Derivative Instruments (Tables)

9 Months Ended

Sep. 30, 2014

Summary of Gross Fair Values of Individual Derivative Instruments



	Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets / Liabilities Presented in the Consolidated Balance Sheet		Gross Amount of Collateral Received / Pledged Not Offset in the Consolidated Balance Sheet		Net Amount
Successor Ambac—December 31, 2013:
Derivative Assets:
Interest rate swaps	$	132,250	$	56,876	$	75,374	$	—	$	75,374
Futures contracts	2,337		—		2,337		690		1,647
Total non-VIE derivative assets	$	134,587	$	56,876	$	77,711	$	690	$	77,021
Derivative Liabilities:
Credit derivatives	$	94,322	$	—	$	94,322	$	—	$	94,322
Interest rate swaps	216,287		56,876		159,411		42,555		116,856
Other contracts	165		—		165		—		165
Total non-VIE derivative liabilities	$	310,774	$	56,876	$	253,898	$	42,555	$	211,343
Variable Interest Entities
Interest rate swaps	$	1,680,834	$	—	$	1,680,834	$	—	$	1,680,834
Currency swaps	91,472		—		91,472		—		91,472
Total VIE derivative liabilities	$	1,772,306	$	—	$	1,772,306	$	—	$	1,772,306

The following tables summarize the gross fair values of individual derivative instruments and the impact of legal rights of offset as reported in the Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013.



	Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheet		Gross Amount of Collateral Received / Pledged Not Offset in the Consolidated Balance Sheet		Net Amount
Successor Ambac—September 30, 2014:
Derivative Assets:
Credit derivatives	$	1,052	$	—	$	1,052	$	—	$	1,052
Interest rate swaps	139,266		50,107		89,159		—		89,159
Futures contracts	1,109		—		1,109		—		1,109
Total non-VIE derivative assets	$	141,427	$	50,107	$	91,320	$	—	$	91,320
Derivative Liabilities:
Credit derivatives	$	83,882	$	—	$	83,882	$	—	$	83,882
Interest rate swaps	314,515		50,107		264,408		110,646		153,762
Futures contracts	—		—		—		—		—
Other contracts	137		—		137		—		137
Total non-VIE derivative liabilities	$	398,534	$	50,107	$	348,427	$	110,646	$	237,781
Variable Interest Entities
Interest rate swaps	$	1,885,244	$	—	$	1,885,244	$	—	$	1,885,244
Currency swaps	70,047		—		70,047		—		70,047
Total VIE derivative liabilities	$	1,955,291	$	—	$	1,955,291	$	—	$	1,955,291

Summary of Location and Amount of Gains and Losses of Derivative Contracts



		Successor Ambac						Predecessor Ambac
	Location of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income	Amount of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income – Period from January 1 through September 30, 2014			Amount of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income – Period from May 1 through September 30, 2013			Amount of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income – Period from January 1 through April 30, 2013
Financial Guarantee:
Credit derivatives	Net change in fair value of credit derivatives	$	13,579		$	82,414		$	(60,384	)
Financial Services derivatives products:
Interest rate swaps	Derivative products	(113,028		)	87,468			(30,622		)
Futures contracts	Derivative products	(4,516		)	8,870			(3,133		)
Other derivatives	Derivative products	33			(253		)	20
Total Financial Services derivative products		(117,511		)	96,085			(33,735		)
Variable Interest Entities:
Currency swaps	Income (loss) on variable interest entities	21,425			4,110			(116		)
Interest rate swaps	Income (loss) on variable interest entities	(204,411		)	374,203			(203,620		)
Total Variable Interest Entities		(182,986		)	378,313			(203,736		)
Total derivative contracts		$	(286,918	)	$	556,812		$	(297,855	)

The amounts representing the obligation to return cash collateral recorded in “Other liabilities” were $0 and $690 as of September 30, 2014 and December 31, 2013.



