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Derivative Instruments | 9 Months Ended
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Sep. 30, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | DERIVATIVE INSTRUMENTS The following tables summarize the gross fair values of individual derivative instruments and the impact of legal rights of offset as reported in the Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013.
| Gross Amounts of Recognized Assets / Liabilities |  | Gross Amounts Offset in the Consolidated Balance Sheet |  | Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheet |  | Gross Amount of Collateral Received / Pledged Not Offset in the Consolidated Balance Sheet |  | Net Amount
Successor Ambac—September 30, 2014: |  |  |  |  |  |  |  |  |
Derivative Assets: |  |  |  |  |  |  |  |  |
Credit derivatives | $ | 1,052 |  |  | $ | — |  |  | $ | 1,052 |  |  | $ | — |  |  | $ | 1,052 |
Interest rate swaps | 139,266 |  |  | 50,107 |  |  | 89,159 |  |  | — |  |  | 89,159 |
Futures contracts | 1,109 |  |  | — |  |  | 1,109 |  |  | — |  |  | 1,109 |
Total non-VIE derivative assets | $ | 141,427 |  |  | $ | 50,107 |  |  | $ | 91,320 |  |  | $ | — |  |  | $ | 91,320 |
Derivative Liabilities: |  |  |  |  |  |  |  |  |
Credit derivatives | $ | 83,882 |  |  | $ | — |  |  | $ | 83,882 |  |  | $ | — |  |  | $ | 83,882 |
Interest rate swaps | 314,515 |  |  | 50,107 |  |  | 264,408 |  |  | 110,646 |  |  | 153,762 |
Futures contracts | — |  |  | — |  |  | — |  |  | — |  |  | — |
Other contracts | 137 |  |  | — |  |  | 137 |  |  | — |  |  | 137 |
Total non-VIE derivative liabilities | $ | 398,534 |  |  | $ | 50,107 |  |  | $ | 348,427 |  |  | $ | 110,646 |  |  | $ | 237,781 |
Variable Interest Entities |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 1,885,244 |  |  | $ | — |  |  | $ | 1,885,244 |  |  | $ | — |  |  | $ | 1,885,244 |
Currency swaps | 70,047 |  |  | — |  |  | 70,047 |  |  | — |  |  | 70,047 |
Total VIE derivative liabilities | $ | 1,955,291 |  |  | $ | — |  |  | $ | 1,955,291 |  |  | $ | — |  |  | $ | 1,955,291 |
| Gross Amounts of Recognized Assets / Liabilities |  | Gross Amounts Offset in the Consolidated Balance Sheet |  | Net Amounts of Assets / Liabilities Presented in the Consolidated Balance Sheet |  | Gross Amount of Collateral Received / Pledged Not Offset in the Consolidated Balance Sheet |  | Net Amount
Successor Ambac—December 31, 2013: |  |  |  |  |  |  |  |  |
Derivative Assets: |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 132,250 |  |  | $ | 56,876 |  |  | $ | 75,374 |  |  | $ | — |  |  | $ | 75,374 |
Futures contracts | 2,337 |  |  | — |  |  | 2,337 |  |  | 690 |  |  | 1,647 |
Total non-VIE derivative assets | $ | 134,587 |  |  | $ | 56,876 |  |  | $ | 77,711 |  |  | $ | 690 |  |  | $ | 77,021 |
Derivative Liabilities: |  |  |  |  |  |  |  |  |
Credit derivatives | $ | 94,322 |  |  | $ | — |  |  | $ | 94,322 |  |  | $ | — |  |  | $ | 94,322 |
Interest rate swaps | 216,287 |  |  | 56,876 |  |  | 159,411 |  |  | 42,555 |  |  | 116,856 |
Other contracts | 165 |  |  | — |  |  | 165 |  |  | — |  |  | 165 |
Total non-VIE derivative liabilities | $ | 310,774 |  |  | $ | 56,876 |  |  | $ | 253,898 |  |  | $ | 42,555 |  |  | $ | 211,343 |
Variable Interest Entities |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 1,680,834 |  |  | $ | — |  |  | $ | 1,680,834 |  |  | $ | — |  |  | $ | 1,680,834 |
Currency swaps | 91,472 |  |  | — |  |  | 91,472 |  |  | — |  |  | 91,472 |
Total VIE derivative liabilities | $ | 1,772,306 |  |  | $ | — |  |  | $ | 1,772,306 |  |  | $ | — |  |  | $ | 1,772,306 |
Amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are not offset against fair value amounts recognized for derivative instruments on the Consolidated Balance Sheets. The amounts representing the right to reclaim cash collateral and posted margin, recorded in “Other assets” were $108,610 and $3,040 as of September 30, 2014 and December 31, 2013, respectively. The amounts representing the obligation to return cash collateral recorded in “Other liabilities” were $0 and $690 as of September 30, 2014 and December 31, 2013.
