Derivative Instruments (Tables)

9 Months Ended

Sep. 30, 2013

Summary of Gross Fair Values of Individual Derivative Instruments

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, 2013 and December 31, 2012.


	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, 2013:
Derivative Assets:
Interest rate swaps	$	141,139	$	58,177	$	82,962	$	—	$	82,962
Futures contracts		—		—		—		—		—

Total non-VIE derivative assets	$	141,139	$	58,177	$	82,962	$	—	$	82,962

Derivative Liabilities:
Credit derivatives	$	202,653	$	—	$	202,653	$	—	$	202,653
Interest rate swaps		253,728		58,177		195,551		69,513		126,038
Futures contracts		2,023		—		2,023		2,023		—
Other contracts		155		—		155		—		155

Total non-VIE derivative liabilities	$	458,559	$	58,177	$	400,382	$	71,536	$	328,846

Variable Interest Entities
Interest rate swaps	$	1,960,732	$	—	$	1,960,732	$	—	$	1,960,732
Currency swaps		86,472		—		86,472		—		86,472

Total VIE derivative liabilities	$	2,047,204	$	—	$	2,047,204	$	—	$	2,047,204


	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
Predecessor Ambac—December 31, 2012:
Derivative Assets:
Interest rate swaps	$	198,117	$	73,264	$	124,853	$	—	$	124,853
Futures contracts		1,253		—		1,253		—		1,253

Total non-VIE derivative assets	$	199,370	$	73,264	$	126,106	$	—	$	126,106

Derivative Liabilities:
Credit derivatives	$	213,585	$	—	$	213,585	$	—	$	213,585
Interest rate swaps		390,774		73,264		317,510		180,113		137,397
Futures contracts		—		—		—		—		—
Other contracts		220		—		220		—		220

Total non-VIE derivative liabilities	$	604,579	$	73,264	$	531,315	$	180,113	$	351,202

Variable Interest Entities
Interest rate swaps	$	2,131,315	$	—	$	2,131,315	$	—	$	2,131,315
Currency swaps		90,466		—		90,466		—		90,466

Total VIE derivative liabilities	$	2,221,781	$	—	$	2,221,781	$	—	$	2,221,781

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 – Three Months Ended September 30, 2013			Amount of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income – Three months ended September 30, 2012
Financial Guarantee:
Credit derivatives	Net change in fair value of credit derivatives	$	31,194		$	27,440

Financial Services derivatives products:
Interest rate swaps	Derivative products		13,299			(33,036	)
Currency swaps	Derivative products		—			570
Futures contracts	Derivative products		(961	)		(3,485	)
Other derivatives	Derivative products		34			(56	)

Total Financial Services derivative products			12,372			(36,007	)

Call options on long-term debt	Other income		—			—

Variable Interest Entities:
Currency swaps	Income on variable interest entities		6,000			5,581
Interest rate swaps	Income on variable interest entities		(63,421	)		(2,723	)

Total Variable Interest Entities			(57,421	)		2,858

Total derivative contracts		$	(13,855	)	$	(5,709	)


		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 – Five Months Ended September 30, 2013			Amount of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income – Four Months Ended April 30, 2013			Amount of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income – Nine months ended September 30, 2012
Financial Guarantee:
Credit derivatives	Net change in fair value of credit derivatives	$	82,414		$	(60,384	)	$	12,803

Financial Services derivatives products:
Interest rate swaps	Derivative products		87,468			(30,622	)		(99,026	)
Currency swaps	Derivative products		—			—			807
Futures contracts	Derivative products		8,870			(3,133	)		(15,247	)
Other derivatives	Derivative products		(253	)		20			325

Total Financial Services derivative products			96,085			(33,735	)		(113,141	)

Call options on long-term debt	Other income		—			—			100,710

Variable Interest Entities:
Currency swaps	Income on variable interest entities		4,110			(116	)		(16,413	)
Interest rate swaps	Income on variable interest entities		374,203			(203,620	)		42,514

Total Variable Interest Entities			378,313			(203,736	)		26,101

Total derivative contracts		$	556,812		$	(297,855	)	$	26,473

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, 2013 and December 31, 2012:

Successor Ambac—September 30, 2013


Ambac Rating	CLO		Other		Total
AAA	$	193,286	$	479,173	$	672,459
AA		1,289,541		206,064		1,495,605
A		126,551		1,775,161		1,901,712
BBB ⁽¹⁾		—		856,041		856,041
Below investment grade ⁽²⁾		—		281,547		281,547

	$	1,609,378	$	3,597,986	$	5,207,364

Predecessor Ambac—December 31, 2012


Ambac Rating	CLO		Other		Total
AAA	$	166,200	$	512,283	$	678,483
AA		4,676,362		1,278,756		5,955,118
A		1,313,205		2,370,988		3,684,193
BBB⁽¹⁾		—		672,293		672,293
Below investment grade ⁽²⁾		—		291,690		291,690

	$	6,155,767	$	5,126,010	$	11,281,777

(1)

BBB internal rating reflects 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 (“BIG”) 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, 2013 and December 31, 2012:

Successor Ambac—September 30, 2013


	CLO			Other			Total
Number of CDS transactions		8			18			26
Remaining expected weighted-average life of obligations (in years)		2.3			5.3			4.4
Gross principal notional outstanding	$	1,609,378		$	3,597,986		$	5,207,364
Net derivative liabilities at fair value	$	(10,201	)	$	(192,452	)	$	(202,653	)

Predecessor Ambac—December 31, 2012


	CLO			Other			Total
Number of CDS transactions		30			21			51
Remaining expected weighted-average life of obligations (in years)		2.2			5.2			3.6
Gross principal notional outstanding	$	6,155,767		$	5,126,010		$	11,281,777
Net derivative liabilities at fair value	$	(34,645	)	$	(178,940	)	$	(213,585	)

Summary of Notional Amounts of AFS's Trading Derivative Products

As of September 30, 2013 and December 31, 2012 the notional amounts of AFS’s trading derivative products are as follows:


	Notional
Type of derivative	Successor Ambac – September 30, 2013		Predecessor Ambac – December 31, 2012
Interest rate swaps—receive-fixed/pay-variable	$	701,218	$	727,926
Interest rate swaps—pay-fixed/receive-variable		1,544,880		1,657,382
Interest rate swaps—basis swaps		146,705		161,690
Futures contracts		100,000		161,500
Other contracts		75,650		75,651

Variable Interest Entities [Member]

Summary of Notional Amounts of AFS's Trading Derivative Products

The notional for VIE derivatives outstanding as of September 30, 2013 and December 31, 2012 are as follows:


Type of VIE derivative	Notional
Type of VIE derivative	Successor Ambac – September 30, 2013		Predecessor Ambac – December 31, 2012
Interest rate swaps—receive-fixed/pay-variable	$	1,776,084	$	1,782,999
Interest rate swaps—pay-fixed/receive-variable		4,635,242		4,707,454
Currency swaps		752,510		755,438
Credit derivatives		19,665		20,885

- 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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