Item 8.01. Other Events.
Senior Secured Notes Offering
On June 24, 2021, Ambac Financial Group, Inc. ("AFG" or the "Company") issued a
press release announcing that its wholly owned subsidiary, Sitka Holdings, LLC
("Sitka"), has commenced a private offering of Floating Rate Senior Secured
Notes due 2026 (the "Senior Secured Notes") in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act").
A copy of the press release is filed herewith as Exhibit 99.1 and is
incorporated herein by reference.
This report does not constitute an offer to sell or a solicitation of an offer
to buy the Senior Secured Notes or any other securities, and shall not
constitute an offer, solicitation or sale in any state or jurisdiction in which
such an offer, solicitation or sale would be unlawful. The Senior Secured Notes
have not been registered under the Securities Act or the securities laws of any
other jurisdiction and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements.
Ambac LSNI Notes Redemption
The proceeds from the Senior Secured Notes offering will be used to fund a
portion of the full redemption of the currently outstanding Ambac LSNI, LLC
("Ambac LSNI") LIBOR plus 5.00% Insured Secured Notes due 2023 (the "Ambac LSNI
Notes") and the secured note issued by AAC concurrent with the issuance of the
Ambac LSNI Notes, with the remaining amount to be funded by other available
liquidity. Concurrently with the commencement of the Senior Secured Notes
offering, Ambac LSNI issued a notice of conditional full redemption in respect
of all of the outstanding Ambac LSNI Notes. Such redemption will be conditioned
upon the receipt of at least $1,162 million of cash proceeds from the offering
of the Senior Secured Notes (the "Condition"). Payment of the redemption price
and surrender of the Ambac LSNI Notes for redemption will be made on the
redemption date specified in the notice of redemption, unless the Condition is
not satisfied, in which case the redemption will not occur.
Litigation Updates
In connection with the Senior Secured Notes offering, the Company is making the
following information available to update current disclosure in our most recent
SEC filed reports:
Litigation Against Ambac Assurance Corporation ("Ambac Assurance" or "AAC")
Monterey Bay Military Housing, LLC, et al. v. Ambac Assurance Corporation, et
al. (United States District Court, Northern District of California, San Jose
Division, Case No. 17-cv-04992-BLF, filed August 28, 2017). Defendants served
answers to the second amended complaint on April 21, 2021, asserting several
affirmative defenses, including a defense for unclean hands focused on the
plaintiffs' failure to maintain the project properties and falsification of
maintenance records. On May 24, 2021, plaintiffs moved to strike defendants'
unclean hands defenses. Defendants have filed oppositions to plaintiffs' motion
to strike, which has been referred to the Magistrate Judge on the case for a
Report and Recommendation.
Financial Oversight and Management Board for Puerto Rico v. Ambac Assurance
Corp., et al (United States District Court, District of Puerto Rico, No.
20-ap-00003, filed Jan. 16, 2020). On May 11, 2021, the Financial Oversight and
Management Board for Puerto Rico (the Oversight Board), Assured Guaranty
Corporation, Assured Guaranty Municipal Corporation, and National Public Finance
Guarantee Corporation (Assured and National) jointly moved to stay this case
with respect to Assured and National as a result of the agreement with the
Oversight Board, Assured and National with respect to the treatment of bonds
issued by the Puerto Rico Highways and Transportation Authority (PRHTA) and the
Puerto Rico
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Convention Center District Authority (PRCCDA) (the PRHTA/PRCCDA Settlement).
Ambac Assurance and Financial Guaranty Insurance Company (FGIC) objected to the
motion to stay on May 18, 2021, and briefing on the motion to stay concluded on
May 21, 2021. On May 25, 2021, the District Court ordered this case stayed with
respect to Assured and National as a result of the PRHTA/PRCCDA Settlement.
Discovery was deemed concluded on June 11, 2021. Summary judgment briefing is
expected to resume on July 16, 2021, with a hearing on the supplemental summary
judgment briefs expected in September 2021.
Financial Oversight and Management Board for Puerto Rico v. Ambac Assurance
Corp., et al (United States District Court, District of Puerto Rico, No.
20-ap-00004, filed Jan. 16, 2020). On May 11, 2021, the Oversight Board,
Assured, and National jointly moved to stay this case with respect to Assured
and National as a result of the PRHTA/PRCCDA Settlement. Ambac Assurance and
FGIC objected to the motion to stay on May 18, 2021, and briefing on the motion
to stay concluded on May 21, 2021. On May 25, 2021, the District Court ordered
this case stayed with respect to Assured and National as a result of the
PRHTA/PRCCDA Settlement. Discovery was deemed concluded on June 11, 2021.
