3. FRESH START FINANCIAL STATEMENT REPORTING
Below is a discussion of key principles and assumptions used in the implementation of fresh start financial statement reporting (“Fresh Start”) as a result of the Company’s emergence from Chapter 11.
Enterprise Value / Reorganization Value Determination:
In conjunction with formulating the Reorganization Plan, Ambac directed a third-party financial advisor to prepare a valuation analysis to determine Ambac’s estimated enterprise value, which was estimated to be $185,000. The enterprise value, which represents the Company’s equity value attributable to common stockholders and warrant holders immediately after restructuring, was included in the Disclosure Statement filed by Ambac with the Bankruptcy Court in September 2011. Management believed that this enterprise value of $185,000 would provide the best representation of the Company’s post-emergence reorganization value in accordance with the Reorganizations Topic of the ASC. The enterprise value was based on a discounted cash flow analysis using estimates of after-tax free cash flows through 2045. The terminal date of 2045 was used as the expected run-off of Ambac Assurance’s insurance operations will be substantially completed by 2045. The valuation uses a range of discount rates between 12% and 17%, which considered the cost of capital associated with a set of comparable insurance holding companies, indicative ranges suggested by third parties during Ambac’s 2008 capital raise process and discussions with financial professionals knowledgeable about the insurance industry.
The net cash flows used in the valuation analysis include income relating to, but not limited to, interest and principal on notes receivable; interest receipts on invested assets; reimbursement from Ambac Assurance for operating expenses; tolling payments and the upfront cash payment from Ambac Assurance, which are outlined in the Mediation Agreement and further described below. Expenses include operating expenses; intercompany settlements and tax payments. In addition, the long-term financial projections include value from junior surplus notes issued to Ambac by the Segregated Account, excess net operating tax losses (the “NOL Valuation”) and a residual equity dividend from Ambac Assurance.
For the purposes of estimating Ambac’s enterprise value, the following assumptions were made in accordance with the terms of the Mediation Agreement and the Reorganization Plan with respect to future consideration to be received by Ambac from Ambac Assurance or the Segregated Account: :
| (i) | $5,000 per annum reimbursement for operating expenses through March 2017; |
| (ii) |
Tolling payments on NOLs according to the tranches and tolling rates, as outlined in the Reorganization Plan. In conjunction with the Reorganization Plan, Ambac and Ambac Assurance entered into the Amended TSA, which provides that certain NOLs (“Allocated NOL Amount”) generated by Ambac’s affiliated group (including Ambac Assurance) for federal tax purposes on or prior to September 30, 2011 (the “Determination Date”) shall be available for use by the Ambac Assurance Subgroup subject to certain NOL tolling payments by Ambac Assurance to Ambac. Ambac Assurance Subgroup is defined as Ambac Assurance and any direct or indirect subsidiary of Ambac Assurance that would be treated as an includable corporation of an affiliated group of corporations under the Internal Revenue Code. The Allocated NOL Amount is $3.65 billion which may be subject to change from future audit adjustments. Under the terms of the Amended TSA, the Ambac Assurance Subgroup may utilize the Allocated NOL Amount in exchange for tolling payments that are calculated based on the amount of notional federal tax liability that would have been imposed on the Ambac Assurance Subgroup if such NOLs were not available for its use. The tolling payments due from Ambac Assurance to Ambac for the use of the Allocated NOL are determined as a percentage of this notional federal tax liability as follows: a) the first $0.479 billion of Allocated NOL – 15%, b) the next $1.057 billion of Allocated NOL – 40%, c) the next $1.057 billion of Allocated NOL – 10%, d) the next $1.057 billion of Allocated NOL – 15%. |
The Amended TSA also provides for tolling payments from Ambac Assurance to Ambac for the use of NOLs to determine the Ambac Assurance Subgroup’s alternative minimum tax (“AMT”) liability using a similar schedule for the use of the Allocated NOL Amount. However the tolling payments for the use of NOLs for AMT purposes shall be subject to certain credits that may be used to offset the amounts due from Ambac Assurance for the use of such AMT NOLs under the Amended TSA. These credits may be carried forward into future taxable periods to offset future payment under the Amended TSA, which may not exceed, in the aggregate, $60 million.
