said that, one, at present, he did not have any plans to increase the interim payment percentage or IPP. He said that, among other things, the rehabilitator and his advisors would need to highly confident that any change to the IPP would be sustainable and fair to all policyholders. Two, the accretion rate at which the deferred amounts accrue, currently 5.1%, is under review. And three, that, although his preferred goal would be to achieve an exit from rehabilitation through a consensual plan, he would advise the commission to use all tools available to accomplish its successful and durable exit that enhances AAC’s long-term claims paying ability. We’re evaluating the SDC’s views with regard to the Segregated Account and the importance of long-term durability and its estimation [ph] as we evaluate our capital allocation decisions between and among Segregated Account, general accounts and otherwise. We look forward to continuing our constructive relationship with the SDC in the management and rehabilitation of the Segregated Account. As we've mentioned previously, right-sizing and achieving sufficiencies in our operations as we reduce AAC’s portfolio are another important strategic priority. David will detail some accomplishments in this area. Notably, however, during the quarter, we made substantial additional reductions to our headcount, thereby reducing our future compensation expenses by over 9%. Furthermore, with the announced retirement of Cathy Matanle by the end of the third quarter, we will consolidate our risk and portfolio management teams to one from three just a year ago. This will allow us to streamline our portfolio risk operations from both a functional and economic perspective. I want to conclude by reiterating our focus on the important work at AAC to both protect and enhance the value of our existing business. While we have made substantial progress across our business and although we face several important challenges, we believe we have significant additional opportunities to drive value creation through the continued active management of our liabilities, assets and legal rights. We’re fully focused on continuing to capture accretion at AAC and on how to realize that value for our shareholders. We will also continue to explore opportunities for selective transactions that offer attractive risk-adjusted returns that may, among other things, permit utilization of our substantial net operating loss carry-forwards. Finally, as you know, we've added several new members to our Board of Directors in the last year. I can assure you that the new directors and the entire Board are fully engaged and hard at work. In addition to diving into their oversight and strategy responsibilities, the Board is carefully evaluating and considering all of the feedback we’ve received from our shareholders throughout this year. I want to thank the Board for their sense of urgency on behalf of our shareholders and for their support and guidance as we confront the many challenges and opportunities before us. I'd now like to turn the call over to our CFO, David Trick, who will provide further detail on our financials.

