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Ambac Financial Releases Statement Regarding RMBS Litigation

Financial services holding company Ambac Financial Group, Inc. (AMBC) announced Friday that its legacy financial guaranty insurance subsidiary Ambac Assurance Corp. or AAC, said in a statement that the New York Court of Appeals issued a decision Wednesday in the case entitled U.S. Bank National Association v. DLJ Mortgage Capital, Inc. relating to Home Equity Asset Trust 2007-1 (HEAT), a residential mortgage-backed securities trust.

While AAC does not insure the HEAT securities and is not a party to the HEAT litigation, the decision is relevant to AAC's breach-of-contract cases relating to its insured RMBS transactions.

The HEAT decision may affect one of the bases upon which AAC seeks recovery with respect to a significant portion of breaching loans in AAC's RMBS cases. However, AAC believes there remain other potential alternative paths to recovery for such breaching loans.

AAC's management and legal advisors are evaluating the decision and its implications for AAC's RMBS litigations and plan to issue additional disclosure following such evaluation.

The management presently expects the HEAT decision to result in a downward adjustment, which could be material, to AAC's estimated subrogation recoveries, recorded as of December 31, 2021.

However, reported estimated subrogation recoveries do not represent AAC's view of the ultimate recovery from its RMBS litigations.

AAC records, as a component of its loss reserves, estimated subrogation recoveries related to securitized loans in RMBS transactions with respect to which it is pursuing claims for breaches of representations and warranties.

AAC's ultimate recoveries in its RMBS litigations may be materially higher or lower than its recorded estimated subrogation recoveries based on a number of factors.

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