Slide 1: Canyon's Attacks vs the Real Facts
© 2016 Ambac Financial Group, Inc. One State Street Plaza, New York, NY 10004 All Rights Reserved | 800-221-1854 | www.ambac.com CANYON’S ATTACKS VS THE REAL FACTS APRIL 2016
Slide 2: Ambac's Response to Canyon's Attacks
AMBAC’S RESPONSE TO CANYON’S ATTACKS 1 ► Canyon Capital Advisors (“Canyon”) has launched a series of attacks directed at our Company, our CEO and President, Nader Tavakoli, and, most recently, our Chairman, Jeffrey S. Stein • These attacks seek to advance Canyon’s short-term, creditor-focused agenda
Slide 3: Ambac's Response to Canyon's Attacks
Canyon demands a change in strategy to focus on the immediate payment of claims. We believe this strategic shift either misunderstands or intentionally ignores certain basic realities: • As an insurance company, liquidity is essential to Ambac’s ability to pay future claims and execute transactions
Slide 4: Why We Believe Canyon Is a Conflicted Shareholder
$36 million(2) $373 million(3) Equity Holdings Creditor Holdings WHY WE BELIEVE THAT CANYON IS A CONFLICTED SHAREHOLDER Canyon’s creditor holdings are more than 10x larger than its equity holdings 3
Slide 5: The Real Facts: Canyon Is Conflicted as a Policyholder
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “In an attempt to distract stockholders from the real issues, Ambac's management claims Canyon is conflicted as a policyholder” ► We believe Canyon is conflicted: Its creditor holdings have an estimated market value of ~$373 million
Slide 6: The Real Facts: Ambac Needs a New Board Member
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “Ambac needs a new Board member” “While the new directors are a welcome addition, we believe Ambac would benefit by having a second stockholder-proposed independent director replace Ambac’s Chairman of the Board, Jeffrey S. Stein” ►
Slide 7: The Real Facts: Ambac Needs a New Board Member (continued)
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “Ambac needs a new Board member” “While the new directors are a welcome addition, we believe Ambac would benefit by having a second stockholder-proposed independent director replace Ambac’s Chairman of the Board, Jeffrey S. Stein” (
Slide 8: The Real Facts: Operating Earnings and Share Price
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “The Company touts $25 of operating earnings per share in 2015...the market knows better: Ambac shares declined from $24.50 to $14.09 (42%) during the same period” ► 2015 operating performance was strong: • We generated nearly $1.2
Slide 9: Ambac's Stock Price Correlated with Puerto Rican Municipal Bonds
Ambac’s stock price was 90.5% correlated with the price of Puerto Rican municipal bonds in 2015(8,9) 65.0% 70.0% 75.0% 80.0% 85.0% 90.0% $10 $12 $14 $16 $18 $20 $22 $24 $26 $28 $30 Dec-14 Jan-15 Mar-15 Mar-15 May-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Ambac (left axis) Puerto Ric
Slide 10: The Real Facts: Policy Claims and Return of Capital
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “Policy claims are accruing substantial interest and are required to be paid down before equity gets any return of capital” ► We believe the strategy driving our asset-liability management and capital allocation programs ensures our
Slide 11: The Real Facts: Claims Paydowns and Stock Performance
CANYON’S ATTACKS THE REAL FACTS “Ambac stockholders profited when claims were paid down and lost money in 2015 when they were not” ► We believe Canyon’s implication that policy claim pay downs are the primary driver of stock price performance is contrary to the facts • Our stock price increased 23%
Slide 12: The Real Facts: Go-Forward Business Strategy
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “Mr. Tavakoli and the Board [have failed] to develop and implement any coherent go- forward business strategy” ► Ambac has clearly and consistently stated that our current strategic priority is the disciplined execution of an asset-
Slide 13: The Real Facts: Insurance Intangible Asset
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “Ambac still holds over $26 per share of an Insurance Intangible Asset (related to financial guarantees) that still needs to be written off, causing a drag on earnings for the foreseeable future” ► Amortization of the Insurance Inta
Slide 14: The Real Facts: Drivers of Earnings
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “We believe the Company's earnings were primarily due to changes in future loss assumptions related to mortgage securities, litigation estimates and the early refinancing of municipal bonds. Excluding these assumptions, Ambac lost a
Slide 15: The Real Facts: Drivers of Earnings (continued)
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “We believe the Company's earnings were primarily due to changes in future loss assumptions related to mortgage securities, litigation estimates and the early refinancing of municipal bonds. Excluding these assumptions, Ambac lost a
Slide 16: The Real Facts: Liquidation and Excess Capital
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “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” ► Ambac is not in liquidation • The Segregated Account o
Slide 17: The Real Facts: Distributions of Capital
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “Deferring distributions of capital only enriches and insulates management and the Board by unnecessarily prolonging their tenures...We believe that management should return the maximum amount of capital available to stockholders” ►
Slide 18: The Real Facts: Exposure Run-off
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “Ambac’s exposures continued to run-off primarily due to municipal refinancings” ► Active management of our portfolio is critically important to our risk management program and to our strategy for creating shareholder value • While
Slide 19: The Real Facts: MBIA Expense Reduction
