Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2013

Summary of Carrying Amount and Fair Value of Ambac's Financial Assets and Liabilities

The following table sets forth the carrying amount and fair value of Ambac’s financial assets and liabilities as of June 30, 2013 and December 31, 2012, including the level within the fair value hierarchy at which fair value measurements are categorized. As required by the Fair Value Measurement Topic of the ASC financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.


	Successor Ambac
	Carrying Amount			Total Fair Value			Fair Value Measurements Categorized as:
	Carrying Amount			Total Fair Value			Level 1		Level 2			Level 3
June 30, 2013
Financial assets:
Fixed income securities:
Municipal obligations	$	1,637,190		$	1,637,190		$	—	$	1,637,190		$	—
Corporate obligations		982,587			982,587			—		979,166			3,421
Foreign obligations		105,191			105,191			—		105,191			—
U.S. government obligations		250,838			250,838			250,838		—			—
U.S. agency obligations		53,246			53,246			—		53,246			—
Residential mortgage-backed securities		1,520,676			1,520,676			—		1,520,676			—
Collateralized debt obligations		47,618			47,618			—		44,203			3,415
Other asset-backed securities		987,929			987,929			—		926,193			61,736
Fixed income securities, pledged as collateral:
U.S. government obligations		164,295			164,295			164,295		—			—
Short term investments		611,177			611,177			595,195		15,982			—
Other investments		240,417			240,417			—		240,317			100
Cash		20,515			20,515			20,515		—			—
Loans		7,053			7,179			—		—			7,179
Derivative assets:
Interest rate swaps—asset position		91,455			91,455			—		91,455			—
Interest rate swaps—liability position		(3,129	)		(3,129	)		—		(3,129	)		—
Futures contracts		2,852			2,852			2,852		—			—
Other assets		13,884			13,884			—		—			13,884
Variable interest entity assets:
Fixed income securities:
Corporate obligations		2,242,989			2,242,989			—		—			2,242,989
Restricted cash		22,994			22,994			22,994		—			—
Loans		13,820,878			13,820,878			—		—			13,820,878

Total financial assets	$	22,820,655		$	22,820,781		$	1,056,689	$	5,610,490		$	16,153,602

Financial liabilities:
Obligations under investment and repurchase agreements	$	364,536		$	365,319		$	—	$	—		$	365,319
Long term debt, including accrued interest		1,193,830			1,186,821			—		—			1,186,821
Derivative liabilities:
Credit derivatives		232,267			232,267			—		—			232,267
Interest rate swaps—asset position		(53,252	)		(53,252	)		—		(53,252	)		—
Interest rate swaps—liability position		272,583			272,583			—		164,187			108,396
Futures contracts		—			—			—		—			—
Other contracts		192			192			—		192			—
Liabilities for net financial guarantees written ⁽¹⁾		4,634,297			4,809,530			—		—			4,809,530
Variable interest entity liabilities:
Long-term debt		14,268,493			14,268,493			—		12,694,806			1,573,687
Derivative liabilities:
Interest rate swaps—liability position		1,897,311			1,897,311			—		1,897,311			—
Currency swaps—liability position		92,472			92,472			—		92,472			—

Total financial liabilities	$	22,902,729		$	23,071,736		$	—	$	14,795,716		$	8,276,020

(1)

The carrying value of net financial guarantees written includes the following balance sheet items: Premium receivables; Reinsurance recoverable on paid and unpaid losses; Deferred ceded premium; Subrogation recoverable; Insurance intangible asset; Unearned premiums; Losses and loss expense reserve; Ceded premiums payable, premiums taxes payable and other deferred fees recorded in Other liabilities.


