Ambac Warns of Impending Bankruptcy
After posting profits of nearly $2.2bn in Q309, bond insurer Ambac Financial Group (ABK) warned in a regulatory filing that it may need to file for bankruptcy protection. In the Securities and Exchange Commission (SEC) filing, Ambac said the $164.7m it holds in cash, short-term investments and bonds is sufficient liquidity to last it until Q211, but acknowledged that it was not a guarantee and it might run out before then. The company said its primary subsidiary, public finance and structured finance obligations guarantor Ambac Assurance, has been unable to pay dividends in 2009 and will likely be unable to pay dividends in 2010, without the approval of its regulator, the Office of the Commissioner of Insurance (OCI) in Wisconsin. Without the dividend payments, Ambac will be unable to pay operating expenses and cover debt. “Ambac is developing strategies to address its liquidity needs; such strategies may include a negotiated restructuring of its debt through a prepackaged bankruptcy proceeding,” the company said. “No assurances can be given that Ambac will be successful in executing any or all of its strategies. If Ambac is unable to execute these strategies, it will consider seeking bankruptcy protection without agreement concerning a plan of reorganization with major creditor groups.” Rival monoline MBIA (MBI) posted a $727.8m loss in Q309. The two firms have struggled under the weight of mounting collateralized debt obligation (CDO) payouts stemming from the burst of the housing bubble. Ambac said its continued struggles led to increased oversight by the OCI, which is evaluating Ambac Assurance’s ability to pay all claims in its insured portfolio. “While no proceeding is currently pending, following such evaluation and depending on the result of such review, OCI could decide to initiate delinquency proceedings with respect to Ambac Assurance to protect the interests of policyholders,” the filing said. “A number of adverse consequences could result from the initiation of delinquency proceedings, including the occurrence of an event of default with respect to Ambac’s debt, which could result in acceleration of principal in the amount of [$1.64bn], termination of credit default swap.” Write to Austin Kilgore.