Slide 1: April 13, 2016
April 13, 2016 © Canyon Capital Advisors LLC
Slide 2: Overview of Canyon
Overview of Canyon Canyon Capital Advisors LLC ("Canyon") was founded in 1990 by Joshua S. Friedman and Mitchell R. Julis, both of whom have been intimately involved in the stressed/distressed markets since the early 1980’s. Canyon has over 200 investment professionals and offices in Los Angeles
Slide 3: Why Ambac Needs a New Board Member
Why Ambac Needs a New Board Member The Board of Directors (the "Board") of Ambac Financial Group, Inc. ("Ambac" or the "Company") oversaw a 42% decline in Ambac's stock price in 2015, underperforming its peers. Despite this poor performance, the Board awarded Nader Tavakoli, the President and CE
Slide 4: Why Ambac Needs a New Board Member
Why Ambac Needs a New Board Member Given the above, Canyon believes that its independent director nominee, Mr. Frederick Arnold, will bring a more open-minded approach to the assessment of Mr. Tavakoli's policies and tenure than Mr. Stein. The resulting Board will be more balanced, with three ne
Slide 5: Ambac's Poor Performance
Ambac’s Poor Performance Management touts $25 of Composition of Operating Earnings ($ millions) Per Share Investment Income 266 operating earnings per share in Controllable Revenue 266 2015. OpEx (103) The market knows better: Ambac Interest Expense (117) shares declined from $24.50 to Controlla
Slide 6: The Right Strategy
The Right Strategy Ambac is in liquidation, and we believe is holding over $2 billion of excess capital, which grows monthly as insured bond exposure rolls off and non cash assets are realized. Mr. Arnold can work with Ambac’s management and Board on a plan to: Deploy capital for liability man
Slide 7: Summary of Realizable Value
Summary of Realizable Value We believe Mr. Arnold can help Ambac pursue a strategy that will maximize return of capital to stockholders as quickly as possible. We believe Ambac’s realizable value if properly managed can reach as much as $40 per share1. We believe Mr. Arnold will work expeditio
Slide 8: Deploying Excess Capital
Deploying Excess Capital Strategies for deploying excess capital should include: Commutation of current and future loss exposures (large exposures below): Student Loans (NCSLT 2007s) in Segregated Account. Ultimate pay RMBS in Segregated Account. Local Insight Media in General Account. P
Slide 9: Claim Pay Downs Have Been Good for Stockholders
Claim Pay Downs Have Been Good for Stockholders Ambac stockholders profited when claims were paid down and lost money in 2015 when they were not. Period Policy Claims Paid Stock Performance Down 2012 – 2013 $1.1 billion +22%1 (initial 25% paydown) 2014 $1.6 billion 0% (27% paydown) 2015 $0 billion
Slide 10: Additional Objectives
Additional Objectives In addition to liability management, we believe the right strategy should include: Expense savings through operational improvement, which we believe could save stockholders approximately $1 per share, annually. Value maximization of existing assets, including litigation r
Slide 11: Ambac's Amorphous Plans
Ambac’s Amorphous Plans Instead of returning capital to stockholders, Ambac has announced a variety of amorphous plans to invest in: Home Repair Business – Leveraging Ambac Resources ▪ “We also initiated a new program we recently introduced which highlights leverage of our existing resources. Th
Slide 12: No Urgency in Deploying Excess Capital
No Urgency in Deploying Excess Capital Management has touted its $635mm of insured securities buybacks in 2015, but its actions have been reactive and subscale. Canyon prodded management for years to take these steps. With what we believe is over $2 billion of excess capital available to the C
Slide 13: No Value Creating Commutations in 2015
No Value Creating Commutations in 2015 Due to natural run off of insured exposures and improvement in credit over time, surplus notes have continued to increase in price and will continue to appreciate as credit heals. With all of the market turmoil generally and in Ambac claim prices specifical
Slide 14: No Value Creating Commutations in 2015
No Value Creating Commutations in 2015 Delayed Commutations: Ambac finally began commuting risky student loan exposures in February 2016, following Canyon’s continued urging and after the price of its claims reached a near six month high. Failed Exchange: The transaction Ambac proposed in July 2
Slide 15: No Basis for Other Accomplishments Management Touts