		Successor Ambac
	Location of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income	Amount of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income – Period from July 1 through September 30, 2014			Amount of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income – Period from July 1 through September 30, 2013
Financial Guarantee:
Credit derivatives	Net change in fair value of credit derivatives	$	7,416		$	31,194
Financial Services derivatives products:
Interest rate swaps	Derivative products	(15,634		)	13,299
Futures contracts	Derivative products	(47		)	(961		)
Other derivatives	Derivative products	(4		)	34
Total Financial Services derivative products		(15,685		)	12,372
Variable Interest Entities:
Currency swaps	Income (loss) on variable interest entities	17,014			6,000
Interest rate swaps	Income (loss) on variable interest entities	(44,846		)	(63,421		)
Total Variable Interest Entities		(27,832		)	(57,421		)
Total derivative contracts		$	(36,101	)	$	(13,855	)

Summary of Gross Principal Notional Outstanding for CDS Contracts

The following tables summarize the gross principal notional outstanding for CDS contracts, by Ambac rating, for each major category as of September 30, 2014 and December 31, 2013:

Successor Ambac—September 30, 2014



Ambac Rating	CLO		Other		Total
AAA	$	—	$	—	$	—
AA	669,251		208,682		877,933
A	—		43,160		43,160
BBB ⁽¹⁾	—		761,700		761,700
Below investment grade ⁽²⁾	—		276,133		276,133
	$	669,251	$	1,289,675	$	1,958,926

Successor Ambac—December 31, 2013



Ambac Rating	CLO		Other		Total
AAA	$	—	$	24,034	$	24,034
AA	1,209,071		203,025		1,412,096
A	128,666		107,251		235,917
BBB⁽¹⁾	—		826,175		826,175
Below investment grade ⁽²⁾	—		277,881		277,881
	$	1,337,737	$	1,438,366	$	2,776,103


(1)	BBB internal ratings reflect bonds which are of medium grade credit quality with adequate capacity to pay interest and repay principal. Certain protective elements and margins may weaken under adverse economic conditions and changing circumstances. These bonds are more likely than higher rated bonds to exhibit unreliable protection levels over all cycles.


(2)	Below investment grade internal ratings reflect bonds which are of speculative grade credit quality with the adequacy of future margin levels for payment of interest and repayment of principal potentially adversely affected by major ongoing uncertainties or exposure to adverse conditions.

Summarize Information by Major Category of CDS Contracts

The tables below summarize information by major category as of September 30, 2014 and December 31, 2013:

Successor Ambac—September 30, 2014



	CLO		Other		Total
Number of CDS transactions	6		11		17
Remaining expected weighted-average life of obligations (in years)	1.8		4.7		3.7
Gross principal notional outstanding	$	669,251	$	1,289,675	$	1,958,926
Net derivative liabilities at fair value	$	2,726	$	80,104	$	82,830

Successor Ambac—December 31, 2013



	CLO		Other		Total
Number of CDS transactions	7		13		20
Remaining expected weighted-average life of obligations (in years)	2.1		5.0		3.6
Gross principal notional outstanding	$	1,337,737	$	1,438,366	$	2,776,103
Net derivative liabilities at fair value	$	7,993	$	86,329	$	94,322

Summary of Notional Amounts of AFS's Trading Derivative Products

The notional for VIE derivatives outstanding as of September 30, 2014 and December 31, 2013 are as follows:



	Notional
Type of VIE derivative	September 30, 2014		December 31, 2013
Interest rate swaps—receive-fixed/pay-variable	$	1,778,828	$	1,818,118
Interest rate swaps—pay-fixed/receive-variable	3,278,303		3,350,714
Currency swaps	753,672		770,319
Credit derivatives	19,010		20,130

Variable Interest Entities [Member]

Summary of Notional Amounts of AFS's Trading Derivative Products

As of September 30, 2014 and December 31, 2013 the notional amounts of AFS’s trading derivative products are as follows:



	Notional
Type of derivative	September 30, 2014		December 31, 2013
Interest rate swaps—receive-fixed/pay-variable	$	686,558	$	697,837
Interest rate swaps—pay-fixed/receive-variable	1,484,081		1,540,976
Interest rate swaps—basis swaps	55,800		146,705
Futures contracts	100,000		100,000
Other contracts	75,650		75,650

- Definition

Tabular disclosure of credit derivatives which includes information by sellers of credit derivatives, about each credit derivative, or each group of similar credit derivatives, including (a) the nature of the credit derivative - its term, how it arose, the events or circumstances that would require the seller to perform under the credit derivative, and the current status of the payment/performance risk of the credit derivative; (b) the maximum potential amount of future payments (undiscounted) the seller could be required to make under the credit derivative; (c) the current fair value of the credit derivative; and (d) the nature of any recourse provisions under the credit derivative, and any assets held either as collateral or by third parties. A credit derivative is a derivative instrument (1) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (2) that exposes the seller to potential loss from credit-risk-related events specified in the contract. Examples of credit derivatives within the scope of this paragraph include, but are not limited to, credit default swaps, credit spread options, and credit index products; also includes a hybrid instrument that has an embedded credit derivative (for example, but not limited to, a credit-linked note).

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