AMBAC Financial Group, which was the second-largest US bond insurer before suffering huge losses on risky mortgages, said it may file for bankruptcy protection as soon as this year after skipping a bond interest payment.
Ambac shares fell as much as 59.8 per cent before closing down 50.4 per cent, or 41.9 cents, at 41.2 cents on the New York Stock Exchange. Ambac bond prices tumbled and the cost of protecting Ambac debt against default rose.
The announcement is the latest setback for Ambac, which has struggled to stay solvent after the housing market collapse. Ambac had pursued higher profit by expanding beyond municipal bond insurance and starting to insure riskier debt. That move backfired as credit tightened and more borrowers defaulted.
In a regulatory filing, Ambac said it has been unable to raise capital to avoid bankruptcy and is in talks with a group of senior bondholders to pursue a bankruptcy filing that would preserve a $7bn (£4.36bn) tax benefit.
Ambac said if it cannot agree on a “prepackaged” bankruptcy in the near term, it intends to seek Chapter 11 protection this year, perhaps without the support of creditors. It said this would cause $1.62bn of debt to be payable immediately.
The New York-based company previously said it might seek a prepackaged bankruptcy, but that its liquidity might not run out until the first quarter of 2011. Failure to win creditor support could result in a lengthy reorganisation.
“Ambac has been a corpse for some time,” said Matt Fabian, managing director of Municipal Market Advisors, an independent research firm. “With the credit crisis ongoing and getting worse, it will make any kind of bankruptcy restructuring more difficult, and painful for creditors. The bankruptcy process appears to be going faster than investors expected.”
Shares of Ambac topped $70 as recently as October 2007.
Ambac and larger rival MBIA had been the largest bond insurers before losses on risky debt, including mortgages, caused them in 2008 to lose the “triple-A” credit ratings on which they depended to insure debt in the $2.7 trillion municipal bond market.
City A.M. Reporter