	Predecessor Ambac
	Carrying Amount			Total Fair Value			Fair Value Measurements Categorized as:
	Carrying Amount			Total Fair Value			Level 1		Level 2			Level 3
December 31, 2012
Financial assets:
Fixed income securities:
Municipal obligations	$	1,848,932		$	1,848,932		$	—	$	1,848,932		$	—
Corporate obligations		1,077,972			1,077,972			—		1,074,316			3,656
Foreign obligations		70,112			70,112			—		70,112			—
U.S. government obligations		127,283			127,283			127,283		—			—
U.S. agency obligations		82,535			82,535			—		82,535			—
Residential mortgage-backed securities		1,455,582			1,455,582			—		1,455,582			—
Collateralized debt obligations		33,342			33,342			—		26,860			6,482
Other asset-backed securities		706,637			706,637			—		656,373			50,264
Fixed income securities, pledged as collateral:
U.S. government obligations		265,779			265,779			265,779		—			—
Short term investments		661,658			661,658			657,886		3,772			—
Other investments		100			100			—		—			100
Cash		43,837			43,837			43,837		—			—
Loans		9,203			7,387			—		—			7,387
Derivative assets:
Interest rate swaps—asset position		124,853			124,853			—		124,853			—
Interest rate swaps—liability position		—			—			—		—			—
Futures contracts		1,253			1,253			1,253		—			—
Other assets		14,557			14,557			—		—			14,557
Variable interest entity assets:
Fixed income securities:
Corporate obligations		2,261,294			2,261,294			—		—			2,261,294
Restricted cash		2,290			2,290			2,290		—			—
Loans		15,568,711			15,560,051			—		200,978			15,359,073

Total financial assets	$	24,355,930		$	24,345,454		$	1,098,328	$	5,544,313		$	17,702,813

Financial liabilities:
Obligations under investment and repurchase agreements	$	362,017		$	361,905		$	—	$	—		$	361,905
Liabilities subject to compromise		1,690,312			434,823			—		434,823			—
Long term debt, including accrued interest		377,524			801,277			—		—			801,277
Derivative liabilities:
Credit derivatives		213,585			213,585			—		—			213,585
Interest rate swaps—asset position		(73,264	)		(73,264	)		—		(73,264	)		—
Interest rate swaps—liability position		390,774			390,774			—		282,022			108,752
Futures contracts		—			—			—		—			—
Other contracts		220			220			—		220			—
Liabilities for net financial guarantees written		7,074,808			3,091,257			—		—			3,091,257
Variable interest entity liabilities:
Long-term debt		15,436,008			15,414,233			—		12,457,732			2,956,501
Derivative liabilities:
Interest rate swaps—liability position		2,131,315			2,131,315			—		2,131,315			—
Currency swaps—liability position		90,466			90,466			—		90,466			—

Total financial liabilities	$	27,693,765		$	22,856,591		$	—	$	15,323,314		$	7,533,277

Information about Valuation Inputs for Fixed Income Securities Classified as Level 3

Corporate obligations: These securities represent interest only strips of investment grade corporate obligations. The fair value of such securities classified as Level 3 was $3,421 and $3,656 at June 30, 2013 and December 31, 2012, respectively. Fair value was calculated using a discounted cash flow approach with the discount rate determined from the yields of corporate bonds from the same issuers. Significant inputs for the interest only strips valuation at June 30, 2013 and December 31, 2012 include the following weighted averages:

Successor Ambac—June 30, 2013

Coupon rate: 0.345%

Maturity: 20.64 years

Yield: 6.75%

Predecessor Ambac—December 31, 2012

Coupon rate: 0.345%

Maturity: 21.14 years

Yield: 6.08%

Collateralized debt obligations (“CDO”): These securities are floating rate senior notes where the underlying securities of the CDO consist of subordinated bank perpetual preferred securities. The fair value of such securities classified as Level 3 was $3,415 and $6,482 at June 30, 2013 and December 31, 2012, respectively. Fair value was calculated using a discounted cash flow approach with expected future cash flows discounted using a yield curve consistent with the security type and rating. Significant inputs for the valuation at June 30, 2013 and December 31, 2012 include the following weighted averages:

Successor Ambac—June 30, 2013

Coupon rate: 0.88%

Maturity: 0.09 years

Yield: 1.43%

Predecessor Ambac—December 31, 2012

Coupon rate: 1.05%

Maturity: 1.51 years

Yield: 5.92%

Other asset-backed securities: These securities are floating rate investment grade notes collateralized by various asset types. The fair value of such securities classified as Level 3 was $61,736 and $50,264 at June 30, 2013 and December 31, 2012, respectively. Fair value was calculated using a discounted cash flow approach with expected future cash flows discounted using a yield curve consistent with the security type and rating. Significant inputs for the valuation at June 30, 2013 and December 31, 2012 include the following weighted averages:

Successor Ambac—June 30, 2013

Coupon rate: 0.67%

Maturity: 7.46 years

Yield: 4.25%

Predecessor Ambac—December 31, 2012

Coupon rate: 0.71%

Maturity: 7.86 years

Yield: 7.50%

Information about Valuation Inputs for Variable Interest Entity Assets and Liabilities Classified as Level 3

Information about the above described model inputs used to determine the fair value of each class of credit derivatives, including the CVA as a percentage of the gross mark-to-market liability before considering Ambac credit risk (“CVA percentage”), as of June 30, 2013 and December 31, 2012 is summarized below:


Successor Ambac – As of June 30, 2013
	CLOs			Other⁽¹⁾
Notional outstanding	$	1,750,217		$	2,940,586
Weighted average reference obligation price		97.7			88.5
Weighted average life (WAL) in years		2.5			4.3
Weighted average credit rating		AA			A-
Weighted average relative change ratio		35.3	%		37.4	%
CVA percentage		15.1	%		31.2	%
Fair value of derivative liabilities	$	(11,996	)	$	(134,161	)


Predecessor Ambac – As of December 31, 2012
	CLOs			Other⁽¹⁾
Notional outstanding	$	6,155,767		$	3,701,387
Weighted average reference obligation price		96.5			86.9
Weighted average life (WAL) in years		2.2			4.2
Weighted average credit rating		AA-			A
Weighted average relative change ratio		34.4	%		38.2	%
CVA percentage		55.0	%		55.0	%
Fair value of derivative liabilities	$	(34,645	)	$	(116,086	)

(1)

Excludes contracts for which fair values are based on credit derivative quotes rather than reference obligation quotes. Such contracts have a combined notional outstanding of $1,170,257, WAL of 7.2 years and liability fair value of ($86,110) as of June 30, 2013. Other inputs to the valuation of these transactions at June 30, 2013 include weighted average quotes of 10% of notional, weighted average rating of A and Ambac CVA percentage of 21.0%. As of December 31, 2012, these contracts had a combined notional outstanding of $1,424,623, WAL of 7.9 years and liability fair value of ($62,854). Other inputs to the valuation of these transactions at December 31, 2012 include weighted average quotes of 10% of notional, weighted average rating of A and Ambac CVA percentage of 55.0%.

Summary of Changes in Level 3 Fair Value Category

The following tables present the changes in the Level 3 fair value category for the periods presented in 2013 and 2012. Ambac classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Thus, the gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.

Level-3 financial assets and liabilities accounted for at fair value


										VIE Assets and Liabilities
Successor Ambac – Period from May 1 through June 30, 2013	Investments			Other assets			Derivatives			Investments			Loans			Long-term debt			Total
Balance, beginning of period	$	69,412		$	14,061		$	(415,360	)	$	2,500,565		$	14,752,053		$	(1,750,372	)	$	15,170,359
Additions of VIEs consolidated		—			—			—			—			—			—			—
Total gains/(losses) realized and unrealized:
Included in earnings		395			(177	)		70,127			(208,998	)		(586,641	)		4,347			(720,947	)
Included in other comprehensive income		63			—			—			(48,578	)		(282,421	)		28,214			(302,722	)
Purchases		—			—			—			—			—			—			—
Issuances		—			—			—			—			—			—			—
Sales		—			—			—			—			—			—			—
Settlements		(1,298	)		—			4,570			—			(62,113	)		—			(58,841	)
Transfers in Level 3		—			—			—			—			—			(220,922	)		(220,922	)
Transfers out of Level 3		—			—			—			—			—			365,046			365,046