The estimated NOL tolling payments utilized in Ambac’s enterprise value were estimated based on financial projections of the Ambac Assurance Subgroup’s taxable income;
| (iii) | $30,000 in upfront cash, which Ambac Assurance can apply as a credit for up to $15,000 of future tolling payments; |
| (iv) | $350,000 of junior surplus notes, assumed to accrue interest at a rate of 5.1% per annum and to be paid down in 2045; and |
| (v) | following March 2017, an additional $4,000 per annum reimbursement for operating expenses (the “Additional Opex Subsidy”). There is uncertainty as to whether or not the Additional Opex Subsidy will be approved by the Rehabilitator and, if approved, for what period of time it would be in effect. |
The NOL Valuation relies on several key assumptions relating to the use of NOLs in a new corporate opportunity. The NOL Valuation assumes that Ambac raises capital to acquire additional assets in a manner that complies with the relevant tax rules related to NOL usage and utilizes the NOL to shelter, to the greatest extent permitted by the tax law, any tax that otherwise would be payable from the taxable income generated by the acquired assets. The required capital is assumed to be raised as equity in a range from $135,000 to $190,000. The equity capital is assumed to be invested in portfolios similar in nature to Ambac Assurance. The following assumptions were used to value the tax savings arising from the newly acquired entity’s utilization of the NOLs: (i) compounded annual rate of return on investment of approximately 6%—8%; (ii) a 25%—35% discount rate, the assumed equity rate of return an investor would target upon making such an investment; and (iii) an assumed expiration of the NOLs in 2030 in accordance with their 20-year life.
Dividends and other expected cash flows from Ambac Assurance are highly contingent upon the financial performance of Ambac Assurance. Ambac Assurance’s financial performance is sensitive to a number of key variables, including: (i) loss estimates and loss experience; (ii) remediation and recoveries; (iii) additional value creation initiatives; (iv) the form of the Segregated Account Rehabilitation Plan, including the treatment of Segregated Account claims; (v) investment portfolio yield and mix, including intercompany loan repayment assumptions; (vi) installment premiums and operating expenses; and (vii) value, if any, received from Ambac UK and Everspan.
The projections and other financial information provided in connection with the above-described valuation analysis were based on information available to us at that time and we have not and do not intend to update such information. Projections are inherently subject to uncertainties and risks and such projections and other financial information reflect numerous assumptions as of the date of the Disclosure Statement. Our actual results and financial condition may vary significantly from those contemplated by the projections and other financial information provided to the Bankruptcy Court.
In accordance with Fresh Start, the Company adjusted the historical carrying values of its assets, liabilities and noncontrolling interests to fair value, with the exception of deferred taxes and liabilities associated with post-retirement benefits, which were recorded in accordance with the Income Taxes and Compensation Topics of the ASC, respectively. The sum of the enterprise value, the adjusted value of liabilities and the adjusted value of noncontrolling interests equals the Company’s reorganization value, which approximates the fair value of the Company’s assets. Management also evaluated, in accordance with the Business Combinations Topic of the ASC, whether there are other identifiable intangible assets to be recognized separately from goodwill and determined that no other identifiable intangible assets of a material nature, except for the insurance intangible asset related to financial guarantees, should be recognized as part of Fresh Start. The portion of the reorganization value that could not be attributed to specific tangible or identified intangible assets of the emerging company was recorded as goodwill. The reorganization value approximates the amount a willing buyer would pay for the assets of the entity, before considering liabilities or noncontrolling interests, immediately after restructuring.
