Good day, ladies and gentlemen, and welcome to the Ambac Financial Group, Inc. Third 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 call is being recorded. I would now like to introduce your host for today’s conference Ms. Abbe Goldstein, Head of Investor Relations and Corporate Communications. Ms. Goldstein, you may begin.

Thank you. Good morning and thank you all for joining today’s conference call to discuss Ambac Financial Group’s third 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 website at ambac.com. Please note we have posted slides on our website 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, Abby, and thank you all for joining us for today's call. As we announced last evening, we had another successful quarter of executing against our strategic priorities in risk reduction and loss management while achieving strong earnings and significantly increasing investments in our insured securities. In addition, we turn the corner in our ongoing expense management efforts and saw the benefits of savings from recent headcount reductions and other expense management initiatives begin to positively affect our bottom line. We generated net income per diluted share of $2.22 and operating earnings per diluted share of $3.23 during the quarter. Our book value and adjusted book value now stand at $42.32 per share and $32.12 per share, respectively. David will take you through the specifics of the quarter's financial achievements in a moment, but let me briefly provide some color on key accomplishments. Risk reduction, we reduced our insured portfolio during the quarter by an additional $8 billion net par $86.4 billion. While the majority of this reduction resulted from calls and refundings in our public finance book, we’re increasingly engaged in proactive measures to calls policy cancellations or other risk reduction in both our high-grade as well as our adversely classified credits. Our adversely classified book is high-touch requiring our active workout and structuring expertise and in some cases, economic contribution to eliminate or commute the risk. Given the current rate environment, we were also being proactive in managing down our investment grade public finance book where we’ve been actively engaged in educating and encouraging borrowers to refinance and thereby relieve us of our policy obligations. It's worth noting that a substantial portion of our public finance book paid premiums at issuance and therefore we lose no revenue by de-risking these deals. All in, since emerging…

Thank you, Nader, and good morning. Our strong third quarter performance is a result of positive contributions from multiple drivers including an increased and accelerated premiums earned, our loss and loss expense incurred benefit, higher investment income, significant expense reductions and improvements to differ [ph] product losses. As a result of these and other drivers, we generated net income of $101.5 million or $2.22 per diluted share in the third quarter, up over 72% compared to net income of $58.6 million or $1.29 per diluted share for the second quarter of 2016. Operating earnings in the third quarter were $148.1 million or $3.23 per diluted share, up over 27% compared to $115 million or $2.54 per diluted share in the second quarter. Since emergence from bankruptcy, we have generated over $1.6 billion of net income and over $3 billion of operating earnings. Turning now to some more specifics, premiums earned were $53.2 million during the third quarter and included $18.2 million of accelerated premiums versus only $5.1 million during the second quarter. This $13.1 million increase was driven by public finance calls of $3.1 billion net par, which increased $1.8 billion more than twofold compared to calls of $1.3 billion in the second quarter. During the third quarter, the financial guarantee insurance portfolio net par outstanding was reduced by a total of $8 billion or just over 8% to approximately $86.4 billion from $94.4 billion at the end of June. The change in the insured portfolio primarily related to total runoff in the public finance sector of $6.3 billion compared to $4 billion in the second quarter. We also reduced the structured and international finance sectors by $1.1 billion and $600 million respectively. Although the most distressed exposures tend to be the stickiest, we are also pleased to report that…

Thank you. [Operator Instructions] And our first question comes from Andrew Gadlin from Odeon Capital. Your line is open.

Good morning guys.

Good morning.

I wanted to ask a couple of questions about the investment portfolio. I'm surprised to see that the cash balance increased by about $70 million quarter-over-quarter despite the fact that there was $50 million plus of claims paid in Puerto Rico is question one. And then number two, it looks like the concentration in AAC wrapped securities is up higher than it's ever been about 43%. Is there more to do and how the limitation that you have in terms of portfolio concentration figure in your ability to buy back more claims going forward?

Sure, Andrew. The increase in the portfolio was despite the payment in claims. The main drag on claim payments was Puerto Rico in the quarter as you know. The remainder of claim payments was relatively modest and neutral given the fact that we had such good segregation we see to get in the quarter. So the overall total return on the portfolio in the quarter was on annualized basis just over 7%. So in effect the combination of premiums coming in the door and the positive return on the portfolio more than offset the impact of claim payments in the quarter.

Andrew, can you repeat your second part of your question please?

Sure. Just looking at the operating supplements on page 13, I guess you've got the investment portfolio laid out and it looks like there's about $2.3 billion, $2.4 billion of AAC wrapped RMBS and student loans in the portfolio versus a total portfolio amount of about $5.58 billion in the financial guarantee portfolio. That works out to about 43% of the book invested in your own securities. That's a little higher than it's been ever. I’m just curious can you take it even hire? You talked about selectively buying more going forward. Is that possible at this point?

We do, Andrew, have some capacity left in the book. That portfolio generates a fair amount of cash flow every quarter and pays itself down which that cash can then be recycled. But the limits that we have imposed upon us with that portfolios have not previously been disclosed, but the benchmark where it sits today is around the benchmark where it's been granted a little bit higher but I would expect that nominal number to move up and down and around that zone. And I wouldn't say look at a few basis points one way or the other indicative of us losing capacity to buy more paper, and we have other means as we’ve talked about in the past in terms of increasing capacity including many other prospects of doing [indiscernible] type transaction to free up some of the RMBS cash flow in that portfolio on an accelerated basis.