Thank you, Nader. And good morning. Overall, our second quarter 2016 performance was driven by our proactive remediation of loss recovery efforts, investment management activity, the impact of interest rates, and the effects of Brexit. Specifically, the second quarter of 2016 saw us generate net income of $58.6 million or $1.29 per diluted share compared to $9.4 million or $0.21 per diluted share for the first quarter and operating earnings of $115 million or $2.54 per diluted share compared to $218.1 million or $4.82 per diluted share in the first quarter. Trailing down a bit more, net income and operating earnings in the second quarter included the favorable impact of a non-rep and warranty RMBS settlement, improved investment results driven by a greater allocation to and improved cash flows associated with our insured RMBS, gains in Ambac UK’s pools and fund investments and RMBS and student loan loss and losses incurred benefit, and gains on extinguishment of debt arising from the repurchase of a portion of the stub interest associated with previously called surplus notes. These items were partially offset by mark-to-market losses on the interest rate derivatives, losses incurred at Ambac UK primarily due to foreign exchange losses related to loss reserves denominated in currencies other than the British pound, Ambac UK functional currency, and expenses associated with another reduction in force and activism defense. Operating earnings in the second quarter declined sequentially primarily as a result of the positive first quarter impact associated with the successful Local Insight Media or LIM bond commutations. LIM is accounted for as a consolidated VIE. As a result of our positive operating results, stockholders’ equity was up 3% from March 31 to $1.8 billion or $39.80 per share at June 30, 2016. Similarly, adjusted book value increased 3% to almost $1.4 billion for $29.94 per share at June 30. As Nader and I highlighted, we accomplished a great deal during the quarter in our asset and liability program which impacted our financial results in a subtle way. We thought it would be helpful to review the impact of some of these items. The settlement of the non-rep and warranty dispute resulted in a $60 million benefit through losses incurred. We did not previously record any subrogation recoverable for this item. The valuation of our rep and warranty litigation increased $28 million benefiting losses incurred. Also benefiting losses incurred was approximately $87 million gross of interest on deferred amount of gains from interest rates and other factors associated with RMBS and student loans. Our successful litigation regarding guaranteed premium amounts owed to us in connection with an insured transaction benefited accelerated premiums by $2.5 million, reduced operating expenses by nearly $600,000 and generated interest booked through other income $1.3 million. As a result of the extinguishment of accrued but unpaid interest on previously called surplus notes and other surplus note purchases, we generated a gain of $3.6 million through gains on debt extinguishments. And net investment income increased $10 million to $70.8 million during the first quarter of 2016, almost all of which was due to the increase of financial guarantee net investment income and it was driven by an increased income from AAC insured RMBS and gains in the trading portfolio. The increase in income from AAC insured RMBS was a function of a larger allocation to this asset class, primarily as a result of our purchases of $325 million of RMBS in the first quarter and improved cash flows. Mark-to-market gains on invested assets classified as trading were $5.2 million compared to $1.7 million in the first quarter of 2016 due to higher gains in equities, leveraged loans, CLOs and property funds held by Ambac UK. These results demonstrate that we’re capturing value from across our insured investment portfolio, reflecting our focus on protecting and enhancing the shareholder value through our proactive asset and liability management program. During the second quarter, this proactive approach also helped moderate our exposure at Ambac UK to the risk that we foresaw with potential vote in favor of a UK exit from the EU. As previously discussed, I have taken a more active and direct role in our Ambac UK operations with my appointment to the UK board late last year. Leading up to the somewhat surprising outcome of the Brexit referendum, we took a few defensive actions to help mitigate the economic impact of a potential vote in favor of an exit from the EU. To this end, we reduced Ambac UK’s British pound investment exposure by £42 million or approximately 21% and sold down investments in UK property by £9 million or 23%. Nevertheless, the book value impact from the pound and euro depreciation stemming from Brexit was more significant than with the economic impact as we are required to record the impact of changes in rates on certain assets and liabilities outside of an entity’s functional currency grew income and translate all assets and liabilities of foreign subsidiaries to US dollars. The total impact on book value for the quarter was a decline of approximately $65 million, the majority of which is attributable to $55 million of translation losses included in other comprehensive income. We estimate that the economic impact of changes in the value of assets and liabilities denominated in foreign currencies at $39 million. Net income in the second quarter of 2016 was adversely affected by the foreign-exchange impact on assets and liabilities denominated in currencies other than the pound, Ambac UK’s functional currency by approximately $23 million. This loss amount was almost entirely driven by $38 million of loss and loss expenses, partially offset by gains in invested assets, premium receivables and income on VIEs. Partially offsetting gains in the quarter were losses from the derivative product portfolio, including our macro hedge and certain legacy customer swap. As we have previously discussed, the macro hedge is positioned to benefit from rising interest rates as an economic hedge against interest rate exposures in the investment in the financial guarantee portfolio, including excess spread within the RMBS and student loan portfolios. To that end, we actively adjust the macro hedge to respond to changes in interest rate risk – the interest rate risk profile of our insurance and investment portfolio. Net losses recorded in derivative product revenues for the second quarter of 2016 was $36.3 million, which included $21.8 million associated with macro hedge, the $14.5 million of losses associated with legacy customer swaps. Macro hedge results included counterparty credit valuations adjustments or CVA losses of $4.6 million and the legacy swap results included $6.6 million of Ambac CVA gains in the second quarter of 2016. Losses declined by $47 million in the second quarter relative to the first quarter as a result of less significant interest rate declines compared to the first quarter and proactive portfolio adjustments made during the year has reduced the size of the hedge to more closely match our risk profile. Losses from the macro hedge in both periods were more than offset by the positive impact of lower rates on our RMBS and student loans incurred benefits and the market value increase through other comprehensive income in the investment portfolio. We estimate that the cost of carry of the macro hedge is approximately $4 million to $5 million annually, equivalent to about one week of excess spread recoveries. Subrogation related to RMBS excess spread received in the second quarter was $73 million. As Nader mentioned, we continue to closely monitor and rationalize our expenses, removing unnecessary costs where prudent. During the second quarter, operating expenses were $28 million, relatively unchanged from the first quarter as a result of a few key driving factors, including activism defense fees of $0.8 million or 10% of total expenses versus $2.9 million in the first quarter, and severance expenses related to the continued rightsizing of staff of $2.6 million or 9% of total expenses. During the second quarter, we reduced headcount and expect to begin recognizing over $5 million of annual compensation savings starting in the third quarter. This represents a reduction of more than 9% of compensation clause compared to 2015. We also continue to reduce our net par exposure through both proactive company-led initiatives and natural runoff. This quarter, the financial guarantee insurance portfolio net par outstanding was reduced by 7% to approximately $94.4 billion from $101 billion at March 31. The change in the insured portfolio included a $1.2 billion net par reduction primarily related to the devaluation of the British pound on our pound-denominated exposures. Included in second quarter runoff of $6.7 billion was also $4 billion of public finance exposures versus $5 billion in the first quarter. As a result of lower public finance runoffs, specifically calls, which were down nearly 45%, and $3 million of negative acceleration – accelerated premiums associated with structured and international finance transactions, accelerated premiums were $5.1 million versus $15 million in the first quarter. As noted earlier, second quarter acceleration also included $2.5 million of guaranteed premium associated with the favorable resolution of litigation over an insured transaction. Lower public finance calls are, in part, a result of the strong pre-funding activity we saw in prior carriers as issuers took advantage of stronger market conditions and low rates. Although the most distressed exposures tend to be the stickiest, we’re also pleased to report that our adversely classified credits reduced in the quarter by $1 billion or 5.4% to $18 billion, primarily due to the reduction of $481 million of RMBS exposure, cancellation of $105 million of LIM bonds, and the upgrade of $318 million of public finance exposure. Finally, turning to the asset side of the book, during the second quarter of 2016, AAC repurchased $39 million worth of insured RMBS at attractive returns, took a more measured approach to capital allocation decisions with respect to obligations issued or insured by Ambac for the Segregated Account, particularly in light of the rehabilitator’s latest pronouncements with respect to the Segregated Account obligations. As of June 30, 2016, we owned approximately $1.4 billion of deferred amounts, including interest, which represents approximately 41% of the total amount outstanding, an increase of 3% from the first quarter. Overall, we will continue to allocate capital to those initiatives that will produce the highest risk-adjusted returns for our shareholders, including investments in our own insured exposures as well as company-led liability management activities and other investments. I would now like to open the call to your questions.

