Trading volume in shares of Ambac Financial Group (ABK) is up 46.5% Friday as the market continues to react to a potential bankruptcy filing from the insurance holding company. Earlier this month in its quarterly filing, Ambac said it’s “highly unlikely” its main operating unit – muni-bond insurer Ambac Assurance – “will be able to make dividend payments” to the parent company for the foreseeable future. The company expects to have enough cash to pay expenses and debt into the second quarter, but “no guarantee can be given” that it will be able to do as much. The economic crisis has devastated Ambac Assurance because it wrapped too many mortgage-backed securities that have crumbled as housing prices have steadily plummeted. Moody’s Investors Service said this week that Ambac has begun a prepackaged bankruptcy proceeding, which could save time and money compared to a normal Chapter 11 filing. Ambac owes $1.2bn, including maturing principal of $122.2m on senior notes due August 2011, and has $56.7m in cash, as of June 30, according to Moody’s. Moody’s said one bankruptcy-restructuring scenario would have Ambac’s creditors swapping debt for common stock and emerging as owners of the new entity. And the company recently exchanged 13.6m shares, or 5% of its common shares outstanding, for $20.3m of the August 2011 debt that’s coming due. Write to Jason Philyaw.