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Fair Value Measurements (Tables)
 9 Months Ended
Sep. 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 September 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:  
       Level 1      Level 2     Level 3  

September 30, 2013

            

Financial assets:

            

Fixed income securities:

            

Municipal obligations

    $ 1,444,358      $ 1,444,358      $ —        $ 1,444,358      $ —    

Corporate obligations

      1,344,686        1,344,686        —          1,341,253        3,433   

Foreign obligations

      122,499        122,499        —          122,499        —    

U.S. government obligations

      105,260        105,260        105,260         —         —    

U.S. agency obligations

      35,489        35,489        —          35,216        273  

Residential mortgage-backed securities

      1,555,612        1,555,612        —          1,555,612        —    

Collateralized debt obligations

      91,055        91,055        —          91,055        —    

Other asset-backed securities

      1,059,706        1,059,706        —          992,341        67,365   

Fixed income securities, pledged as collateral:

            

U.S. government obligations

      140,273        140,273        140,273         —         —    

Short term investments

      549,229        549,229        538,079        11,150        —    

Other investments

      237,446        237,446        —          237,396        50   

Cash

      28,551        28,551        28,551         —         —    

Loans

      6,148        6,278        —          —         6,278   

Derivative assets:

            

Interest rate swaps—asset position

      85,538        85,538        —          85,538        —    

Interest rate swaps—liability position

      (2,576 )      (2,576 )      —          (2,576 )      —    

Futures contracts

      —         —         —          —         —    

Other assets

      13,671        13,671        —          —         13,671   

Variable interest entity assets:

            

Fixed income securities:

            

Corporate obligations

      2,423,914        2,423,914        —          —         2,423,914   

Restricted cash

      23,045        23,045        23,045         —         —    

Loans

      14,762,446        14,762,446        —          —         14,762,446   
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

  

Total financial assets

    $ 24,026,350      $ 24,026,480      $ 835,208       $ 5,913,842      $ 17,277,430   
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

  

Financial liabilities:

            

Obligations under investment and repurchase agreements

    $ 360,854      $ 361,627      $ —        $ —       $ 361,627   

Long term debt, including accrued interest

      1,225,054        1,123,202        —          —         1,123,202   

Derivative liabilities:

            

Credit derivatives

      202,653        202,653        —          —         202,653   

Interest rate swaps—asset position

      (55,601 )      (55,601 )      —          (55,601 )      —    

Interest rate swaps—liability position

      251,152        251,152        —          148,131        103,021   

Futures contracts

      2,023        2,023        2,023        —         —    

Other contracts

      155        155        —          155        —    

Liabilities for net financial guarantees written (1)

      4,474,619        5,020,431        —          —         5,020,431   

Variable interest entity liabilities:

            

Long-term debt

      15,266,893        15,266,893        —          13,642,742        1,624,151   

Derivative liabilities:

            

Interest rate swaps—liability position

      1,960,732        1,960,732        —          1,960,732        —    

Currency swaps—liability position

      86,472        86,472        —          86,472        —    
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

  

Total financial liabilities

    $ 23,775,006      $ 24,219,739      $ 2,023      $ 15,782,631      $ 8,435,085   
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

  

 

(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:  
       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 $3,433 and $3,656 at September 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 September 30, 2013 and December 31, 2012 include the following weighted averages:

Successor Ambac— September 30, 2013

 

  a. Coupon rate: 0.345%

 

  b. Maturity: 20.39 years

 

  c. Yield: 6.63%

Predecessor Ambac—December 31, 2012

 

  a. Coupon rate: 0.345%

 

  b. Maturity: 21.14 years

 

  c. Yield: 6.08%

U.S. agency obligations: These notes are secured by separate lease rental agreements with the U.S. Government acting through the General Services Administration. The fair value of such securities classified as Level 3 was $273 and $0 at September 30, 2013 and December 31, 2012, respectively. Fair value was calculated using a discounted cash flow approach with the yield based on comparable U.S. agency securities. Significant inputs for the valuation at September 30, 2013 include the following weighted averages:

