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  • bluecheese4u bluecheese4u Mar 5, 2008 2:38 PM Flag

    Report: Ambac deal may be imminent

    Report: Ambac deal may be imminent

    ALBANY, N.Y.

    A bailout of bond insurer Ambac Financial Group Inc. is scheduled to be announced as early as Wednesday afternoon, according to a person close to the talks who spoke on the condition of anonymity because the deal was not final.

    The deal would split Ambac's operations into a top-rated municipal bond business and a structured finance unit. Ambac is in trouble because the company wrote guarantees on billions of dollars of questionable structured finance assets.

    Ambac also announced Wednesday that it will offer $1.5 billion in common stock and equity units to boost its reserves in an effort to maintain its "AAA" credit rating. The insurer essentially needs that rating to book new business.

    The New York-based bond insurer said its total offering consists of a public stock offering for at least $1 billion and a $500 million offering of equity units. The company also said it plans to stop underwriting all structured finance businesses for six months to accumulate capital and will stop underwriting certain structured finance businesses.

    Ambac shares fell $1.17, or 10 percent to $9.59. The company has been trying for several months to secure more capital to maintain its credit rating and keep operating as usual. Its protracted search for capital, and the problems of other bond insurers, has added to the anxiety on Wall Street and also caused problems in the municipal bond market.

    The person who spoke on condition of anonymity about an Ambac bailout 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.

    "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.

    Ambac spokesman Douglas Renfield-Miller wouldn't comment on whether a deal was imminent, but said before the offer announcement Wednesday that the company is pursuing several options.

    The proposal to split Ambac into two divisions might have attracted capital from private equity funds and wealthy investors eager to gain exposure to the generally lucrative municipal bond insurance business. On the other hand, private investors seeking handsome double-digit returns would not have been likely buyers of a new company specializing in risky structured finance insurance.

    New York state Superintendent of Insurance Eric Dinallo has been working on a solution for Ambac and its rival, MBIA Inc. MBIA also guarantees on billions of dollars of questionable structured finance assets. Ratings agencies Moody's Investors Service and Standard & Poor's Corp. said in past the insurers would need much higher capital levels to pay claims on defaults on the risky assets -- though they recently reaffirmed MBIA's ratings and said it did not need to raise more capital.

    MBIA had also said it would stop providing insurance on structured finance deals for at least the next six months.

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