Thank you. [Operator Instructions] The first question is from Andrew Gadlin of Odeon Capital Group. Sir, your line is open.

Good morning, Andrew.

Good morning. I wanted to follow up on the conversation about the recap or the exit from rehabilitation. What role will management play and the regulator and his advisers, who’s kind of leading the charge here?

Andrew, thanks for the question. As we’ve said, I think, repeatedly over time, the ultimate disposition of Segregated Account liabilities rest solely in the discretion of the rehabilitator and Special Deputy Commissioner. We will, obviously, be involved. We’ve developed a constructive and productive relationship with the rehabilitator and the Special Deputy Commissioner and are in communication with them. But it’s really their ultimate decision at the end of the day and we will take our guidance accordingly and will not get ahead of them.

Got it, thanks. Shifting to Puerto Rico, there was a report yesterday that President Obama could be denying all the Republican proposals for the fiscal control board. And touching on some of the comments you had earlier about how the board comes together, do you see that happening? And if so, how would the Republicans respond?

Yeah. We’re very close to the process, as you know, and monitoring the situation carefully. There’s a lot of planted stories by all kinds of parties, including, in some cases, people who are applying for a job on the control board. And while, obviously, we’re cautious and there is politics involved in this, we’re still relatively constructive on the process and believe that it’s going to be more in the nature of technical experts that are selected for this board than politicians – pure politicians driven by politics. So our understanding is it’s still a relatively collaborative process. But no doubt that treasury and others are involved on behalf of the administration and that it is the administration’s final say, picking from lists provided to them. But, again, bear in mind that pursuant to the rules, four candidates have to be selected from the list submitted by leaders of the Senate and the House – Republican leaders of the Senate and the House. And if that’s not done by September 15, the process reverts back to Congress’ control, Congress still being Republican-controlled, obviously. And it is our understanding that the parties are acting in good faith and that the selections are going to be timely made.

Got it. Okay. And then regarding the $60 million settlement, first, can you say whether those monies were collected as of June 30? And then, are there other of these sorts of disputes out there that could provide upside or are there any against Ambac that could be a risk that aren’t reserved for?

Andrew, thanks. No, the money has not been collected. The amount that we booked is a subrogation receivable and will – the monies will be received over time as it works its way through the waterfall of the transaction. And based on terms of our settlement, no, I don’t believe there’s anything that would materially change that outcome. The most influential factor on ultimate recoveries of that amount will be interest rates as the recovery itself is sensitive as other subrogation recoveries are to fluctuations in interest rates.

The $60 million is still subject to interest rate risk?

Yes.

So the money has not yet been collected and will be paid out over some period of time?

That’s correct.

Got it. What kind of period of time? Years?

Several years. That’s correct.

Okay. And are there other types of these disputes outstanding?

We’re looking throughout the portfolio for recovery of past losses. And without giving additional public comment that we’ve not previously made, you can assume that given what this company went through, there are other places where we’re actively looking.

So on that front, there was a disclosure, I think, in the last Q as well that there is a $285 million SEC decision or settlement against Citigroup relating to a CDO for which Ambac hopes to get significant recoveries, is the line. First of all, do you have any idea on the timing? And what does significant mean? Are we talking 20%, 50%? 20% of $285 million is over $1 per share.

Yeah. Unfortunately, I can’t give you a lot of clarification on that right now, Andrew, beyond what we have said. Substantial means substantial. We expect it to be substantial. I can’t really define substantial for you at this time. And it’s a relatively complicated procedure involving government agencies and courts. And so, we really can’t put a lot of timeframe on it. We’re pressing as hard as we can, obviously, to accelerate it and maximize it. And we hope we’ll have more developments on that soon.

Okay. Thank you very much.

Thank you.

Thank you. [Operator Instructions] And at this time, I’d like to turn the call back over to management for any closing remarks.

Thank you, operator. I want to, again, thank you, all of our shareholders, for your support and confidence throughout the year as we’ve gone through some challenging times. We will work hard to reward your trust and look forward to future communications. Thank you, again, for making the time to join us today.

Thank you. Ladies and gentlemen, this concludes today’s conference. You may now disconnect. Good day, everyone.