Successor Ambac— September 30, 2013

 

  a. Coupon rate: 6.98%

 

  b. Maturity: 1.62 years

 

  c. Yield: 0.34%

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 $0 and $6,482 at September 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 December 31, 2012 include the following weighted averages:

Predecessor Ambac—December 31, 2012

 

  a. Coupon rate: 1.05%

 

  b. Maturity: 1.51 years

 

  c. 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 $67,365 and $50,264 at September 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 September 30, 2013 and December 31, 2012 include the following weighted averages:

Successor Ambac— September 30, 2013

 

  a. Coupon rate: 0.66%

 

  b. Maturity: 7.31 years

 

  c. Yield: 2.75%

Predecessor Ambac—December 31, 2012

 

  a. Coupon rate: 0.71%

 

  b. Maturity: 7.86 years

 

  c. 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 September 30, 2013 and December 31, 2012 is summarized below:

 

Successor Ambac – As of September 30, 2013             
     CLOs     Other (1)  

Notional outstanding

    $ 1,609,378      $ 2,495,813   

Weighted average reference obligation price

      97.9        88.3   

Weighted average life (WAL) in years

      2.3        4.6   

Weighted average credit rating

      AA        BBB+   

Weighted average relative change ratio

      35.4 %      38.4 % 

CVA percentage

      16.3 %      33.0 % 

Fair value of derivative liabilities

    $ (10,201 )    $ (113,713 ) 

 

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 $1,102,173, WAL of 6.9 years and liability fair value of ($78,739) as of September 30, 2013. Other inputs to the valuation of these transactions at September 30, 2013 include weighted average quotes of 10% of notional, weighted average rating of A and Ambac CVA percentage of 23.7%. 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 – Three Months Ended
September 30, 2013

    Investments     Other
assets		     Derivatives     Investments      Loans     Long-term
debt		     Total  

Balance, beginning of period

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

Additions of VIEs consolidated

      —         —         —         —          —         —         —    

Total gains/(losses) realized and unrealized:

                

Included in earnings

      467        (213 )      37,126        36,694         195,305        21,816        291,195   

Included in other comprehensive income

      5,951        —         —         144,231         842,715        (76,533 )      916,364   

Purchases

      —         —         —         —          —         —         —    

Issuances

      —         —         —         —          —         —         —    

Sales

      —         —         —         —          —         —         —    

Settlements

      (4,192 )      —         (2,137 )      —          (96,452 )      4,253        (98,528 ) 

Transfers in Level 3

      273        —         —         —          —         —         273   

Transfers out of Level 3

      —         —         —         —          —         —         —    
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Balance, end of period

    $ 71,071      $ 13,671      $ (305,674 )    $ 2,423,914       $ 14,762,446      $ (1,624,151 )    $ 15,341,277   
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

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

    $ —       $ (213 )    $ 32,984      $ 36,694       $ 195,305      $ 21,816      $ 286,586   
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

 

                       VIE Assets and Liabilities        

Successor Ambac – Five Months Ended
September 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

      863        (390 )      107,253        (172,304 )      (391,336 )      26,163        (429,751 ) 

Included in other comprehensive income

      6,013        —         —         95,653        560,294        (48,319 )      613,641   

Purchases

      —         —         —         —         —         —         —    

Issuances

      —         —         —         —         —         —         —    

Sales

      —         —         —         —         —         —         —    

Settlements

      (5,490 )      —         2,433        —         (158,565 )      4,253        (157,369 ) 

Transfers in Level 3

      273        —         —         —         —         (220,922 )      (220,649 ) 

Transfers out of Level 3

      —         —         —         —         —         365,046        365,046   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance, end of period

    $ 71,071      $ 13,671      $ (305,674 )    $ 2,423,914      $ 14,762,446      $ (1,624,151 )    $ 15,341,277   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

    $ —       $ (390 )    $ 65,509      $ (172,304 )    $ (391,336 )    $ 26,163      $ (472,358 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

