Ambac Financial Group (NYSE:AMBC) is currently a very interesting special situation with a potential imminent catalyst in the form of a jury trial scheduled to begin in February 2021 (see Q2 transcript).
AMBC is a monoline insurer in runoff mode. Monoline insurers are companies that insure bonds in order to improve the bonds' credit rating. All these companies took a big hit during the great financial crisis as they insured many CMBS (Commercial Mortgage-Backed Securities).
In response, these monoline insurers sued the banks that issued the mortgages as these mortgages did not meet the pre-specified terms to be included in the CMBS. If you recall the NINJA mortgages (No Income No Job), obviously the terms of the agreement between the insurers and the banks did not allow this type of underwriting.
Most of these companies settled their lawsuits years ago for handsome payoffs, which left AMBC as the only one left standing.
There have been several articles over the past several years. The thesis is pretty much the same with the following changes:
- Price of the equity is now much more attractive.
- Catalyst for the investment is now imminent.
I will refer readers interested in the fundamental info for the company to read previous articles as I will focus on incremental data.
I want to stress the fact that the success of this investment will ultimately depend on the outcome of a legal process. I am not a lawyer and this article does not purport to provide any legal advice.
Investment Thesis/Executive Summary
Ambac has a BV of ~$1B and a market cap of ~$585M. The company has $1.7B of representations and warranties (R&W) recoverable (asset) on its balance sheet related to its litigation (please see p.22 of the second quarter's 10-Q). This is comprised of several different litigation
