S&P: Ambac outlook negative

Standard & Poor's said it revised its outlook on Ambac Assurance Corp.'s CC counterparty credit rating to negative from developing. The outlook on the CC financial strength rating remains developing.

In addition, the agency affirmed its CC counterparty credit rating on Ambac Financial Group Inc. Its outlook remains negative.

Ambac has received regulatory approval to release contingency reserves to bolster its surplus, but S&P said the rating reflects its view that there could be additional commutations that it will view as distressed exchanges.

The rating also reflects the agency's view that further deterioration in Ambac's insured portfolio of nonprime residential mortgage-backed securities and related CDO of ABS exposure would require the company to strengthen reserves to account for higher projected claims. S&P said the additional reserves will hurt operating results, which the agency believes could cause the surplus to decline to below regulator-required minimums.

The negative outlook on Ambac Financial reflects the company's dependence on dividends from Ambac to pay its debt.

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