Greetings, and welcome to the Ambac Financial Group Inc. First Quarter 2021 Earnings Call. At this time, all participants are placed 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 host, 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 first quarter 2021 financial results. We’d like to remind you that today’s presentation may contain forward-looking statements about our business, including but not limited to, new business, credit outlooks, market conditions, credit spreads, financial ratings, loss reserves, loss mitigation, loss recovery, investment returns or other items that may affect our future results. These statements 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 reports under management’s discussion and analysis of financial condition and results of operation and under risk factors, and that is not under any 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. 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 the presentations have been posted to the Events and Presentations section of our IR website, 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 us on today’s call. This morning Ambac reported net income of $17 million or $0.08 per diluted share, and adjusted earnings of $41 million or $0.59 per diluted share for the first quarter. At March 31, our book value was $1.1 billion or $23.02 per share and adjusted book value was $908 million or $19.66 per share. Our first quarter results were positively impacted by material progress on our strategic priorities, including gains of $37 million realized from our junior surplus note transaction and the inclusion of operating results from our new MGU platform exchange. We also regained significant de-risking momentum during the quarter and materially progressed our specialty property and casualty insurance strategy. Starting with the review of our de-risking activities, net par exposure was $31.4 billion at March 31, down 7% from year-end and Watch List and Adversely Classified credits were $12 billion at March 31, down 8% from December 31. Active de-risking transactions accounted for 56% of the total decline in net par exposure for the quarter. Notable transactions completed include; one, the execution of a material reinsurance transaction or certain public finance credits with net par outstanding of approximately $823 million. Par ceded included general obligation, lease and tax back revenue, higher education and transportation exposures, as well as $158 million of Watch List and Adversely Classified credits. Two, the successful exit of our Mets Queens Baseball Stadium exposure, a $540 million Adversely Classified credit by at the refinancing and quota share reinsurance transaction. And lastly, the negotiation of additional credit and liquidity improvements for AUK’s largest COVID affected exposure. The U.S. economy is experiencing a strong recovery year-to-date, with U.S. GDP expected to have grown at an annualized rate of approximately 9% in the first quarter. Higher…

Thank you, Claude, and good morning, everyone. For the first quarter of 2021, Ambac reported net income of $17 million or $0.08 per diluted share. This compares to a net loss of $14 million or $0.31 per diluted share in the fourth quarter of 2020. Adjusted earnings for the first quarter were $41 million or $0.59 per diluted share, compared to adjusted earnings of $4 million or $0.08 per diluted share in the fourth quarter. The variance between adjusted earnings and GAAP and income relates mostly to the exclusion of insurance and intangible amortization, which amounted to $19 million in the first quarter. Our first quarter results reflect the advancement of a number of our strategic initiatives, most notably, our continued efforts to simplify and deleverage our capital structure. To that end, we executed two transactions, which combined results in all junior surplus notes being extinguished and exchange for surplus notes, a GAAP gain from extinguishment of debt of $33 million and a net realized investment gain of $4 million. In addition, our first quarter results were favorably impacted by the inclusion of exchanges results for the first time, continued strong results from our investments diversification strategy and gains on interest rate derivatives, partially offset by incremental reserves taken on Puerto Rico. Briefly turning to some more specifics. Premiums earned were $14 million in the first quarter compared to $18 million during the fourth quarter. The decrease in the first quarter was driven by lower accelerated premium as a result of the proactive de-risking of international credit, which produced $6 million of accelerated premium in the fourth quarter of 2020, partially offset by an increase in normal earned premium as a result of a reduction in the allowance to premiums receivable in the first quarter. Although down slightly, investment income…

Thank you, David. I’m very pleased with the accomplishments during the first quarter of 2021. We remain focused on all of our strategic priorities and expect our momentum to continue as we progress our efforts in the coming quarters. Operator, please open the call for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Giuliano Bologna with Compass Point. Please proceed with your question.

Good morning. I think you didn’t think to touch on some of the developments, obviously getting bills on the Puerto Rico side is positive. When we look at the loss reserves and losses are methodology kind of in the first quarter. Is there anything related to those, the new announced transactions included in the scenario analysis that you’re using for the first quarter or is that rolling in during the second quarter?

Hi, Giuliano. It’s David Trick. And thanks for the question. We fully incorporated everything we learned through, I think was the announcement on May 5 into our reserving process and as you may recall, we were scheduled to release earnings on Thursday, but given the announcement that came out that we wanted to fully analyze and consider, that’s why we delayed earnings to today. So we incorporated everything into our scenario analysis that we know of as of and through the 5.

That sounds good. And then thinking about the REC margin litigation and the primary and largest case about there, we can center it. Are there any big milestones in terms of hearings or anything coming up in the near-term that which you potentially will be focused on there?

So at this point we’re just waiting to hear back from the First Department on our appeal of the fraud case, and we expect that will come through, hopefully in the next – it could be as soon as the next week or two or could take a few months. And then following that, we’re hoping that we’ll have the opportunity to meet with Justice, Reed to establish a trial date, which we hope could be as early as later this year or early 2022.

That sounds very good. Then one final one, just thinking about, some of the holding company’s liquidity and liquid assets, is there any plan in terms of how you want to manage that? Obviously, you’re looking for more expansion and more transactions on that side to keep adding new business lines. Or is there other usage of capital currently where you may need to capitalize some of the business lines that you’re building out. Or how do you think about the excess beyond that?

Sure, Giuliano. A couple of things, I think you touched really on most of it. There are other transactions or call it external transactions that we’re looking at as we’ve talked about regularly. And in addition to that, looking at potential other sort of de novo transactions, particularly in the sort of Pillar II sector. But in terms of Everspan, I think Everspan is pretty well capitalized at this point. There is some sort of capitalization and I should say operating investments we may make there. But I think from a Everspan standpoint, we’re set. So it’s really – those other types of transactions, de novo, start-up opportunities, and that’s all the third-party acquisitions that we would be looking to allocate capital toward in the future.

That sounds good. I appreciate it. And I’ll jump back in the queue.

Thanks, Giuliano.

Thank you. There are no further questions at this time. This concludes today’s conference. We thank you for participating. You may now disconnect your lines. Thank you.