|  |  |  | Successor Ambac
|  | Location of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income |  | Amount of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income – Period from July 1 through September 30, 2014 |  |  | Amount of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income – Period from July 1 through September 30, 2013
Financial Guarantee: |  |  |  |  |  |  |
Credit derivatives |  | Net change in fair value of credit derivatives |  | $ | 7,416 |  |  |  | $ | 31,194 |
Financial Services derivatives products: |  |  |  |  |  |  |
Interest rate swaps |  | Derivative products |  | (15,634 | ) |  |  | 13,299 |
Futures contracts |  | Derivative products |  | (47 | ) |  |  | (961 | )
Other derivatives |  | Derivative products |  | (4 | ) |  |  | 34 |
Total Financial Services derivative products |  |  |  | (15,685 | ) |  |  | 12,372 |
Variable Interest Entities: |  |  |  |  |  |  |
Currency swaps |  | Income (loss) on variable interest entities |  | 17,014 |  |  |  | 6,000 |
Interest rate swaps |  | Income (loss) on variable interest entities |  | (44,846 | ) |  |  | (63,421 | )
Total Variable Interest Entities |  |  |  | (27,832 | ) |  |  | (57,421 | )
Total derivative contracts |  |  |  | $ | (36,101 | ) |  |  | $ | (13,855 | )
|  |  | Successor Ambac |  |  | Predecessor Ambac
| Location of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income |  | Amount of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income – Period from January 1 through September 30, 2014 |  | Amount of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income – Period from May 1 through September 30, 2013 |  |  | Amount of Gain or (Loss) Recognized in Consolidated Statement of Total Comprehensive Income – Period from January 1 through April 30, 2013
Financial Guarantee: |  |  |  |  |  |  |  |
Credit derivatives | Net change in fair value of credit derivatives |  | $ | 13,579 |  |  | $ | 82,414 |  |  |  | $ | (60,384 | )
Financial Services derivatives products: |  |  |  |  |  |  |  |
Interest rate swaps | Derivative products |  | (113,028 | ) |  | 87,468 |  |  |  | (30,622 | )
Futures contracts | Derivative products |  | (4,516 | ) |  | 8,870 |  |  |  | (3,133 | )
Other derivatives | Derivative products |  | 33 |  |  | (253 | ) |  |  | 20 |
Total Financial Services derivative products |  |  | (117,511 | ) |  | 96,085 |  |  |  | (33,735 | )
Variable Interest Entities: |  |  |  |  |  |  |  |
Currency swaps | Income (loss) on variable interest entities |  | 21,425 |  |  | 4,110 |  |  |  | (116 | )
Interest rate swaps | Income (loss) on variable interest entities |  | (204,411 | ) |  | 374,203 |  |  |  | (203,620 | )
Total Variable Interest Entities |  |  | (182,986 | ) |  | 378,313 |  |  |  | (203,736 | )
Total derivative contracts |  |  | $ | (286,918 | ) |  | $ | 556,812 |  |  |  | $ | (297,855 | )
Financial Guarantee Credit Derivatives: Credit derivatives, which are privately negotiated contracts, provide the counterparty with credit protection against the occurrence of a specific event such as a payment default or bankruptcy relating to an underlying obligation. Upon a credit event, Ambac is generally required to make payments equal to the difference between the scheduled debt service payment and the actual payment made by the issuer. Substantially all of Ambac’s credit derivative contracts relate to structured finance transactions. Credit derivatives issued are insured by Ambac Assurance. None of our outstanding credit derivative transactions at September 30, 2014 include ratings based collateral-posting triggers or otherwise require Ambac to post collateral regardless of Ambac’s ratings or the size of the mark to market exposure to Ambac. The majority of our credit derivatives were written on a “pay-as-you-go” basis. Similar to an insurance policy execution, pay-as-you-go provides that Ambac pays interest shortfalls on the referenced transaction as they are incurred on each scheduled payment date, but only pays principal shortfalls upon the earlier of (i) the date on which the assets designated to fund the referenced obligation have been disposed of and (ii) the legal final maturity date of the referenced obligation. The last transaction that was not “pay-as-you-go” terminated in July 2013. Ambac maintains internal credit ratings on its guaranteed obligations, including credit derivative contracts, solely to indicate management’s view of the underlying credit quality of the guaranteed obligations. Independent rating agencies may have assigned different ratings on the credits in Ambac’s portfolio than Ambac’s internal ratings. The following tables summarize the gross principal notional outstanding for CDS contracts, by Ambac rating, for each major category as of September 30, 2014 and December 31, 2013: Successor Ambac—September 30, 2014