                       VIE Assets and Liabilities        

Predecessor Ambac – Four Months Ended
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
September 30, 2012

    Investments     Other
assets		     Derivatives     Investments     Loans     Long-term
debt		     Total  

Balance, beginning of period

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

Additions of VIEs consolidated

      —         —         —         —         —         —         —    

Total gains/(losses) realized and unrealized:

               

Included in earnings

      (22 )      (771 )      26,285        (64,826 )      439,649        (33,245 )      367,070   

Included in other comprehensive income

      471        —         —          62,877        392,548        (69,066 )      386,830   

Purchases

      —         —         —         —         —         —         —    

Issuances

      —         —         —         —         —         —         —    

Sales

      —         —         —         —         —         —         —    

Settlements

      (3,497 )      —         7,278        —          (85,811 )      31,302        (50,728 ) 

Transfers in Level 3

      —          —         —          —          —          (576,272 )      (576,272 ) 

Transfers out of Level 3

      —         —         —         —         —         —         —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance, end of period

    $ 60,722      $ 15,021      $ (474,041 )    $ 2,160,113      $ 14,984,659      $ (2,993,341 )    $ 13,753,133   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

    $ —       $ (771 )    $ 22,792      $ (64,826 )    $ 439,649      $ (33,245 )    $ 363,599   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

                       VIE Assets and Liabilities        

Predecessor Ambac – Nine months ended

September 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

      17        (1,758 )      67,322        (127,539 )      738,121        (148,573 )      527,590   

Included in other comprehensive income

      6,697        —         —         88,314        541,215        (77,761 )      558,465   

Purchases

      —          —         —         —         —         —         —    

Issuances

      —          —         —         —         —         —         —    

Sales

      —          —         —         —         —         —         —    

Settlements

      (96,118 )      —         (54,588 )      —         (421,671 )      64,195        (508,182 ) 

Transfers in Level 3

      58,905        —         —         —         —          (1,553,619 )      (1,494,714 ) 

Transfers out of Level 3

      (6,301 )      —         —         —         —          657,059        650,758   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance, end of period

    $ 60,722      $ 15,021      $ (474,041 )    $ 2,160,113      $ 14,984,659      $ (2,993,341 )    $ 13,753,133   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

    $ —       $ (1,758 )    $ (51,611 )    $ (127,539 )    $ 738,602      $ (148,573 )    $ 409,121   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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 – Three Months Ended September 30, 2013

    Collateralized
Debt
Obligations		     Other Asset
Backed
Securities		     Corporate
Obligations		     U.S. Agency
Obligations		      Total
Investments		  

Balance, beginning of period

    $ 3,415      $ 61,736      $ 3,421      $ —        $ 68,572   

Total gains/(losses) realized and unrealized:

            

Included in earnings

      7        483        (23 )      —          467   

Included in other comprehensive income

      (7 )      5,923        35        —          5,951   

Purchases

      —         —         —         —          —    

Issuances

      —         —         —         —          —    

Sales

      —         —         —         —          —    

Settlements

      (3,415 )      (777 )      —         —          (4,192 ) 

Transfers in Level 3

      —         —         —         273        273   

Transfers out of Level 3

      —         —         —         —          —    
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

Balance, end of period

    $ —       $ 67,365      $ 3,433      $ 273      $ 71,071   
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

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

 

Successor Ambac – Five Months Ended September 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

      25        876       (38 )      —          863   

Included in other comprehensive income

      (19 )      6,242        (210 )      —          6,013   

Purchases

      —         —         —         —          —    

Issuances

      —         —         —         —          —    

Sales

      —         —         —         —          —    

Settlements

      (3,955 )      (1,535 )     —         —          (5,490 ) 

Transfers in Level 3

      —         —         —         273        273  

Transfers out of Level 3

      —         —         —         —          —    
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

Balance, end of period

    $ —       $ 67,365      $ 3,433      $ 273      $ 71,071   
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

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 – Four Months Ended 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 September 30, 2012