Summary judgment briefing is expected to resume on July 16, 2021, with a hearing
on the supplemental summary judgment briefs expected in September 2021.
Financial Oversight and Management Board for Puerto Rico v. Ambac Assurance
Corp., et al (United States District Court, District of Puerto Rico, No.
20-ap-00005, filed Jan. 16, 2020). On May 11, 2021, the Oversight Board,
Assured, and National jointly moved to stay this case with respect to Assured
and National as a result of the PRHTA/PRCCDA Settlement. Ambac Assurance and
FGIC objected to the motion to stay on May 18, 2021, and briefing on the motion
to stay concluded on May 21, 2021. On May 25, 2021, the District Court ordered
this case stayed with respect to Assured and National as a result of the
PRHTA/PRCCDA Settlement. Discovery was deemed concluded on June 11, 2021.
Summary judgment briefing is expected to resume on July 16, 2021, with a hearing
on the supplemental summary judgment briefs expected in September 2021.
Financial Oversight and Management Board for Puerto Rico v. Ambac Assurance
Corp., et al (United States District Court, District of Puerto Rico, No.
20-ap-00007, filed Jan. 16, 2020). On May 11, 2021, the Oversight Board,
Assured, and National jointly moved to stay this case with respect to Assured
and National as a result of the PRHTA/PRCCDA Settlement. Ambac Assurance and
FGIC objected to the motion to stay on May 18, 2021, and briefing on the motion
to stay concluded on May 21, 2021. On May 25, 2021, the District Court ordered
this case stayed with respect to Assured and National as a result of the
PRHTA/PRCCDA Settlement.
Litigation Filed or Joined by Ambac Assurance
Puerto Rico:
In re Financial Oversight and Management Board for Puerto Rico (United States
District Court, District of Puerto Rico, No. 1:17- bk-03283), Ambac Assurance
Corporation's Motion and Memorandum of Law in Support of Its Motion Concerning
Application of the Automatic Stay to the Revenues Securing PRIFA Rum Tax Bonds
(Dkt. No. 7176, filed May 30, 2019) (PRIFA Stay Motion). On May 11, 2021, the
Oversight Board, Assured, and National jointly moved to stay this case with
respect to Assured and National as a result of the PRHTA/PRCCDA Settlement.
Ambac Assurance and FGIC objected to the motion to stay on May 18, 2021, and
briefing on the motion to stay concluded on May 21, 2021. On May 25, 2021, the
District Court ordered this case stayed with respect to Assured and National as
a result of the PRHTA/PRCCDA Settlement.
In re Financial Oversight and Management Board for Puerto Rico (United States
District Court, District of Puerto Rico, No. 1:17- bk-03283), Motion of Assured
Guaranty Corp., Assured Municipal Corp., Ambac
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Assurance Corporation, National Public Finance Guarantee Corporation, and
Financial Guaranty Insurance Company for Relief from the Automatic Stay, or, in
the Alternative, Adequate Protection (Dkt. No. 10102, filed January 16, 2020)
(PRHTA Stay Motion). On May 11, 2021, the Oversight Board, Assured, and National
jointly moved to stay this case with respect to Assured and National as a result
of the PRHTA/PRCCDA Settlement. Ambac Assurance and FGIC objected to the motion
to stay on May 18, 2021, and briefing on the motion to stay concluded on May 21,
2021. On May 25, 2021, the District Court ordered this case stayed with respect
to Assured and National as a result of the PRHTA/PRCCDA Settlement.
In re Financial Oversight and Management Board for Puerto Rico (United States
District Court, District of Puerto Rico, No. 1:17- bk-03283), Ambac Assurance
Corporation, Financial Guaranty Insurance Company, Assured Guaranty Corp.,
Assured Municipal Corp., and the Bank of New York Mellon's Motion Concerning
Application of the Automatic Stay to the Revenues Securing the CCDA Bonds (Dkt.
No. 10104, filed January 16, 2020) (PRCCDA Stay Motion). On May 11, 2021, the
Oversight Board, Assured, and National jointly moved to stay this case with
respect to Assured and National as a result of the PRHTA/PRCCDA Settlement.
Ambac Assurance and FGIC objected to the motion to stay on May 18, 2021, and
briefing on the motion to stay concluded on May 21, 2021. On May 25, 2021, the
District Court ordered this case stayed with respect to Assured and National as
a result of the PRHTA/PRCCDA Settlement.