Ambac Rating | CLO |  | Other |  | Total
AAA | $ | — |  |  | $ | — |  |  | $ | — |
AA | 669,251 |  |  | 208,682 |  |  | 877,933 |
A | — |  |  | 43,160 |  |  | 43,160 |
BBB (1) | — |  |  | 761,700 |  |  | 761,700 |
Below investment grade (2) | — |  |  | 276,133 |  |  | 276,133 |
| $ | 669,251 |  |  | $ | 1,289,675 |  |  | $ | 1,958,926 |
Successor Ambac—December 31, 2013
Ambac Rating | CLO |  | Other |  | Total
AAA | $ | — |  |  | $ | 24,034 |  |  | $ | 24,034 |
AA | 1,209,071 |  |  | 203,025 |  |  | 1,412,096 |
A | 128,666 |  |  | 107,251 |  |  | 235,917 |
BBB (1) | — |  |  | 826,175 |  |  | 826,175 |
Below investment grade (2) | — |  |  | 277,881 |  |  | 277,881 |
| $ | 1,337,737 |  |  | $ | 1,438,366 |  |  | $ | 2,776,103 |
(1) | BBB internal ratings reflect bonds which are of medium grade credit quality with adequate capacity to pay interest and repay principal. Certain protective elements and margins may weaken under adverse economic conditions and changing circumstances. These bonds are more likely than higher rated bonds to exhibit unreliable protection levels over all cycles.
(2) | Below investment grade internal ratings reflect bonds which are of speculative grade credit quality with the adequacy of future margin levels for payment of interest and repayment of principal potentially adversely affected by major ongoing uncertainties or exposure to adverse conditions.
The tables below summarize information by major category as of September 30, 2014 and December 31, 2013: Successor Ambac—September 30, 2014
| CLO |  | Other |  | Total
Number of CDS transactions | 6 |  |  | 11 |  |  | 17 |
Remaining expected weighted-average life of obligations (in years) | 1.8 |  |  | 4.7 |  |  | 3.7 |
Gross principal notional outstanding | $ | 669,251 |  |  | $ | 1,289,675 |  |  | $ | 1,958,926 |
Net derivative liabilities at fair value | $ | 2,726 |  |  | $ | 80,104 |  |  | $ | 82,830 |
Successor Ambac—December 31, 2013
| CLO |  | Other |  | Total
Number of CDS transactions | 7 |  |  | 13 |  |  | 20 |
Remaining expected weighted-average life of obligations (in years) | 2.1 |  |  | 5.0 |  |  | 3.6 |
Gross principal notional outstanding | $ | 1,337,737 |  |  | $ | 1,438,366 |  |  | $ | 2,776,103 |
Net derivative liabilities at fair value | $ | 7,993 |  |  | $ | 86,329 |  |  | $ | 94,322 |
The maximum potential amount of future payments under Ambac’s credit derivative contracts written on a “pay-as-you-go” basis is generally the gross principal notional outstanding amount included in the above table plus future interest payments payable by the derivative reference obligations. Since Ambac’s credit derivatives typically reference obligations of or assets held by special purpose entities that meet the definition of a VIE, the amount of maximum potential future payments for credit derivatives is included in the table in Note 3, Special Purpose Entities, Including Variable Interest Entities. Changes in fair value of Ambac’s credit derivative contracts are accounted for at fair value since they do not qualify for the financial guarantee scope exception under the Derivatives and Hedging Topic of the ASC. Changes in fair value are recorded in “Net change in fair value of credit derivatives” on the Consolidated Statements of Total Comprehensive Income. Although CDS contracts are accounted for at fair value, they are surveilled similar to non-derivative financial guarantee contracts. As with financial guarantee insurance policies, Ambac’s risk group tracks credit migration of CDS contracts’ reference obligations from period to period. Adversely classified credits are assigned risk classifications by the risk group. As of September 30, 2014, there are four CDS contracts on Ambac’s adversely classified credit listing, with a net derivative liability fair value of $62,094 and gross notional principal outstanding of $276,133. As of December 31, 2013, there were four CDS contracts on Ambac’s adversely classified credit listing, with a net derivative