Good morning, my name is Christine, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Ambac Financial Group, Inc. First Quarter 2017 Earnings Teleconference. Our host for today's call are Lisa Kampf, Head of Investor Relations; Claude LeBlanc, Chief Executive Officer; and David Trick, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 11:30 AM Eastern Standard Time. To dial-in number 1 (800) 585-8367 domestic or (416) 621-4642 internationally using ID number 17187813. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions]. It is now my pleasure to turn the floor over to Ms. Lisa Kampf.

Good morning and thank you all for joining today's conference call to discuss Ambac Financial Group's first quarter 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. I would now like to turn the call over to Mr. Claude LeBlanc.

Thank you, Lisa, and welcome to everyone joining today's call. I'm pleased to report we've accomplished a lot over the past few months as we continue to successfully execute on our strategic priorities. During the quarter, we made considerable progress and achieved key milestones as we strive to improve our risk profile and financial stability. We were aggressive in accomplishing risk remediations, bond purchases, realizing litigation settlements, and developing our long-term strategic vision. During the quarter, our financial results were significantly impacted by the deteriorating situation in Puerto Rico. Yesterday, after the market closed, we reported a net loss for the first quarter of $125.4 million or loss of $2.77 per diluted share and an adjusted loss of $91.2 million or $2.01 per diluted share reflecting continued material adverse development in our municipal finance exposures. While we're disappointed with our bottom-line performance in the quarter, I'm encouraged by the successes achieved by our team. Included in these accomplishments we were very active during the quarter to reduce our risk exposures. Our insured portfolio decreased by 6% to $75 billion as of March 31, down from $79 billion at December 31, and our adversely classified credits down 7.6% to $15.8 billion from $17 billion at year-end. The reduction in adversely classified credits resulted from RMBS run-off and remediation initiatives. In addition, we upgraded certain public finance and international exposures in part due to remediation actions we took to improve the credit profile of certain credits. During the quarter, we also purchased over $200 million of distressed Ambac insured securities and acquired $114 million par of surplus notes. We now own just over 12% of our PRIFA and 16% of our COFINA insured bonds. Turning now to litigation. We had a very active quarter and recognized a number of key achievements. During…

Thank you, Claude, and good morning. During the first quarter of 2017 Ambac produced a net loss of $125.4 million or $2.77 per diluted share compared to a net loss of $94.7 million or $2.09 per diluted share in the fourth quarter of 2016. Adjusted loss in the first quarter was $91.2 million or $2.01 per diluted share compared to an adjusted loss of $12.7 million or $0.28 per diluted share in the fourth quarter. The results were impacted by adverse development in our public finance insured portfolio related mostly to Puerto Rico, and relative to fourth quarter 2016, lower investment income and interest rate derivatives revenue and higher foreign income taxes. These results were partially offset by a benefit from settling the Valentine litigation and lower operating expenses. Turning now to some more specifics. Premiums earned were $47.6 million during the first quarter versus $49.9 million during the fourth quarter. Normal earned premium decreased during the quarter to $31.3 million from $35.7 million or 12% primarily due to the continued run-off of the insured portfolio and as a result of a lower benefit recognized for the change in uncollectable future structured finance premiums relative to the fourth quarter. Accelerated premium on the other hand increased by approximately $2.1 million to $16.3 million during the first quarter. While at approximately $3 billion the level of public finance call activity was similar in both the fourth and first quarters, the change in the mix of insured transaction call positively impacted accelerated premiums. Net par continued to decline. We ended the quarter with a total claims paying ratio of 13:1 compared to 14:1 at the end of December 31, 2016. Net investment income for the first quarter of 2017 and the fourth quarter of 2016 was $81.6 million and $90.9 million respectively.…

Thanks, David. I want to emphasize that the board, executive management and all employees in Ambac are committed to and working diligently for us generating long-term value for shareholders. In order to do so, we are focusing on executing on our strategic objectives as outlined and delivering results. I look forward to updating you on our progress next quarter. We will now open up to questions.

The floor is now open for questions. [Operator Instructions]. Thank you. Our first question comes from Andrew Gadlin with Odeon Capital Group. Your line is now open.

Thank you. I want to know if you could provide some color on the timeline for negotiations with creditors in completing an exit, there was a 60-day deadline imposed from regulator, what you think that odds are that if they don't come together by then the regulator steps in at that time or is it likely that the regulator takes quite some time to develop a plan of his own?