Balance, end of period	$	68,572		$	13,884		$	(340,663	)	$	2,242,989		$	13,820,878		$	(1,573,687	)	$	14,231,973

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	(177	)	$	32,525		$	(208,998	)	$	(586,641	)	$	4,347		$	(758,944	)


										VIE Assets and Liabilities
Predecessor Ambac – Period from April 1 through April 30, 2013	Investments			Other assets			Derivatives			Investments		Loans			Long-term debt			Total
Balance, beginning of period	$	57,791		$	14,230		$	(328,689	)	$	2,414,607	$	14,116,811		$	(1,910,589	)	$	14,364,161
Additions of VIEs consolidated		—			—			—			—		—			(409,300	)		(409,300	)
Total gains/(losses) realized and unrealized:
Included in earnings		(10	)		(169	)		(85,384	)		31,474		555,946			(11,521	)		490,336
Included in other comprehensive income		11,631			—			—			54,484		105,622			(42,918	)		128,819
Purchases		—			—			—			—		—			—			—
Issuances		—			—			—			—		—			—			—
Sales		—			—			—			—		—			—			—
Settlements		—			—			(1,287	)		—		(26,326	)		—			(27,613	)
Transfers in Level 3		—			—			—			—		—			—			—
Transfers out of Level 3		—			—			—			—		—			623,956			623,956

Balance, end of period	$	69,412		$	14,061		$	(415,360	)	$	2,500,565	$	14,752,053		$	(1,750,372	)	$	15,170,359

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	(169	)	$	(86,320	)	$	31,474	$	555,946		$	(11,521	)	$	489,410


										VIE Assets and Liabilities
Predecessor Ambac – Period from January 1 through April 30, 2013	Investments			Other assets			Derivatives			Investments			Loans			Long-term debt			Total
Balance, beginning of period	$	60,402		$	14,557		$	(322,337	)	$	2,261,294		$	15,359,073		$	(2,956,501	)	$	14,416,488
Additions of VIEs consolidated		—			—			—			—			—			(409,300	)		(409,300	)
Total gains/(losses) realized and unrealized:
Included in earnings		(33	)		(496	)		(88,546	)		328,768			956,402			(138,914	)		1,057,181
Included in other comprehensive income		12,329			—			—			(89,497	)		(849,833	)		150,987			(776,014	)
Purchases		—			—			—			—			—			—			—
Issuances		—			—			—			—			—			—			—
Sales		—			—			—			—			—			—			—
Settlements		(3,286	)		—			(4,477	)		—			(713,589	)		4,864			(716,488	)
Transfers in Level 3		—			—			—			—			—			—			—
Transfers out of Level 3		—			—			—			—			—			1,598,492			1,598,492

Balance, end of period	$	69,412		$	14,061		$	(415,360	)	$	2,500,565		$	14,752,053		$	(1,750,372	)	$	15,170,359

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	(496	)	$	(92,002	)	$	328,768		$	956,402		$	(138,914	)	$	1,053,758


										VIE Assets and Liabilities
Predecessor Ambac – Three months ended June 30, 2012	Investments			Other assets			Derivatives			Investments			Loans			Long-term debt			Total
Balance, beginning of period	$	161,450		$	16,023		$	(355,616	)	$	2,184,665		$	14,460,077		$	(2,786,644	)	$	13,679,955
Additions of VIEs consolidated		—			—			—			—			—			—			—
Total gains/(losses) realized and unrealized:
Included in earnings		88			(231	)		(81,290	)		20,103			131,807			21,235			91,712
Included in other comprehensive income		(1,588	)		—			—			(42,706	)		(267,190	)		54,510			(256,974	)
Purchases		—			—			—			—			—			—			—
Issuances		—			—			—			—			—			—			—
Sales		—			—			—			—			—			—			—
Settlements		(89,879	)		—			(70,698	)		—			(86,421	)		19,863			(227,135	)
Transfers in Level 3		—			—			—			—			—			(312,083	)		(312,083	)
Transfers out of Level 3		(6,301	)		—			—			—			—			657,059			650,758