The following table represents a reconciliation of the enterprise value to the reorganization value, and the determination of goodwill:
|
Enterprise value |
$ | 185,000 | ||
|
Add: Fair value of liabilities |
28,393,020 | |||
|
Add: Fair value of noncontrolling interest |
275,415 | |||
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|
|
|||
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Reorganization value allocated to assets |
28,853,435 | |||
|
Less: Fair value of identified tangible and intangible assets |
28,338,924 | |||
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|
|
|||
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Reorganization value in excess of fair value of assets (goodwill) |
$ | 514,511 | ||
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|
|
Reorganized Condensed Consolidated Balance Sheet:
The implementation of the Reorganization Plan and the adoption of Fresh Start in the Company’s condensed consolidated balance sheet as of the Fresh Start Reporting Date are as follows:
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
Reorganized Condensed Consolidated Balance Sheet
As of April 30, 2013
| Predecessor Ambac |
Reorganization Item Adjustments |
Fresh Start Adjustments |
Successor Ambac |
|||||||||||||
| (Dollars in Thousands) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||
|
Assets: |
||||||||||||||||
|
Investments |
$ | 6,457,264 | $ | — | $ | — | $ | 6,457,264 | ||||||||
|
Cash |
254,851 | (101,900 | )(A) | 152,951 | ||||||||||||
|
Receivable for securities sold |
682 | 682 | ||||||||||||||
|
Investment income due and accrued |
37,961 | 37,961 | ||||||||||||||
|
Premium receivables |
1,531,631 | 1,531,631 | ||||||||||||||
|
Reinsurance recoverable on paid and unpaid losses |
151,311 | 151,311 | ||||||||||||||
|
Deferred ceded premium |
166,212 | 166,212 | ||||||||||||||
|
Subrogation recoverable |
533,673 | 533,673 | ||||||||||||||
|
Deferred acquisition costs |
184,953 | (184,953 | )(C) | — | ||||||||||||
|
Loans |
8,857 | (1,575 | )(C) | 7,282 | ||||||||||||
|
Derivative assets |
121,643 | 121,643 | ||||||||||||||
|
Current taxes |
— | 4,410 | (A) | 4,410 | ||||||||||||
|
Insurance intangible asset |
— | 1,658,972 | (C) | 1,658,972 | ||||||||||||
|
Goodwill |
— | 514,511 | (C) | 514,511 | ||||||||||||
|
Other assets |
54,821 | 54,821 | ||||||||||||||
|
Variable interest entity assets: |
||||||||||||||||
|
Fixed income securities, at fair value |
2,500,565 | 2,500,565 | ||||||||||||||
|
Restricted cash |
24,150 | 24,150 | ||||||||||||||
|
Investment income due and accrued |
4,851 | 4,851 | ||||||||||||||
|
Loans |
14,758,077 | (6,024 | )(C) | 14,752,053 | ||||||||||||
|
Intangible assets |
164,520 | 164,520 | ||||||||||||||
|
Other assets |
13,972 | 13,972 | ||||||||||||||
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|
|
|
|
|
|
|
|
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|
Total assets |
$ | 26,969,994 | $ | (97,490 | ) | $ | 1,980,931 | $ | 28,853,435 | |||||||
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|
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|
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Liabilities and Stockholders’ Equity: |
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|
Liabilities: |
||||||||||||||||
|
Liabilities subject to compromise |
$ | 1,704,641 | $ | (1,704,641 | )(B) | $ | — | $ | — | |||||||
|
Unearned premiums |
2,482,314 | 2,482,314 | ||||||||||||||
|
Losses and loss expense reserve |
6,106,345 | 6,106,345 | ||||||||||||||
|
Ceded premiums payable |
92,468 | 92,468 | ||||||||||||||
|
Obligations under investment agreements |
357,373 | 1,505 | (C) | 358,878 | ||||||||||||
|
Obligations under investment repurchase agreements |
5,926 | 5,926 | ||||||||||||||
|
Deferred taxes |
1,580 | 1,580 | ||||||||||||||
|
Current taxes |
97,490 | (97,490 | )(A) | — | ||||||||||||
|
Long-term debt |
155,271 | (973 | )(B) | 786,015 | (C) | 940,313 | ||||||||||
|
Accrued interest payable |
252,788 | (821 | )(B) | (18,091 | )(C) | 233,876 | ||||||||||
|
Derivative liabilities |
621,645 | 621,645 | ||||||||||||||
|
Other liabilities |
88,908 | 1,837 | (C) | 90,745 | ||||||||||||
|
Payable for securities purchased |
27 | 27 | ||||||||||||||
|
Variable interest entity liabilities: |
||||||||||||||||
|
Accrued interest payable |
4,318 | 4,318 | ||||||||||||||
|
Long-term debt |
15,041,624 | (18,586 | )(C) | 15,023,038 | ||||||||||||
|
Derivative liabilities |
2,425,517 | 2,425,517 | ||||||||||||||
|
Other liabilities |
6,030 | 6,030 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total liabilities |
$ | 29,444,265 | $ | (1,803,925 | ) | $ | 752,680 | $ | 28,393,020 | |||||||
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|
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|