Ambac Assurance Corporation v. Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, J.P.
Morgan Securities LLC, Morgan Stanley & Co. LLC, Oriental Financial Services
LLC, Popular Securities LLC, Raymond James & Associates, Inc., RBC Capital
Markets LLC, Samuel A. Ramirez & Co. Inc., Santander Securities LLC, UBS
Financial Services Inc., and UBS Securities LLC (Commonwealth of Puerto Rico,
Court of First Instance, San Juan Superior Court, Case No. SJ-2020-CV-01505,
filed February 19, 2020). Defendants filed motions to dismiss on December 8 and
14, 2020; briefing on the motions to dismiss was completed on March 5, 2021. A
hearing on the motions to dismiss was held on June 15, 2021.
In re Financial Oversight and Management Board for Puerto Rico (United States
District Court, District of Puerto Rico, No. 1:17-bk-03283), Urgent Motion for
Bridge Order, and Motion for Appointment as Trustees Under 11 U.S.C. § 926, of
Ambac Assurance Corporation, Assured Guaranty Corp., Assured Guaranty Municipal
Corp., Financial Guaranty Insurance Company, and National Public Finance
Guarantee Corporation (Dkt. No. 13708, filed July 17, 2020) (HTA Trustee
Motion). On May 11, 2021, the Oversight Board, Assured, and National jointly
moved to stay this case with respect to Assured and National as a result of the
PRHTA/PRCCDA Settlement. Ambac Assurance and FGIC objected to the motion to stay
on May 18, 2021, and briefing on the motion to stay concluded on May 21, 2021.
On May 25, 2021, the District Court ordered this case stayed with respect to
Assured and National as a result of the PRHTA/PRCCDA Settlement.
In re Financial Oversight and Management Board for Puerto Rico (United States
District Court, District of Puerto Rico, No. 1:17- bk-03283), Disclosure
Statement for Third Amended Title III Joint Plan of Adjustment of the
Commonwealth of Puerto Rico, et al. (Dkt. No. 16741, filed May 11, 2021)
(Disclosure Statement). On May 11, 2021, the Oversight Board filed the
Disclosure Statement for the third amended joint plan of adjustment (the Plan)
for the Commonwealth of Puerto Rico, the Employees Retirement System of the
Government of the Commonwealth of Puerto Rico (ERS), and PBA. On May 13, 2021,
the Oversight Board filed a motion for approval of the Disclosure Statement. On
June 15, 2021, Ambac Assurance filed an objection to approval of the Disclosure
Statement on numerous grounds. Briefing on the Disclosure Statement is expected
to conclude on June 29, 2021, and a hearing on the approval of the Disclosure
Statement is scheduled for July 13, 2021.
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In re Financial Oversight and Management Board for Puerto Rico (United States
District Court, District of Puerto Rico, No. 1:17- bk-03283), Objection of Ambac
Assurance Corporation, Pursuant to Bankruptcy Code Section 502 and Bankruptcy
Rule 3007, to Claim Asserted by the Official Committee of Retired Employees of
the Commonwealth of Puerto Rico Appointed in the Commonwealth's Title III Case
(Dkt. No. 16884, filed June 3, 2021) (Pension Claim Objection). On June 3, 2021,
Ambac Assurance filed a claim objection in the Commonwealth's Title III case
challenging the amount of the claim filed by the Retiree Committee against the
Commonwealth, which asserts pension liabilities of at least $58.5 billion. Ambac
Assurance contends that this asserted pension liability is overstated by at
least $9 billion, and seeks disallowance of the Retiree Committee's proof of
claim to the extent of the overstatement. On June 17, 2021, the Oversight Board
and the Retiree Committee each indicated an intention to move to terminate the
Pension Claim Objection. The Oversight Board contended that Ambac lacked
standing to bring the Pension Claim Objection and that the objection is moot;
the Retiree Committee contended that the Pension Claim Objection should be
addressed at confirmation. Ambac responded on June 21, 2021, arguing that Ambac
has standing to bring the Pension Claim Objection, and that either briefing
should proceed on the merits of the Pension Claim Objection concurrently with
any procedural objections, or the District Court should convert the Pension
Claim Objection into a motion to estimate the pension liability claim under
Bankruptcy Code section 502(c).
Student Loans Exposure:
CFPB v. Nat'l Collegiate Master Student Loan Trust (United States District
Court, District of Delaware, Case No. 1:17-cv-01323, filed September 18, 2017).