Balance, end of period	$	63,770		$	15,792		$	(507,604	)	$	2,162,062		$	14,238,273		$	(2,346,060	)	$	13,626,233

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	(231	)	$	(118,474	)	$	20,103		$	131,807		$	21,235		$	54,440


										VIE Assets and Liabilities
Predecessor Ambac – Six months ended June 30, 2012	Investments			Other assets			Derivatives			Investments			Loans			Long-term debt			Total
Balance, beginning of period	$	97,522		$	16,779		$	(486,775	)	$	2,199,338		$	14,126,994		$	(1,934,642	)	$	14,019,216
Additions of VIEs consolidated		—			—			—			—			—			—			—
Total gains/(losses) realized and unrealized:
Included in earnings		40			(987	)		41,037			(62,713	)		298,472			(115,328	)		160,521
Included in other comprehensive income		6,225			—			—			25,437			148,667			(8,695	)		171,634
Purchases		—			—			—			—			—			—			—
Issuances		—			—			—			—			—			—			—
Sales		—			—			—			—			—			—			—
Settlements		(92,621	)		—			(61,866	)		—			(335,860	)		32,893			(457,454	)
Transfers in Level 3		58,905			—			—			—			—			(977,347	)		(918,442	)
Transfers out of Level 3		(6,301	)		—			—			—			—			657,059			650,758

Balance, end of period	$	63,770		$	15,792		$	(507,604	)	$	2,162,062		$	14,238,273		$	(2,346,060	)	$	13,626,233

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	(987	)	$	(72,910	)	$	(62,713	)	$	298,953		$	(115,328	)	$	47,015

The tables below provide roll-forward information by class of investments and derivatives measured using significant unobservable inputs.

Level-3 Investments by class


Successor Ambac – Period from May 1 through June 30, 2013	Collateralized Debt Obligations			Other Asset Backed Securities			Corporate Obligations			U.S. Agency Obligations		Total Investments
Balance, beginning of period	$	3,949		$	61,782		$	3,681		$	—	$	69,412
Total gains/(losses) realized and unrealized:
Included in earnings		18			392			(15	)		—		395
Included in other comprehensive income		(11	)		319			(245	)		—		63
Purchases		—			—			—			—		—
Issuances		—			—			—			—		—
Sales		—			—			—			—		—
Settlements		(541	)		(757	)		—			—		(1,298	)
Transfers in Level 3		—			—			—			—		—
Transfers out of Level 3		—			—			—			—		—

Balance, end of period	$	3,415		$	61,736		$	3,421		$	—	$	68,572

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	—		$	—		$	—	$	—


Predecessor Ambac – Period from April 1 through April 30, 2013	Collateralized Debt Obligations			Other Asset Backed Securities		Corporate Obligations			U.S. Agency Obligations		Total Investments
Balance, beginning of period	$	3,905		$	50,234	$	3,652		$	—	$	57,791
Total gains/(losses) realized and unrealized:
Included in earnings		(3	)		—		(7	)		—		(10	)
Included in other comprehensive income		47			11,548		36			—		11,631
Purchases		—			—		—			—		—
Issuances		—			—		—			—		—
Sales		—			—		—			—		—
Settlements		—			—		—			—		—
Transfers in Level 3		—			—		—			—		—
Transfers out of Level 3		—			—		—			—		—

