Greetings, and welcome to the Ambac Financial Group, Incorporated Third Quarter 2018 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 hosts, 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 third quarter of 2018 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 report under Management's Discussion & Analysis of Financial Condition and Results of Operations 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 that presentations have been posted to the Events & Presentations section of our IR Web site, which support our comments today. I would now like to turn the call over to Mr. Claude LeBlanc.

Thank you, Lisa, and welcome to everyone joining today's call. This was another active quarter for Ambac during which we executed several key transactions in line with our strategic priorities. First, Ambac together with other creditors, the Oversight Board, COFINA, and the Puerto Rico Puerto Rico Fiscal Agency and Financial Advisory Authority executed a Plan Support Agreement and Term Sheet for the restructuring of COFINA bonds. And on October 19, the Oversight Board filed the COFINA Plan of Adjustment and Disclosure Statement reflecting the terms of the Plan Support Agreement. This is a significant development for one of Ambac's largest adversely classified credits, and if confirmed by the court overseeing COFINA Title III proceeding would favorably resolve 78% of Ambac's Puerto Rico insured debt service. I will provide more details on Puerto Rico in a moment. Second, in August, we completed the exchange offer for our Auction Market Preferred Shares or AMPS, which we discussed in detail during our last earnings call and the effects of which are reflected in our results this quarter. To remind everyone, this transaction provided us with several material benefits. First, we captured a discount of approximately 250 million or 45% on 527 million of outstanding AMPS, which we believe provides us with increased financial and strategic flexibility. Second, through this transaction, we further deleveraged Ambac's capital structure and reduced certain financial and other risks. And third, we believe this transaction further improves the quality and strengthens the book value and adjusted book value of Ambac Financial Group. During the quarter, we also continued to actively de-risk Ambac's insurer portfolio, with a particular focus on watchlist and or adversely classified credits. As part of these actions, following the close of the quarter, we executed a reinsurance transaction with a third-party to reinsure the full amount…

Thank you, Claude, and good morning. Ambac incurred a net loss of $22.2 million or $0.48 per diluted share, excluding the impact of the AMPS exchange transaction of $81.7 million, during the third quarter of 2018. Including the impact of the AMPS exchange transaction, Ambac reported a net loss attributable to common stockholders of $104 million or $2.27 per diluted share. These results compare to net income of $4 million or $0.09 per diluted share for the second quarter of 2018. Ambac also incurred an adjusted loss in the third quarter of $76 million or $1.66 per diluted share, compared to adjusted earnings of $36 million or $0.78 per diluted share in the second quarter. The loss attributable to common stockholders and the adjusted loss led to a $0.93 decline in shareholders equity to $38.77 per share, and a $2.34 per share decline in adjusted book value to $28.50 per share respectively at September 30, 2018. The AMPS transaction progressed our objective of simplifying our capital structure and economically deleveraging our balance sheet. The transaction resulted in the capture of $253 million of discount compared to the liquidation preference of the AMPS repurchased and the reduction of the outstanding consolidated liquidation preference of AMPS from over $616 million [ph] to only $103 million. This was accomplished through the issuance on a fair value basis of approximately 286 million of surplus notes including a crude interest, the payment of $11 million of cash, and the issuance of approximately $8 million of warrants. The AMPS were carried on the balance sheet at approximately 40% of their liquidation preference, equating to their fair value at the time Ambac emerged from bankruptcy. The fair value of the consideration package paid was approximately 55% of the liquidation preference, resulting in the realization of an $82…

Thanks, David. We have had a very active and successful 2018 thus far and remain committed to progressing our strategic priorities to create long-term sustainable value for our shareholders. We remain keenly focused on taking measured steps big and small to optimize our business model in a way that provides optionality to create value and drive growth. Thank you for joining us today. I will now turn the call back to the operator to open for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Andrew Gadlin of Odeon Capital Group.

Hey, Good morning. I was wondering if you could discuss the two subsequent events disclosed via that small Goldman Sachs settlement in November as well as the reinsurance deal, are the financial impact from those events included in the Q3 numbers?

Hey, Andrew, thanks for calling in. The Goldman Sachs settlement was part of a class action suit that we filed a claim in. As a result of that, we -- it was launched by, I think, two pension funds who made a claim back in 2016, never really expecting anything material to come of it, and in November we received about $27 million as a result of the settlement and that will be booked in the fourth quarter. And I had a little hard time hearing the second part of your question, was that related to reinsurance transaction?

Correct. Yes.

The reinsurance transaction from a financial statement impact was not booked in the third quarter that too closed in the fourth quarter, and the result of that will begin to be reflected starting fourth quarter '18, sorry.

And will the impact be meaningful from the reinsurance deal?

The reinsurance will have a meaningful impact on fourth quarter, you'll probably see the biggest impact would be from how we calculated adjusted book value and that will have an impact on the amount of UPR that is included in adjusted book value.

And can you give us an order of magnitude what the impact will be?

Less than $0.50 a share.

Got it. Okay. And then, Claude, thank you for your comments and your explanation of the COFINA settlement and certificate process. I was wondering if you could talk about a couple of elements there, in terms of that commutation effort that you guys will be launching, would that be expected to go alongside the completion of the COFINA or is that something that could happen, months after hopefully COFINA is approved?

So I think we are -- obviously, it's a very complex transaction, and we're still working through a lot of the detail with the OB on their plan of adjustment. Again, the detail of what is public is in that plan, I guess, I would say that anything we might do or consider vis-à-vis commutation would likely be done following the confirmation date. At this point we've not made any decisions relating to actions relating to our securities.

And then you also have this unique litigation angle against Bank of New York, would that be kind of pursued alongside that or does that have to wait for plan confirmation, how should we think about that.

So, you're referring to the Bank of New York litigation relating to the plant, is that…

Yes, related to COFINA on their non-acceleration. Is that -- when can we start to see movement there. I know that that's been staid?

So I think at this stage we have not made any determinations vis-à-vis litigation. I think it's still something we're evaluating and again something that we'll allow -- we'll evaluate through to the -- like with the confirmation date before we make any decisions.

Got it, thank you. All right. That's it from me, thanks.

[Operator Instructions] There are no further questions at this time. This concludes today's teleconference. We thank you for participating. You may disconnect your lines at this time. Thank you for your participation.