The CFPB filed an amended complaint on April 30, 2021. On May 21, 2021, the
Trusts and several intervenors, including Ambac Assurance, moved to dismiss the
CFPB's amended complaint for failure to state a claim.
.RMBS Litigation:
Ambac Assurance Corporation and The Segregated Account of Ambac Assurance
Corporation v. First Franklin Financial Corporation, Bank of America, N.A.,
Merrill Lynch, Pierce, Fenner & Smith Inc., Merrill Lynch Mortgage Lending,
Inc., and Merrill Lynch Mortgage Investors, Inc. (Supreme Court of the State of
New York, County of New York, Case No. 651217/2012, filed April 16, 2012).
Discovery has been completed.
Ambac Assurance Corporation and The Segregated Account of Ambac Assurance
Corporation v. Countrywide Securities Corp. Countrywide Financial Corp. (a.k.a.
Bank of America Home Loans) and Bank of America Corp. (Supreme Court of the
State of New York, County of New York, Case No. 651612/2010, filed on September
28, 2010). After supplemental expert discovery, on August 12, 2020, Countrywide
filed a motion to dismiss, or in the alternative for summary judgment on, Ambac
Assurance's fraud claim and on December 4, 2020, the Court granted Countrywide's
motion, resulting in dismissal of Ambac Assurance's fraud claim. On December 17,
2020, Ambac Assurance filed a notice of appeal from this decision. Oral argument
on Ambac Assurance's appeal of the court's dismissal on December 4, 2020, of its
fraud claim was held on April 20, 2021. On May 11, 2021, the Appellate,
Division, First Department affirmed the dismissal of Ambac Assurance's fraud
claim. Ambac Assurance is not seeking further appellate review of this decision
at this point in the case.
Ambac Assurance Corporation v. U.S. Bank National Association (United States
District Court, Southern District of New York, Docket No. 18-cv-5182 (LGS),
filed June 8, 2018 (the SDNY Action)); In the matter of HarborView Mortgage Loan
Trust 2005-10 (Minnesota state court, Docket No. 27-TR-CV-17-32 (the Minnesota
Action)). On December 22, 2020, the court entered final judgment consistent with
its prior decisions, and awarded Ambac Assurance nominal damages. On January 12,
2021, Ambac Assurance filed a notice of appeal of that judgment. On March 9,
2021, Ambac Assurance filed its opening brief for its appeal of the granting by
the court in the SDNY Action of U.S. Bank's motion for
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summary judgment with respect to Ambac Assurance's repayment right in the trust
waterfall. Briefing on Ambac Assurance's appeal was completed on June 3, 2021.
Forward-Looking Statements
In this report, statements that may constitute "forward-looking statements"
within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Words such as "estimate," "project," "plan,"
"believe," "anticipate," "intend," "planned," "potential" and similar
expressions, or future or conditional verbs such as "will," "should," "would,"
"could," and "may," or the negative of those expressions or verbs, identify
forward-looking statements. We caution readers that these statements are not
guarantees of future performance. Forward-looking statements are not historical
facts but instead represent only our beliefs regarding future events, which may
by their nature be inherently uncertain and some of which may be outside our
control. These statements may relate to plans and objectives with respect to the
future, among other things which may change. We are alerting you to the
possibility that our actual results may differ, possibly materially, from the
expected objectives or anticipated results that may be suggested, expressed or
implied by these forward-looking statements. Important factors that could cause
our results to differ, possibly materially, from those indicated in the
forward-looking statements include, among others, those discussed under "Risk
Factors" in our most recent SEC filed quarterly or annual report.