Balance, end of period	$	3,949		$	61,782	$	3,681		$	—	$	69,412

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	—	$	—		$	—	$	—


Predecessor Ambac – Period from January 1 through April 30, 2013	Collateralized Debt Obligations			Other Asset Backed Securities			Corporate Obligations			U.S. Agency Obligations		Total Investments
Balance, beginning of period	$	6,482		$	50,264		$	3,656		$	—	$	60,402
Additions of VIEs consolidated		—			—			—			—		—
Total gains/(losses) realized and unrealized:
Included in earnings		(6	)		—			(27	)		—		(33	)
Included in other comprehensive income		160			12,117			52			—		12,329
Purchases		—			—			—			—		—
Issuances		—			—			—			—		—
Sales		—			—			—			—		—
Settlements		(2,687	)		(599	)		—			—		(3,286	)
Transfers in Level 3		—			—			—			—		—
Transfers out of Level 3		—			—			—			—		—

Balance, end of period	$	3,949		$	61,782		$	3,681		$	—	$	69,412

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	—		$	—		$	—	$	—

Level-3 Investments by class


Predecessor Ambac – Three months ended June 30, 2012	Collateralized Debt Obligations			Other Asset Backed Securities			Corporate Obligations			U.S. Agency Obligations			Total Investments
Balance, beginning of period	$	9,839		$	137,026		$	13,367		$	1,218		$	161,450
Additions of VIEs consolidated		—			—			—			—			—
Total gains/(losses) realized and unrealized:
Included in earnings		—			—			90			(2	)		88
Included in other comprehensive income		190			(1,696	)		(79	)		(3	)		(1,588	)
Purchases		—			—			—			—			—
Issuances		—			—			—			—			—
Sales		—			—			—			—			—
Settlements		(471	)		(84,584	)		(4,075	)		(749	)		(89,879	)
Transfers in Level 3		—			—			—			—			—
Transfers out of Level 3		—			—			(5,837	)		(464	)		(6,301	)

Balance, end of period	$	9,558		$	50,746		$	3,466		$	—		$	63,770

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	—		$	—		$	—		$	—

Level-3 Investments by class


Predecessor Ambac – Six months ended June 30, 2012	Collateralized Debt Obligations			Other Asset Backed Securities			Corporate Obligations			U.S. Agency Obligations			Total Investments
Balance, beginning of period	$	12,482		$	75,886		$	7,930		$	1,224		$	97,522
Additions of VIEs consolidated		—			—			—			—			—
Total gains/(losses) realized and unrealized:
Included in earnings		(2	)		—			44			(2	)		40
Included in other comprehensive income		291			6,376			(433	)		(9	)		6,225
Purchases		—			—			—			—			—
Issuances		—			—			—			—			—
Sales		—			—			—			—			—
Settlements		(3,213	)		(84,584	)		(4,075	)		(749	)		(92,621	)
Transfers in Level 3		—			53,068			5,837			—			58,905
Transfers out of Level 3		—			—			(5,837	)		(464	)		(6,301	)

Balance, end of period	$	9,558		$	50,746		$	3,466		$	—		$	63,770

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	—		$	—		$	—		$	—

Level-3 Derivatives by class


Successor Ambac – May 1 through June 30, 2013	Interest Rate Swaps			Credit Derivatives			Call Options on Long-term debt		Total Derivatives
Balance, beginning of period	$	(137,947	)	$	(277,413	)	$	—	$	(415,360	)
Additions of VIEs consolidated
Total gains/(losses) realized and unrealized:
Included in earnings		18,907			51,220			—		70,127
Included in other comprehensive income		—			—			—		—
Purchases		—			—			—		—
Issuances		—			—			—		—
Sales		—			—			—		—
Settlements		10,644			(6,074	)		—		4,570
Transfers in Level 3		—			—			—		—
Transfers out of Level 3		—			—			—		—
Deconsolidation of VIEs		—			—			—		—

Balance, end of period	$	(108,396	)	$	(232,267	)	$	—	$	(340,663	)

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	18,907		$	13,618		$	—	$	32,525