No Basis for Other Accomplishments Management Touts Eurotunnel Commutation – On the 4Q15 investor call, Mr. Tavakoli touted Ambac’s success in liability management, including a commutation of the Eurotunnel exposure. However, Eurotunnel was a very low risk exposure and the issuer itself “sought
Slide 16: No Basis for Other Accomplishments Management Touts
No Basis for Other Accomplishments Management Touts Puerto Rico Commutation – On the 3Q15 investor call, Mr. Tavakoli highlighted that “working with the [Puerto Rico] HTA we expect that $228.5 million net par…are expected to be canceled at no cost to Ambac”. In reality, however, Puerto Rico repu
Slide 17: Increasing Expenses under Mr. Tavakoli
Increasing Expenses under Mr. Tavakoli In 2015, as Ambac’s exposures continued to run-off primarily due to municipal refinancings, the Company’s expenses actually grew. MBIA, which had a comparable exposure runoff, cut expenses by 28%. This does not take into account Mr. Tavakoli’s growing com
Slide 18: Yet the CEO Publicly Promotes His Cost Cutting
Yet the CEO Publicly Promotes His Cost Cutting Although Mr. Tavakoli touts his cost-cutting, the reality is the opposite. The Company claims: It “started to implement the business line restructuring, which includes a head count reduction at the firm.” (2Q15) “Annual savings of about $5 million
Slide 19: Management Compensation
Management Compensation Despite the dismal stock performance, the Board awarded Mr. Tavakoli an additional cash bonus for 2015. Inexplicably, the Board awarded Mr. Tavakoli packages which could earn approximately $40 million even if he only restores Ambac’s stock price to the level it was when h
Slide 20: Policyholder Claims and Purported Conflicts
Policyholder Claims and Purported Conflicts In an attempt to distract stockholders from the real issues, Ambac's management claims Canyon is conflicted as a policyholder. But Canyon owns almost 5% of Ambac's stock; its policy interests only add to its large stake in the Company. Ambac’s accusa
Slide 21: Policyholder Claims and Purported Conflicts
Policyholder Claims and Purported Conflicts Properly calculated, Ambac’s investment portfolio returned only 2.78% in Q3, substantially below the level of interest accruing on its claims.1 Returns would be lower if cash were included, and may be lower going forward due to the recent buildup of ca
Slide 22: The Real Conflict is Between Stockholders & Entrenched Management
The Real Conflict is Between Stockholders & Entrenched Management Ambac hasn’t written any material new business since 2008 and the majority of the legacy municipal bond exposure will be callable and refinancable by the end of 2017. Management and the Board have a clear conflict in that as polic
Slide 23: Ambac's Other Unsubstantiated Claims
Ambac’s Other Unsubstantiated Claims CNBC Interview: on January 14, 2016, Mr. Tavakoli said “we’re not aware of any shareholders calling for my ouster”.1 Ambac’s own proxy states that on December 17, 2015, Canyon “sent a letter to Ambac’s Board, in which Canyon, among other things, questioned Mr
Slide 24: Ambac's Other Unsubstantiated Claims
Ambac’s Other Unsubstantiated Claims Accusations of Greenmail: in a press release on April 11, 2016, Ambac claimed that Canyon had engaged in attempted Greenmail because a broker purportedly offered to sell Canyon’s publicly disclosed RMBS to Ambac. Canyon never directed anyone to approach Ambac
Slide 25: Stockholders Deserve Better
Stockholders Deserve Better Stockholders deserve a Board that will be honest about earnings and value creation and not reward the performance problems highlighted above. Mr. Arnold has a track record of returning capital to stockholders and maximizing enterprise value of financial companies, as
Slide 26: Fred Arnold – Relevant Experience
Fred Arnold – Relevant Experience Accomplished leader of financial services companies with over 30 years of experience. Particular expertise in highly complex and troubled situations typically entailing change, operational improvement and governance enhancement. Member of the post-emergence boar
Slide 27: Important Information
Important Information CANYON CAPITAL ADVISORS LLC, THE CANYON VALUE REALIZATION MASTER FUND, L.P., MITCHELL R. JULIS AND JOSHUA S. FRIEDMAN (COLLECTIVELY, "CANYON") AND FREDERICK ARNOLD (COLLECTIVELY WITH CANYON, THE “PARTICIPANTS”) HAVE FILED A PRELIMINARY PROXY STATEMENT WITH THE SECURITIES AND EX