Any or all of management's forward-looking statements here or in other
publications may turn out to be incorrect and are based on management's current
belief or opinions. AFG's and its subsidiaries' ("Ambac") actual results may
vary materially, and there are no guarantees about the performance of Ambac's
securities. Among events, risks, uncertainties or factors that could cause
actual results to differ materially are: (1) the highly speculative nature of
AFG's common stock and volatility in the price of AFG's common stock; (2)
Ambac's inability to realize the expected recoveries, including RMBS litigation
recoveries, included in its financial statements which would have a materially
adverse effect on AAC's financial condition and may lead to regulatory
intervention; (3) failure to recover claims paid on Puerto Rico exposures or
realization of losses in amounts higher than expected; (4) increases to loss and
loss expense reserves; (5) inadequacy of reserves established for losses and
loss expenses and possibility that changes in loss reserves may result in
further volatility of earnings or financial results; (6) uncertainty concerning
the Company's ability to achieve value for holders of its securities, whether
from AAC and its subsidiaries or from transactions or opportunities apart from
AAC and its subsidiaries, including new business initiatives relating to the
specialty property and casualty program insurance business, the managing general
agency/underwriting business, or related businesses; (7) potential of
rehabilitation proceedings against AAC; (8) increased fiscal stress experienced
by issuers of public finance obligations or an increased incidence of Chapter 9
filings or other restructuring proceedings by public finance issuers, including
an increased risk of loss on revenue bonds of distressed public finance issuers
due to judicial decisions adverse to revenue bond holders; (9) our inability to
mitigate or remediate losses, commute or reduce insured exposures or achieve
recoveries or investment objectives, or the failure of any transaction intended
to accomplish one or more of these objectives to deliver anticipated results;
(10) insufficiency or unavailability of collateral to pay secured obligations;
(11) credit risk throughout Ambac's business, including but not limited to
credit risk related to residential mortgage-backed securities, student loan and
other asset securitizations, public finance obligations and exposures to
reinsurers; (12) the impact of catastrophic environmental or natural events,
including catastrophic public health events like the COVID-19 pandemic, on
significant portions of our insured and investment portfolios; (13) credit risks
related to large single risks, risk concentrations and correlated risks; (14)
the risk that Ambac's risk management policies and practices do not anticipate
certain risks and/or the magnitude of potential for loss; (15) risks associated
with adverse selection as Ambac's insured portfolio runs off; (16) Ambac's
substantial indebtedness could adversely affect its financial condition and
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operating flexibility; (17) Ambac may not be able to obtain financing or raise
capital on acceptable terms or at all due to its substantial indebtedness and
financial condition; (18) Ambac may not be able to generate the significant
amount of cash needed to service its debt and financial obligations, and may not
be able to refinance its indebtedness; (19) restrictive covenants in agreements
and instruments may impair Ambac's ability to pursue or achieve its business
strategies; (20) adverse effects on operating results or the Company's financial
position resulting from measures taken to reduce risks in its insured portfolio;
(21) disagreements or disputes with Ambac's insurance regulators; (22) default
by one or more of Ambac's portfolio investments, insured issuers or
counterparties; (23) loss of control rights in transactions for which we provide
insurance due to a finding that Ambac has defaulted; (24) adverse tax
consequences or other costs resulting from the characterization of the AAC's
surplus notes or other obligations as equity; (25) risks attendant to the change
in composition of securities in the Ambac's investment portfolio; (26) adverse
impacts from changes in prevailing interest rates; (27) our results of operation
may be adversely affected by events or circumstances that result in the
impairment of our intangible assets and/or goodwill that was recorded in
connection with Ambac's acquisition of 80% of the membership interests of
Xchange; (28) risks associated with the expected discontinuance of the London
Inter-Bank Offered Rate; (29) factors that may negatively influence the amount
of installment premiums paid to the Ambac; (30) market risks impacting assets in
the Ambac's investment portfolio or the value of our assets posted as collateral
in respect of interest rate swap transactions; (31) risks relating to
determinations of amounts of impairments taken on investments; (32) the risk of
litigation and regulatory inquiries or investigations, and the risk of adverse
outcomes in connection therewith, which could have a material adverse effect on
Ambac's business, operations, financial position, profitability or cash flows;
(33) actions of stakeholders whose interests are not aligned with broader
interests of the Ambac's stockholders; (34) system security risks, data
protection breaches and cyber attacks; (35) changes in accounting principles or
practices that may impact Ambac's reported financial results; (36) regulatory
oversight of Ambac Assurance UK Limited ("Ambac UK") and applicable regulatory
restrictions may adversely affect our ability to realize value from Ambac UK or
the amount of value we ultimately realize; (37) operational risks, including
with respect to internal processes, risk and investment models, systems and
employees, and failures in services or products provided by third parties; (38)
Ambac's financial position that may prompt departures of key employees and may
impact the its ability to attract qualified executives and employees; (39)
fluctuations in foreign currency exchange rates could adversely impact the
insured portfolio in the event of loss reserves or claim payments denominated in
a currency other than US dollars and the value of non-US dollar denominated
securities in our investment portfolio; (40) disintermediation within the
insurance industry that negatively impacts our managing general
agency/underwriting business; (41) changes in law or in the functioning of the
healthcare market that impair the business model of our accident and health
managing general underwriter; and (42) other risks and uncertainties that have
not been identified at this time.
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