Trading in shares of troubled bond guarantor Ambac Financial were halted early Wednesday afternoon for pending news, although no official statement has been released just yet. Numerous news agencies are reporting that Ambac will announce a bailout agreement that will see the monoline split apart its municipal bond business and establish a seperate structured finance unit. From the Associated Press:

The person who spoke on condition of anonymity said one of the details to be worked out with New York insurance regulators is when an announcement could be made without disrupting the markets. The announcement could be postponed until next week even if the deal is final. Ambac’s troubles have sent stock prices plunging in recent months. “A lot of progress has been made” in the last two days, the person said. A second person familiar with the talks who also spoke on the condition of anonymity said the deal is final and would be announced shortly.

Shares of rival insurer MBIA jumped on the expected news, and were up more than 4 percent to $13.48 in afternoon trading on the NYSE. Ambac’s shares were halted at $11.35, up 5.9 percent before trading was stopped. The monolines provided the top-rated portions of MBS deals with a guarantee that essentially is designed to serve as a private-party proxy for the government guarantee that exists on Fannie/Freddie/Ginnie bond issues. But the strength of that guarantee is only as good as the rating of the firm that provides it, which means that downgrades to bond insurers are wreaking havoc on the already unsteady mortgage-backed bond market, as investment-grade securities are seeing their top ratings vanish. Sources suggested to HW that private equity funds were jumping at the chance to get into the municipal bond business, making pursuit of a split sensible for Ambac.