UPDATE: Ambac Mulls Bankruptcy As It Skips Interest Payment
November 01 2010 - 10:35AM
Dow Jones News
Ambac Financial Group Inc. (ABK) warned Monday it may file for
bankruptcy by the end of the year even if it's unable to reach an
accord with debtholders on a pre-packaged bankruptcy agreement.
The announcement came as Ambac, a bond insurer that sold
protection on mortgage securities, said its board had voted to skip
an interest payment on senior notes due in 2023. The payment was
due to be made Monday; if the insurer still hasn't paid in 30 days,
it would be in default and its debtors could accelerate the
maturity of the notes.
The decision to skip the interest payment represents an attempt
to force the hand of Ambac's debtholders. The company, whose
guarantees on mortgage securities have soured as homeowners have
fallen behind on their loans, had already said it had been
attempting to negotiate a pre-packaged bankruptcy with a group of
its senior debtholders. But the default places additional pressure
on creditors who could face a lengthy, costly fight in court if
they don't agree to such a pre-packaged arrangement.
Within 30 days, Ambac said, it will pay the skipped interest
payment, file for bankruptcy without a prior agreement with its
creditors, or reach an agreement and file a pre-packaged
bankruptcy.
Complicating the decision for Ambac's debtholders are $7 billion
of earlier net operating losses. The losses, perversely, are now an
asset: They can be used to reduce taxes the company might pay if it
were to return to a profit. The Internal Revenue Service, however,
places restrictions on how they can be used. One trigger that would
limit their use would be a bankruptcy that replaces debt with
equity and hands a substantial amount of new shares to any
investors that already owned 5% of the stock.
Ambac shares fell by 52% to 40 cents in morning trading.
Ambac said in a securities filing Monday that "several factors"
will influence which path it takes, including "the status of
negotiations with the ad hoc committee of senior debt holders and
actions required to preserve the" net operating losses.
Ambac had total indebtedness of $1.62 billion as of June 30.
Ambac, and its primary regulator, the Wisconsin insurance
commissioner, are also facing a fight with a group of policyholders
over a plan to segregate $50 billion of its policies backing
structured securities. The commissioner's plan, announced in
October, would allow claimholders of those segregated policies to
receive 25% of their claims in cash and 75% in the form of 10-year
notes with a 5.1% coupon. The idea is to preserve enough cash so
the bond insurance unit can continue to pay claims on the rest of
its policies.
Ambac's bond insurance unit hasn't underwritten new business
since mid-2008.
-By Erik Holm, Dow Jones Newswires; 212-416-2892;
erik.holm@dowjones.com
(Matt Jarzemsky contributed to this article.)
AMBAC (NYSE:ABK)
Historical Stock Chart
From Jun 2024 to Jul 2024
AMBAC (NYSE:ABK)
Historical Stock Chart
From Jul 2023 to Jul 2024