Got it. Thanks. Just a question on the two main legal processes for the company right now, the early exit from rehab or achieving exit from rehab, what would be the timeline for actually having those conversations move forward? And is there anything going on right now?

Andrew, on that issues, I said in the prepared remarks we're doing everything we can to support the new Special Deputy Commissioner and the Rehabilitator in their efforts to evaluate the option. And I really - am not at liberty to say much more than that. We obviously support the possibility of the company being able to exit the rehabilitation process if there is a transaction that's acceptable to the Commissioner and rehabilitator, and acceptable to the holders of the effective debt. In the meanwhile, I think our job is to continue to build book value as we have and I think we're doing a pretty good job of it. And we’ll continue to work at that while the Commissioner and rehabilitator determine the options as it relates to the segregated account.

Okay. Thank you very much.

Sure.

Thank you. And our next question comes from Gary Ribe from Macro Holding. Your line is open.

Hello guys. Great job on everything.

Thank you.

I just had a quick question I know you guys has expired the authority to buyback warrants which I think is great. I just had a question on warrants versus the common stock from the NOLs. I think you guys have been public now little over three years. I don't know that if you have a material number. I'm not sure you guys are 5% owners. Can you talk just a little bit about maybe looking at – there is more liquidity and maybe able to get more done? The difference between a shift and a change in ownership for the rules I think you guys have some room there and there's a corridor for issuers to do share repurchases. So might you guys be able to move a little bit quicker but got some sort of common stock plan approved?

Gary, I'll start to answer and then David will support to the extent necessary. We're pleased that the board authorized an additional $10 million with the balance of what's left on the existing authorization, that gives us about $12.5 million. The warrants essentially trade by appointment, so we’ve been picking away at them as we can opportunistically. We are somewhat limited in terms of a stock buyback, unfortunately those who followed the story know that because of the 382 limitation on ownership and the fact that we have a whole host in excess of 4% and 4.5% shareholders a stock buyback would potentially inadvertently trip people over 5% and causes some issues with our excess carry forwards. The other way that we’ve approached our problem given our confidence in the company and the shared view that is accretion to be had here, is the very significant liability management program and the investment program that we’ve undertaken in the insured portfolio and in the investment book. So that obviously every time we buy securities back at a discount, it's got accretion to it and so were doing it in that manner. We're looking at some other opportunities as well as we speak but unfortunately we are limited in terms of an actual stock buyback.

Got it. Cool. Thank you very much. I also enjoyed seeing your Form 4S [ph] come across every now and again. So keep up the good work you guys are doing.

Thank you. Appreciate that.

Thank you. And our next question comes from Sean Lobo from Vulcan. Your line is open.

Hi, Sean.

Hello, good morning. How are you guys. As always, things are transparent and the details is very helpful for us from an investor perspective. I have two questions, the first is in Q1 you reported that within Ambac portfolio about $640 million in market value, it was invested pure claim bonds. Can you give us an update on what that is today?

The pure claim bond number is – in total, we own as I mentioned I think in my prepared remarks that $1.5 billion of our own deferred obligation and that's about 41% outstanding. So your question is how much of that is actual pure claim bonds. I don't have the number in front of me but I’m going to estimate its probably about $500 million or $600 million.

Gotcha. And then moving across a capital structure you guys have done it great job in terms of liability management. What sort of interesting is you guys are talking about – the focus here is liability management. At what point you also think about creditor creation value as a balance also to liability management?

Sean, I'm sorry creditor creation value? Just explain to me a little bit what you mean by that?

If you guys continue to successfully buy these back, it looks to be decent IRRs but at the same point now we think about liability management. But if the creditors that have been long-term supportive or both on credit and equity looking to sort of say we have an okay cushion, we can look to make all distribution.

Got you. Look I think we’ve created a lot of creditor accretion through our liability management program, right. Our claims paying ratio is now down 15 to 1, we are a much stronger company. There is still a fair amount of uncertainty both near-term and longer-term, and I think those are the kind of issues that this Special Deputy Commissioner or rehabilitator are evaluating as they think about options going forward and what durability will look like for the company in the long term. Again, as I said before in my prepared remarks, as it relates to the segregated account proceeding, the ultimate resolution of the claims there and any sort of increase in the IPP or any of those issues are squarely in the domain of the rehabilitator. We are doing everything we can to provide them information and support their process but it's their process and we are helping as much as we can.

Got it. And sorry – what is the [indiscernible] question, in terms of recap process, can you just give us a sense how many stakeholders you're in touch with and what portion of the pool they represent?

Yes, I can't really comment on that. The most recent active conversations have been the listening sessions that the Special Deputy Commissioner has had with the stakeholders, with the creditors in the segregated account and also perhaps in the general account. And we are not party to organize meetings that the company right now.

Okay. I'll jump back in queue guys. Thanks again for all your efforts and all your hard work. I appreciate it.

Thank you. [Operator Instructions] This concludes today Q&A session. I would now like to turn the call back over to President and CEO, Nader Tavakoli for closing remarks.

Thank you all for joining us on today's call and we look forward to speaking with you in the future.