Thanks, Andrew. I think the regulators been fairly consistent and clear with us, I think at year end indicated they would provide feedback to the market into Ambac by the end of the first quarter which they did in and around that timeframe. And I believe that the assessment of the 60-day period was formulated with an understanding of the company's plan in mind. And I think your expectations and the certainty around the date would suggest that there is a hard stop at 60 days and Dave expressed clear objectives to see us progress our plan. And we remain in active dialogue with the regulator. I would assume that if we're not making progress that timeline could be shorter but I believe that at this point they will provide us a 60-day timeframe to evaluate options and to present a consensual plan to the regulator for their consideration and support.

And how long do you think it would take to effectuate a deal once it's been reached?

That's a great question, I think the plan that we have outlined in our discussions with the regulator on we believe with court proceedings and other aspects involved in that transaction, it could -- it is slightly something that would if successful would close in the latter part of the year, possibly late third quarter may be early fourth quarter

Okay thanks. And then I was wondering if you could talk a little bit about the decision to purchase a considerable amount of surplus notes as a holding company and swap out of EPOs and into surplus notes in that plan. It's now almost $200 million of surplus notes on the additional purchases in April out of the $300 odd million of liquidity at the holding company so could you talk about that strategic decision.

Sure I'm not sure I'd characterize it completely strategic but we did exit the certain AC DPO positions we still maintain some at AFG and as you pointed out we did purchase and replace that with more general account surplus notes. We also purchased a sizable interest in our senior segregated account surplus notes which also I think that component makes up more than half the increase and I would say part of the decision was made based on relative value and capital allocation decisions. And the other part as it relates to the senior segregated account surplus notes we believe we now control 100% at AFG of those notes or hold a 100% of the outstanding segregated account surplus notes we also believe that those notes have strategic value to us. Given they have served consents under Plan amendments as well as the bank settlement agreement which could be valuable to us in the future.

[Operator Instructions]. Your next question comes from the line of Mark Doyle with Sterling Grace. Your line is now open.

Hey guys good morning. I have a question concerning the Clawback credits in Puerto Rico and whether or not in your opinion there is room to negotiate or whether or not those Clawback credits are going to continue to be clawed back despite the fact that it would seem that that money is being used to make appropriations rather than to pay the general obligation debt.

Yes I think. Thank you for the question. First of all I and I know that the nomenclature has been used as clawback debt but we actually define those as revenue bonds. There are in the case of certain of the revenue bonds as you noted certain very narrow prescribed matters in which there could be periodic clawback of funds specifically for the purpose of payments on GEO's where payments are not be made on GEO's. And I think the way that it's been presented by the OB and the Commonwealth is more of a disregard for the structure of these bonds and really suggesting almost a perpetual clawback right which does not exist nor does it exist for a broader set of purposes other than again the narrow definitions and it varies by revenue bond. And there are also very strict repayment requirements and priorities in the following year that there's a clawback that is also not been recognized by the OB or the Commonwealth. So I think we obviously have a significant concerns in that what has been presented doesn't appear to respect lot of priorities and liens for debt, and we also believe it to be unconstitutional. So for a variety of reasons I think we are position on this is very different than what is been expressed by the Commonwealth at least by way of its fiscal plan and narrative shared with us. So it is something that we're very interested and engaging with the Commonwealth as I mentioned earlier. There has been little or no discussion mediation vis-à-vis feasibly number of these revenue bonds which further concerns us given we do view of them as significant and important exposures and instrumentalities in Puerto Rico. And for those reasons as we've initiated and as other creditors have initiated significant litigation we think will form part of the process in getting to resolve. As I also indicated we're -- we're also we also maintain very open position to engaging an active negotiations around these revenue bonds. But I think for now we don't have a specific timeline but we are very focused on finding a reasonable and acceptable solution around the revenue bonds. But a lot of this as we mentioned earlier has to come back with a revised fiscal plan and understanding and respect of law priorities lawful priorities and liens for debt. So again we're hopeful that with a new Title III in process and Judge Juan leading the process we're we remain optimistic that they'll be a clear process towards a resolution and we look forward to engaging in discussions.

A follow-up question. Thank you for the answer. In the past you guys have mentioned with regard to the substantial net operating loss carryforwards that you have, that you are looking for a business that would throw off some cash in order to use those NOLs? And in the past couple of years, where after you first mentioned it, we haven't seen any movement on that front is the company's attitude towards that change or are you still looking to acquire another business or create a new business to use the NOLs?

Yes, great question and I think as we noted last quarter and again this quarter we have undertaken and as of today we have initiated the review of our strategic options as I mentioned earlier and the purpose of that is really focused on exploring new businesses that would provide long-term sustainable value for shareholders. And as part of that equation, obviously we also consider the tax attributes that we have at both the holding company and AEC. But we are focused on development of plan and we look forward to updating shareholders likely sometime in the third quarter.

Thank you.

It is still our plan and again we look forward to talking more about it at our next call.

And this does conclude today's conference call. Please disconnect your lines at this time and have a wonderful day.