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “MBIA, which had a comparable exposure runoff, cut expenses by 28%” “We believe management’s excess spending is costing stockholders almost $1 per share annually” ► MBIA’s expenses did decline in 2015 – but what Canyon does not disc
Slide 20: The Real Facts: Mr. Tavakoli's Experience
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “Canyon believes that Mr. Tavakoli lacks relevant experience…and is therefore entirely unqualified to serve as the permanent President and CEO of Ambac” ► Nader Tavakoli’s diverse skills and experience make him exceptionally qualifi
Slide 21: The Real Facts: Shareholder Views on CEO Appointment
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “The Board [failed] to incorporate the views of major stockholders with respect to Mr. Tavakoli’s appointment” ► We speak to shareholders regularly and took shareholders’ views into account in the Board’s process of appointing Mr. T
Slide 22: The Real Facts: Track Record as Interim CEO
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “Mr. Tavakoli [has a track record] of substandard performance [during his tenure as interim CEO]” ► Throughout 2015, Mr. Tavakoli oversaw significant progress in executing on all of the Company’s stated near-term strategic goals and
Slide 23: The Real Facts: Track Record (continued)
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “Mr. Tavakoli [has a track record] of substandard performance [during his tenure as interim CEO]” (continued) ► We believe Canyon’s references to our 2015 stock price performance are an attempt to distract attention from our 2015 op
Slide 24: The Real Facts: Commutations in 2015
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “No value creating commutations in 2015” “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” ► Canyon tak
Slide 25: The Real Facts: Proposal to Buy Canyon's Credit Positions
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “Canyon never directed anyone to approach Ambac with a proposal [to buy its credit positions], much less at the 17% premium that Ambac claims…In fact, a broker approached Canyon indicating that Ambac was interested in buying back al
Slide 26: The Real Facts: Realizable Value per Share
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS “We believe Ambac's realizable value if properly managed can reach as much as $40 per share” ► Canyon provides no support for its assertion, or the components of its “value creation opportunity” “Current claims held by third parties
Slide 27: The Real Facts: Mr. Tavakoli's Compensation
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS Canyon has constructed an array of attacks on Mr. Tavakoli’s compensation Mr. Tavakoli’s compensation was set by an independent compensation committee, with input from an independent compensation consultant (Frederick W. Cook & Co.)
Slide 28: The Real Facts: Compensation Within Industry Norms
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS Canyon has constructed an array of attacks on Mr. Tavakoli’s compensation (continued) 2. The compensation amounts are well within industry norms • Mr. Tavakoli’s target total direct compensation is below that of the CEOs of Ambac’s
Slide 29: The Real Facts: Canyon Misrepresents Compensation
CANYON’S ATTACKS VS. THE REAL FACTS CANYON’S ATTACKS THE REAL FACTS Canyon has constructed an array of attacks on Mr. Tavakoli’s compensation (continued) 3. Canyon misrepresents Mr. Tavakoli’s compensation on a number of fronts (both by misstating facts and omitting others) as part of its attack • M
Slide 30: Non-GAAP Financial Data
Non-GAAP Financial Data Included in this presentation, the Company reports two non-GAAP financial measures: Operating Earnings and Adjusted Book Value. A non-GAAP financial measure is a numerical measure of financial performance or financial position that excludes (or includes) amounts that are incl
Slide 31: Adjusted Book Value
Adjusted Book Value The following table reconciles Total Ambac Financial Group, Inc. stockholders’ equity to the non-GAAP measure Adjusted Book Value as of each date presented: APPENDIX 30 ($ in millions, other than per share data) $ Amount Per Share $ Amount Per Share $ Amount Per Share Total AFGI
Slide 32: Appendix – Simplified Corporate Structure
APPENDIX – SIMPLIFIED CORPORATE STRUCTURE Ambac Financial Group (Holding Company) (AFG) Ambac Capital Corporation (Investment Agreement Operations) Everspan Financial Guarantee (Financial Guarantee) Ambac Assurance UK (UK insurance company) (Ambac UK) Ambac Financial Services (Derivative products) A
Slide 33: Appendix – AAC / Segregated Account Structure
S egrega ted A ccoun t C la im s APPENDIX – AAC / SEGREGATED ACCOUNT STRUCTURE AAC (Insurance Subsidiary) ~$5 billion liabilities and associated subrogation claims Segregated Account Cooperation agreement(26) Excess of loss reinsurance agreement(26) Management services agreement G enera l A ccoun t
Slide 34: Footnotes
FOOTNOTES 1) Operating Earnings is a non-GAAP financial measure that excludes (or includes) amounts that are included in (or excluded from) net income attributable to common shareholders which is presented in accordance with GAAP. A reconciliation to net income attributable to common shareholders, a
Slide 35: Footnotes (continued)
FOOTNOTES (CONTINUED) 16) Measured from December 31, 2015 to April 13, 2016 17) Measured from December 31, 2015 to December 31, 2018 18) Includes annualized value of one-time equity award 19) Includes annualized value of one-time 2014 equity awards; excludes one-time 2014 special cash award 20) MBIA
Slide 36: Important Information
Important Information Ambac Financial Group, Inc., ("Ambac") has filed a preliminary proxy statement with the Securities and Exchange Commission ("SEC") in connection with its 2016 Annual Meeting. Prior to the 2016 Annual Meeting, Ambac will file and provide to its stockholders a definitive proxy st