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Stockholders’ (deficit) equity: |
||||||||||||||||
|
Preferred stock |
$ | — | $ | — | $ | — | $ | — | ||||||||
|
Common stock—Predecessor Ambac |
3,080 | (3,080 | )(D) | — | ||||||||||||
|
Common stock—Successor Ambac |
— | 450 | (B) | 450 | ||||||||||||
|
Additional paid-in capital—Predecessor Ambac |
2,172,027 | (2,172,027 | )(D) | — | ||||||||||||
|
Additional paid-in capital—Successor Ambac |
— | 184,550 | (B) | — | 184,550 | |||||||||||
|
Accumulated other comprehensive income |
800,260 | (800,260 | )(D) | — | ||||||||||||
|
Accumulated deficit |
(5,697,961 | ) | 1,521,435 | (B) | 4,176,526 | (C)(D) | — | |||||||||
|
Common stock held in treasury at cost |
(410,695 | ) | 410,695 | (D) | — | |||||||||||
|
|
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|
|
|
|
|
|
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|
Total Ambac Financial Group, Inc. stockholders’ (deficit) equity |
(3,133,289 | ) | 1,706,435 | 1,611,854 | 185,000 | |||||||||||
|
Noncontrolling interest |
659,018 | (383,603 | )(D) | 275,415 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total stockholders’ (deficit) equity |
(2,474,271 | ) | 1,706,435 | 1,228,251 | 460,415 | |||||||||||
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|
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|
|
|
|
|
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|
Total liabilities and stockholders’ (deficit) equity |
$ | 26,969,994 | $ | (97,490 | ) | $ | 1,980,931 | $ | 28,853,435 | |||||||
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Reorganization Item Adjustments:
Items shown in the Reorganization Items column of the Reorganized Condensed Consolidated Balance Sheet above represent amounts recorded for the implementation of the Reorganization Plan on the Effective Date as described below:
| (A) | Reflects the cash payment of $101,900 to the IRS under a settlement with the IRS on the Fresh Start Reporting Date pursuant to the Reorganization Plan. |
| (B) | Reflects the discharge of liabilities subject to the Reorganization Plan, issuance of 45,000,000 and 5,047,138 shares of Successor Ambac common stock and warrants, respectively, to certain claim holders, resulting in a pre-tax gain of $1,521,435 on extinguishment of obligations pursuant to the Reorganization Plan. The following reflects the calculation of the pre-tax gain, which was recorded as a Reorganization item on Predecessor Ambac’s Consolidated Statements of Total Comprehensive Income: |
|
Liabilities subject to compromise |
$ | 1,704,641 | ||
|
Long-term debt |
973 | (1) | ||
|
Accrued interest payable |
821 | (1) | ||
|
|
|
|||
|
Total debt discharged |
1,706,435 | |||
|
Less: Successor Ambac common stock |
(450 | )(2) | ||
|
Successor Ambac additional paid-in capital |
(184,550 | )(2) | ||
|
|
|
|||
|
Pre-tax gain from cancellation and satisfaction of Predecessor Ambac debt |
$ | 1,521,435 | ||
|
|
|
| (1) | Represents the proportional reduction in the carrying value of long-term debt and associated accrued interest payable upon the discharge of $8,043 par value of Segregated Account junior surplus notes that were issued to a pre-petition creditor, One State Street, LLC (“OSS”). Pursuant to a settlement agreement (the “OSS Settlement Agreement”) to terminate the Company’s office lease with OSS and to settle all claims among the parties, the outstanding principal amount of the Segregated Account junior surplus notes issued to OSS were reduced based on the value of distribution that OSS received on account of its allowed claim in Ambac’s bankruptcy case. Refer to Note 14 for additional information on the OSS Settlement Agreement. |
| (2) | Warrants issued in connection with the Reorganization Plan are classified as equity and initially measured at fair value. The enterprise value of $185,000 is allocated between common stock and warrants based on their relative fair values as quoted on the Effective Date. Successor Ambac common stock of $450 represents the par value of 45,000,000 shares of common stock issued at $0.01 per share. Included in the Successor Ambac additional paid-in capital of $184,550, $11,437 was allocated to 5,047,138 warrants at their initial fair value, with the remaining $173,113 additional paid-in capital attributable to common stock. |
Fresh Start Adjustments:
Items shown in the Fresh Start Adjustments column of the Reorganized Condensed Consolidated Balance Sheet above reflects (i) the fair value adjustments to assets and liabilities which are not already reported at fair value under U.S. GAAP accounting rules, including the re-measurement of deferred tax assets and liabilities, if any, which result from such adjustments and (ii) the cancellation of Predecessor Ambac equity accounts attributable to its common shareholders, including the fair value adjustment to noncontrolling interests. These adjustments are described below:
| (C) | The following table summarizes the impact of the fresh start adjustments, which in the aggregate was recorded as a Reorganization item gain on Predecessor Ambac’s Consolidated Statements of Total Comprehensive Income: |
|
Deferred acquisition costs |
$ | (184,953 | ) | |
|
Loans (non-VIE) |
(1,575 | ) | ||
|
Insurance intangible asset |
1,658,972 | |||
|
Goodwill |
514,511 | |||
|
VIE loans and long-term debt |
12,562 | |||
|
Obligations under investment agreements |
(1,505 | ) | ||
|
Long-term debt and accrued interest payable |
(767,924 | ) | ||
|
Other liabilities |
(1,837 | ) | ||
|
|
|
|||
|
Asset/liability fair value adjustments impacting Reorganization items |
1,228,251 | |||
|
|
|
|||
|
Adjustment to deferred tax provision |
— | |||
|
|
|
|||
|
Gain on fresh start adjustments |
$ | 1,228,251 | ||
|
|
|
| • |
Deferred acquisition costs—These deferred costs do not represent future cash flows and therefore the fair value is zero at the Fresh Start Reporting Date. |
| • |
Loans—The fair value adjustment for this line item relates to non-VIE loans that have historically been reported at their outstanding principal balance. Refer to Note 10 for a discussion of the valuation methodology used to estimate fair value for each of these financial instruments. Subsequent to the Fresh Start Reporting Date, the fair value discounts are accretable to interest income using the effective interest method over the remaining lives of the loans. Fair value as of April 30, 2013 was calculated using a discounted cash flow approach. As of April 30, 2013, the loans had a principal-weighted average life of 6.81 years and coupon of 5.01%. Discount rates used to determine the fair value of the loans at April 30, 2013 were consistent with the credit quality of the borrowers and had a weighted average of 9.71%. |
| • |
Insurance intangible asset—Pursuant to the business combinations guidance for insurance entities in the Financial Services—Insurance Topic of the ASC, Successor Ambac accounted for the insurance and reinsurance assets and liabilities acquired as new contracts, and measured them at fair value in two components as follows: |
| a. | Insurance and reinsurance assets and liabilities measured in accordance with Successor Ambac’s accounting policies for insurance and reinsurance contracts that it issues or holds, as further described in Note 2. These insurance and reinsurance assets and liabilities primarily comprise premium receivables, reinsurance recoverable on paid and unpaid losses, deferred ceded premium, subrogation recoverable, losses and loss expense reserve, unearned premiums and ceded premiums payable; and |
| b. | An insurance intangible asset representing the difference between: 1) the fair value of the contractual insurance and reinsurance assets acquired and liabilities assumed and 2) the amounts described in (a) above. Refer to Note 2 for the subsequent accounting treatment of the insurance intangible asset. |
The significant differences between the measurement methods used for fair value and Successor Ambac’s accounting policies for insurance and reinsurance contracts which impact the magnitude of the insurance intangible asset are as follows:
|
Measurement input |
Fair value methodology (Refer to Note 10) |
Successor Ambac accounting policy (Refer to Note 2) |
||
| Cash flows | All projected cash flows to be paid and/or received under the insurance contract are based on management’s expectations of how a market participant would make such estimates. |
Premium receipts are projected based on management’s expectations if the insured obligation is a homogenous pool of assets. For non-homogenous contracts, premium projections are based on contractual cash flows.
Loss payments, including subrogation recoveries, are projected using a probability-weighted average of all possible outcomes. |
||
| Discount rates |
Discount rates are applied to net cash flows at the policy level as follows:
Insurance policies which are in a liability (i.e. net cash outflow) position are discounted using rates which incorporate Ambac’s own credit risk, under the assumption we will be transferring the policies to a market participant with similar credit risk.
Insurance policies which are in an asset (i.e. net cash inflow) position are discounted using a hypothetical buyer’s cost of capital and does not assume we would be transferring the policies to a party with similar credit risk. |
Discount rates are applied to gross cash flows at the policy level as follows:
Premiums are discounted at the relevant risk-free rate based on the remaining expected or contractual weighted-average life of the exposure, as applicable.