Level-3 Derivatives by class


Predecessor Ambac – April 1 through April 30, 2013	Interest Rate Swaps			Credit Derivatives			Call Options on Long-term debt		Total Derivatives
Balance, beginning of period	$	(125,382	)	$	(203,307	)	$	—	$	(328,689	)
Additions of VIEs consolidated
Total gains/(losses) realized and unrealized:
Included in earnings		(12,213	)		(73,171	)		—		(85,384	)
Included in other comprehensive income		—			—			—		—
Purchases		—			—			—		—
Issuances		—			—			—		—
Sales		—			—			—		—
Settlements		(352	)		(935	)		—		(1,287	)
Transfers in Level 3		—			—			—		—
Transfers out of Level 3		—			—			—		—
Deconsolidation of VIEs		—			—			—		—

Balance, end of period	$	(137,947	)	$	(277,413	)	$	—	$	(415,360	)

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	(12,213	)	$	(74,107	)	$	—	$	(86,320	)


Predecessor Ambac – January 1 through April 30, 2013	Interest Rate Swaps			Credit Derivatives			Call Options on Long-term debt		Total Derivatives
Balance, beginning of period	$	(108,752	)	$	(213,585	)	$	—	$	(322,337	)
Additions of VIEs consolidated
Total gains/(losses) realized and unrealized:
Included in earnings		(28,162	)		(60,384	)		—		(88,546	)
Included in other comprehensive income		—			—			—		—
Purchases		—			—			—		—
Issuances		—			—			—		—
Sales		—			—			—		—
Settlements		(1,033	)		(3,444	)		—		(4,477	)
Transfers in Level 3		—			—			—		—
Transfers out of Level 3		—			—			—		—
Deconsolidation of VIEs		—			—			—		—

Balance, end of period	$	(137,947	)	$	(277,413	)	$	—	$	(415,360	)

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	(28,162	)	$	(63,840	)	$	—	$	(92,002	)

Level-3 Derivatives by class


Predecessor Ambac – Three months ended June 30, 2012	Interest Rate Swaps			Credit Derivatives			Call Options on Long-term debt			Total Derivatives
Balance, beginning of period	$	(222,222	)	$	(201,129	)	$	67,735		$	(355,616	)
Additions of VIEs for consolidated		—			—			—			—
Total gains/(losses) realized and unrealized:
Included in earnings		(112,904	)		(7,416	)		39,030			(81,290	)
Included in other comprehensive income		—			—			—			—
Purchases		—			—			—			—
Issuances		—			—			—			—
Sales		—			—			—			—
Settlements		39,139			(3,072	)		(106,765	)		(70,698	)
Transfers in Level 3		—			—			—			—
Transfers out of Level 3		—			—			—			—
Deconsolidation of VIEs		—			—			—			—

Balance, end of period	$	(295,987	)	$	(211,617	)	$	—		$	(507,604	)

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	(107,861	)	$	(10,613	)	$	—		$	(118,474	)


Predecessor Ambac – Six months ended June 30, 2012	Interest Rate Swaps			Credit Derivatives			Call Options on Long-term debt			Total Derivatives
Balance, beginning of period	$	(302,177	)	$	(190,653	)	$	6,055		$	(486,775	)
Additions of VIEs consolidated		—			—			—			—
Total gains/(losses) realized and unrealized:
Included in earnings		(45,035	)		(14,638	)		100,710			41,037
Included in other comprehensive income		—			—			—			—
Purchases		—			—			—			—
Issuances		—			—			—			—
Sales		—			—			—			—
Settlements		51,225			(6,326	)		(106,765	)		(61,866	)
Transfers in Level 3		—			—			—			—
Transfers out of Level 3		—			—			—			—
Deconsolidation of VIEs		—			—			—			—

Balance, end of period	$	(295,987	)	$	(211,617	)	$	—		$	(507,604	)

The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	(46,263	)	$	(26,647	)	$	—		$	(72,910	)

Summary of Gains and Losses (Realized and Unrealized) Relating to Level 3 Assets and Liabilities Included in Earnings

Gains and losses (realized and unrealized) relating to Level 3 assets and liabilities included in earnings for the affected periods are reported as follows:


	Net investment income			Realized gains or (losses) and other settlements on credit derivative contracts		Unrealized gains or (losses) on credit derivative contracts			Derivative products revenues (interest rate swaps)			Income on variable interest entities			Other income
Successor Ambac:
Period from May 1 through June 30, 2013
Total gains or losses included in earnings for the period	$	395		$	6,074	$	45,146		$	18,907		$	(791,292	)	$	(177	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date		—			—		13,618			18,907			(791,292	)		(177	)

Predecessor Ambac:
Period from April 1 through April 30, 2013
Total gains or losses included in earnings for the period	$	(10	)	$	935	$	(74,106	)	$	(12,213	)	$	575,899		$	(169	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date		—			—		(74,107	)		(12,213	)		575,899			(169	)

Predecessor Ambac:
Period from January 1 through April 30, 2013
Total gains or losses included in earnings for the period	$	(33	)	$	3,444	$	(63,828	)	$	(28,162	)	$	1,146,256		$	(496	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date		—			—		(63,840	)		(28,162	)		1,146,256			(496	)

Predecessor Ambac:
Three months ended June 30, 2012
Total gains or losses included in earnings for the period	$	88		$	3,072	$	(10,489	)	$	(112,904	)	$	173,145		$	38,799
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date		—			—		(10,613	)		(107,861	)		173,145			(231	)

Predecessor Ambac:
Six month Period ended June 30, 2012
Total gains or losses included in earnings for the period	$	40		$	6,326	$	(20,964	)	$	(45,035	)	$	120,431		$	99,723
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date		—			—		(26,647	)		(46,263	)		120,912			(987	)

VIE Debt Obligations Classified as Level 3 [Member]

Information about Valuation Inputs for Variable Interest Entity Assets and Liabilities Classified as Level 3

European ABS transactions: The fair value of such obligations classified as Level 3 was $1,182,227 and $2,956,501 at June 30, 2013 and December 31, 2012, respectively. Fair values were calculated by using a discounted cash flow approach. The discount rates used were based on the rates implied from the third party quoted values (Level 2) for comparable notes from the same securitization. Significant inputs for the valuation at June 30, 2013 and December 31, 2012 include the following weighted averages:

Successor Ambac - June 30, 2013

Coupon rate: 0.76%

Maturity: 18.04 years

Yield: 1.47%

Predecessor Ambac - December 31, 2012

Coupon rate: 1.64%

Maturity: 12.34 years

Yield: 4.02%

US Commercial ABS transaction: Fair values were calculated as the sum of expected future cash flows sourced from the underlying operating assets plus the fair value of the related Ambac financial guarantee cash flows. Expected cash flows were internally modeled in using probability weighted assumptions about future operating cash flows available to fund the debt service. The discount rates applied to cash flows sourced from operating assets were based on generic interest rates for similar obligations. The fair value of financial guarantee cash flows include internal estimates of future loss payments by Ambac discounted at a rate that incorporates Ambac’s own credit risk. Significant inputs for the valuation at June 30, 2013 include the following weighted averages (there is no comparable Level 3 in this category for December 31, 2012):

Successor Ambac - June 30, 2013

Coupon rate: 6.98%

Maturity: 10.99 years

Yield: 8.74%

- Definition

Tabular disclosure of the amount of gains or losses for the period included in earnings or resulted in a change to net assets, have arisen from the use of significant unobservable inputs (level 3) to measure the fair value of assets, liabilities, and financial instruments classified in shareholders' equity.

+ References+ Details

- Definition

Tabular disclosure of the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such certain disclosures about the financial instruments, assets, and liabilities include: (1) the fair value of the required items together with their carrying amounts (as appropriate) and (2) the methodology and assumptions used in developing such estimates of fair value.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 107

-Paragraph 15

-Subparagraph b-d

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

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-Subparagraph c(2), d, e, f

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

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Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 9: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 825

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Reference 10: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 11: http://www.xbrl.org/2003/role/presentationRef

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-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 159

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

+ Details