    Collateralized
Debt
Obligations		     Other Asset
Backed
Securities		     Corporate
Obligations		     U.S. Agency
Obligations		     Total
Investments		  

Balance, beginning of period

    $ 9,558      $ 50,746      $ 3,466      $ —       $ 63,770   

Additions of VIEs consolidated

      —         —         —         —         —    

Total gains/(losses) realized and unrealized:

           

Included in earnings

      (2 )      —         (20 )      —         (22 ) 

Included in other comprehensive income

      200        122        149        —         471   

Purchases

      —         —         —         —         —    

Issuances

      —         —         —         —         —    

Sales

      —         —         —         —         —    

Settlements

        (2,924 )      (573 )      —         —         (3,497 ) 

Transfers in Level 3

      —         —         —         —         —    

Transfers out of Level 3

      —         —         —         —         —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance, end of period

    $ 6,832      $  50,295      $  3,595      $ —       $ 60,722   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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 – Nine months ended September 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

      (5 )      —         24        (2 )      17   

Included in other comprehensive income

      492        6,498        (284 )      (9 )      6,697   

Purchases

      —         —         —         —         —    

Issuances

      —         —         —         —         —    

Sales

      —         —         —         —         —    

Settlements

      (6,137 )      (85,157 )      (4,075 )      (749 )      (96,118 ) 

Transfers in Level 3

      —         53,068        5,837        —         58,905   

Transfers out of Level 3

      —         —         (5,837 )      (464 )      (6,301 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance, end of period

    $ 6,832      $ 50,295      $ 3,595      $ —       $ 60,722   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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 – Three Months Ended September 30, 2013

    Interest Rate
Swaps		     Credit
Derivatives		     Call Options
on Long-term
debt		      Total
Derivatives		  

Balance, beginning of period

    $ (108,396 )    $ (232,267 )    $ —        $ (340,663 ) 

Additions of VIEs consolidated

          

Total gains/(losses) realized and unrealized:

          

Included in earnings

      5,931        31,195        —          37,126   

Included in other comprehensive income

      —         —         —          —    

Purchases

      —         —         —          —    

Issuances

      —         —         —          —    

Sales

      —         —         —          —    

Settlements

      (556 )      (1,581 )      —          (2,137 ) 

Transfers in Level 3

      —         —         —          —    

Transfers out of Level 3

      —         —         —          —    

Deconsolidation of VIEs

      —         —         —          —    
  

 

 

    

 

 

    

 

 

     

 

 

  

Balance, end of period

    $ (103,021 )    $ (202,653 )    $ —        $ (305,674 ) 
  

 

 

    

 

 

    

 

 

     

 

 

  

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

    $ 5,931      $ 27,053      $ —        $ 32,984   
  

 

 

    

 

 

    

 

 

     

 

 

  

 

Predecessor Ambac – Five Months Ended September 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

      24,838        82,415        —          107,253   

Included in other comprehensive income

      —         —         —          —    

Purchases

      —         —         —          —    

Issuances

      —         —         —          —    

Sales

      —         —         —          —    

Settlements

      10,088        (7,655 )      —          2,433   

Transfers in Level 3

      —         —         —          —    

Transfers out of Level 3

      —         —         —          —    

Deconsolidation of VIEs

      —         —         —          —    
  

 

 

    

 

 

    

 

 

     

 

 

  

Balance, end of period

    $ (103,021 )    $ (202,653 )    $ —        $ (305,674 ) 
  

 

 

    

 

 

    

 

 

     

 

 

  

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

    $ 24,838      $ 40,671      $ —        $ 65,509   
  

 

 

    

 

 

    

 

 

     

 

 

  

 

Level-3 Derivatives by class

 

Predecessor Ambac – Four Months Ended 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 ) 
  

 

 

    

 

 

    

 

 

     

 

 

  

 

Predecessor Ambac – Three months ended September 30, 2012

    Interest Rate
Swaps		     Credit
Derivatives		     Call Options
on Long-term
debt		      Total
Derivatives		  