Losses, including subrogation recoveries, are discounted at the relevant risk-free rate. |
||
| Profit margin | For insurance policies in a net liability position (i.e. net cash outflow) a profit margin is applied to the discounted value, which represents the additional consideration another market participant would require from Ambac to assume the contract. At April 30, 2013, a profit margin of 17% was applied to the discounted value of insurance policies in a net liability position. | No profit margin is applied. | ||
| • |
Goodwill—This amount represents the excess of the reorganization value over the fair value of identified tangible and intangible assets of the emerging company. Changes in the fair values of these assets and liabilities from the current estimated values, as well as changes in assumptions, could significantly impact the amount of recorded goodwill. Accordingly, there can be no assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially. Please refer to the above table located immediately prior to the Reorganized Condensed Consolidated Balance Sheet which indicates how goodwill was determined. Refer to Note 2 for the subsequent accounting treatment of goodwill. |
| • |
VIE loans and long-term debt—The portion of VIE loans and long-term debt that had not been carried at fair value have been adjusted to fair value for fresh start reporting. Refer to Note 10 for a discussion of the valuation methodology used to estimate fair value for VIE assets and liabilities. Subsequent to the Fresh Start Reporting Date, we have elected to continue accounting for these VIEs at fair value under the fair value option in accordance with the Financial Instruments Topic of the ASC. We believe that the fair value of the investments in these entities provides for greater transparency for recording profit or loss as compared to the equity method under the Investments—Equity Method and Joint Ventures Topic of the ASC. As a result, subsequent changes to fair value will be recorded as (Loss) income on variable interest entities on the Statements of Total Comprehensive Income. Valuation of the long-term debt not previously reported at fair value was determined from third-party quotes. The related VIE loans were valued at April 30, 2013 using a discounted cash flow approach with a discount rate of 5.7%, consistent with the rate implied from the fair value of the VIE’s debt. |
| • |
Obligations under investment agreements—These instruments have previously been reported at their principal value less unamortized discount. We have adjusted these items to fair value for fresh start reporting. Refer to Note 10 for a discussion of the valuation methodology used to estimate fair value for obligations under investment agreements and investment repurchase agreements. The fair value discounts and premiums to principal will be amortized into interest expense using the effective interest method over the lives of the respective contracts. Fair values were determined using discounted cash flows at April 30, 2013. Valuation of collateralized obligations represents projected cash flows discounted at LIBOR. Valuation of uncollateralized obligations were discounted using a weighted average discount rate of 9.4% consistent with the credit adjusted discount rate of Ambac Assurance, which provides a financial guarantee for all investment and repurchase agreements. |
| • |
Long-term debt and accrued interest payable—All debt liabilities subject to the Reorganization Plan were discharged. The remaining long-term debt is primarily related to surplus notes and junior surplus notes issued by Ambac Assurance and the Segregated Account, which were carried at their face value less unamortized discount. The notes have been adjusted to estimated fair value for fresh start reporting. Refer to Note 10 for a discussion of the valuation methodology used to estimate fair value. The fair value discount will be amortized into interest expense using the effective interest method over the lives of the respective debt. Surplus notes issued in June 2010 were valued at April 30, 2013 using a discounted cash flow approach corroborated by third party quotes. Internally estimated cash flows were discounted at 10.6%. To the extent that the remaining surplus notes rank pari passu with the June 2010 notes, valuations were determined using projected cash flows discounted at the same 10.6%. Junior surplus notes which cannot be paid until all principal and interest is paid on the other surplus notes were valued with projected cash flows discounted at 16.6%. In all cases, projected cash flows assumed full and timely payment under the respective contracts commencing with the next scheduled interest payments date in June 2014. |
| • |
Other liabilities—This amount reflects an adjustment, based on actuarial evaluation, to re-measure the accumulated postretirement benefit obligation as of the Effective Date, as a result of application of fresh start reporting. This adjustment primarily reflects changes in mortality assumptions. |
| • |
Deferred taxes—Deferred taxes were determined in conformity with the accounting requirements for the Income Tax Topic of the ASC. As a result of Fresh Start, a new deferred tax liability was established to recognize the tax effect of the fair value adjustments to identified tangible and intangible assets of the emerging company. This deferred tax liability adjustment was offset by a reduction in the deferred tax valuation allowance, resulting in no change to the deferred tax provision. |
| (D) | Reflects the cancellation of Predecessor Ambac equity accounts attributable to its common shareholders and the fair value adjustment of noncontrolling interests, as follows: |
|
Common stock |
$ | (3,080 | ) | |
|
Additional paid-in-capital |
(2,172,027 | ) | ||
|
Accumulated other comprehensive income |
(800,260 | ) | ||
|
Accumulated deficit |
2,948,275 | |||
|
Common stock held in treasury at cost |
410,695 | |||
|
Noncontrolling interest fair value adjustment |
(383,603 | )(1) | ||
|
|
|
|||
|
Net adjustment |
$ | — | ||
|
|
|
| (1) | Non-controlling interest is primarily related to Ambac Assurance preferred stock issued to third parties. Non-controlling interest was adjusted to fair value based on current quotes from market sources. Noncontrolling interest is a component of equity and as a result, the fair value adjustment is a permanent item that will not be accreted into income. |