liability fair value of $62,296 and total notional principal outstanding of $277,881. Financial Services Derivative Products: Ambac, through its subsidiary Ambac Financial Services (“AFS”), provides interest rate and currency swaps to states, municipalities and their authorities, asset-backed issuers and other entities in connection with their financings. AFS manages its interest rate swaps business with the goal of retaining some basis risk and excess interest rate sensitivity as an economic hedge against the effects of rising interest rates elsewhere in the Company, including on Ambac’s financial guarantee exposures. As of September 30, 2014 and December 31, 2013 the notional amounts of AFS’s trading derivative products are as follows:
| Notional
Type of derivative | September 30, 2014 |  | December 31, 2013
Interest rate swaps—receive-fixed/pay-variable | $ | 686,558 |  |  | $ | 697,837 |
Interest rate swaps—pay-fixed/receive-variable | 1,484,081 |  |  | 1,540,976 |
Interest rate swaps—basis swaps | 55,800 |  |  | 146,705 |
Futures contracts | 100,000 |  |  | 100,000 |
Other contracts | 75,650 |  |  | 75,650 |
Derivatives of Consolidated Variable Interest Entities Certain VIEs consolidated under the Consolidation Topic of the ASC entered into derivative contracts to meet specified purposes within the securitization structure. The notional for VIE derivatives outstanding as of September 30, 2014 and December 31, 2013 are as follows:
| Notional
Type of VIE derivative | September 30, 2014 |  | December 31, 2013
Interest rate swaps—receive-fixed/pay-variable | $ | 1,778,828 |  |  | $ | 1,818,118 |
Interest rate swaps—pay-fixed/receive-variable | 3,278,303 |  |  | 3,350,714 |
Currency swaps | 753,672 |  |  | 770,319 |
Credit derivatives | 19,010 |  |  | 20,130 |
Contingent Features in Derivatives Related to Ambac Credit Risk Ambac’s interest rate swaps with professional swap-dealer counterparties and certain front-end counterparties were generally executed under standardized derivative documents including collateral support and master netting agreements. Under these agreements, Ambac is required to post collateral in the event net unrealized losses exceed predetermined threshold levels. Additionally, given that Ambac Assurance is no longer rated by an independent rating agency, counterparties have the right to terminate the swap positions. As per swap clearing requirement provisions of the Dodd-Frank Act implemented in 2014, many of our original counterparties have been replaced by an approved Futures Commission Merchant (“FCM”), who in turn faces a derivatives clearinghouse on our behalf. Ambac is required to post collateral to the FCM in the event net unrealized losses exceed zero. As is typical with such clearing arrangements, the FCM has the right to terminate the swap positions at any time. As of September 30, 2014 and December 31, 2013, the net liability fair value of all derivative instruments with contingent features linked to Ambac’s own credit risk was $68,422 and $42,555, respectively, related to which Ambac had posted assets as collateral with a fair value of $95,958 and $126,223, respectively. All such ratings-based contingent features have been triggered as requiring maximum collateral levels to be posted by Ambac while preserving counterparties’ rights to terminate the contracts. Assuming all contracts terminated on September 30, 2014, settlement of collateral balances and net derivative liabilities would result in a net receipt of cash and/or securities by Ambac. If the FCM were to exercise its right to terminate, the actual termination payment amounts would be determined in accordance with terms negotiated with the FCM, which may result in amounts that differ from market values as reported in Ambac’s financial statements.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708775-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80784-113994 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624177-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579245-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5580258-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579240-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41641-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 20: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624171-113959 + Details
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