Balance, beginning of period

    $ (295,987 )    $ (211,617 )    $ —        $ (507,604 ) 

Additions of VIEs for consolidated

      —         —         —          —    

Total gains/(losses) realized and unrealized:

          

Included in earnings

      (1,156 )      27,441        —          26,285   

Included in other comprehensive income

      —         —         —          —    

Purchases

      —         —         —          —    

Issuances

      —         —         —          —    

Sales

      —         —         —          —    

Settlements

      10,223        (2,945 )      —          7,278   

Transfers in Level 3

      —         —         —          —    

Transfers out of Level 3

      —         —         —          —    

Deconsolidation of VIEs

      —         —         —          —    
  

 

 

    

 

 

    

 

 

     

 

 

  

Balance, end of period

    $ (286,920 )    $ (187,121 )    $ —        $ (474,041 ) 
  

 

 

    

 

 

    

 

 

     

 

 

  

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

    $ (1,156 )    $ 23,948      $ —        $ 22,792   
  

 

 

    

 

 

    

 

 

     

 

 

  

 

Level-3 Derivatives by class

 

Predecessor Ambac – Nine months ended September 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

      (46,191 )      12,803        100,710        67,322   

Included in other comprehensive income

      —         —         —         —    

Purchases

      —         —         —         —    

Issuances

      —         —         —         —    

Sales

      —         —         —         —    

Settlements

      61,448        (9,271 )      (106,765 )      (54,588 ) 

Transfers in Level 3

      —         —         —         —    

Transfers out of Level 3

      —         —         —         —    

Deconsolidation of VIEs

      —         —         —         —    
  

 

 

    

 

 

    

 

 

    

 

 

  

Balance, end of period

    $ (286,920 )    $ (187,121 )    $ —       $ (474,041 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

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

    $ (47,419 )    $ (4,192 )    $ —       $ (51,611 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  
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
or (loss)		  

Successor Ambac:

              

Three Months Ended September 30, 2013

              

Total gains or losses included in earnings for the period

    $ 467      $ 1,581       $ 29,614      $ 5,931      $ 253,815      $ (213 ) 

Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date

      —         —          27,053        5,931        253,815        (213 ) 

Successor Ambac:

              

Five Months Ended September 30, 2013

              

Total gains or losses included in earnings for the period

    $ 863      $ 7,655       $ 74,760      $ 24,838      $ (537,477 )    $ (390 ) 

Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date

      —         —          40,671        24,838        (537,477 )      (390 ) 

Predecessor Ambac:

              

Four Months Ended 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 September 30, 2012

              

Total gains or losses included in earnings for the period

    $ (22 )    $ 2,945       $ 24,496      $ (1,156 )    $ 341,578      $ (771 ) 

Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date

      —          —           23,948        (1,156 )      341,578        (771 ) 

Predecessor Ambac:

              

Nine months ended September 30, 2012

              

Total gains or losses included in earnings for the period

    $ 17      $ 9,271       $ 3,532      $ (46,191 )    $ 462,009      $ 98,952   

Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date

      —          —           (4,192 )      (47,419 )      462,490        (1,758 ) 
Variable Interest Entities [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 $1,275,564 and $2,956,501 at September 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 September 30, 2013 and December 31, 2012 include the following weighted averages:

Successor Ambac—September 30, 2013

 

  a. Coupon rate: 0.72%

 

  b. Maturity: 18.00 years

 

  c. Yield: 1.12%

Predecessor Ambac—December 31, 2012

 

  a. Coupon rate: 1.64%

 

  b. Maturity: 12.34 years

 

  c. Yield: 4.02%

US Commercial ABS transaction: The fair value of such obligations classified as Level 3 was $348,587 at September 30, 2013. 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 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 September 30, 2013 include the following weighted averages (there is no comparable Level 3 in this category for December 31, 2012):

Successor Ambac—September 30, 2013

 

  a. Coupon rate: 6.02%

 

  b. Maturity: 5.65 years

 

  c. Yield: 9.73%