Fitch puts Ambac on watch

Fitch Ratings said it placed Ambac Financial Group, Inc.'s AA long-term rating, AA senior unsecured notes - including the $400 million 5.95% notes due 2035, $142.5 million 9 3/8% debentures due 2011 and $75 million 7½% debentures due 2023 - and $400 million subordinated notes due 2087 on Rating Watch negative.

This follows the completion of the updated assessment by Fitch into Ambac's current exposure to structured finance collateralized debt obligations backed by subprime mortgage collateral, including CDO-squared securities, which together totaled $32.2 billion as Sept. 30, as well as Ambac's exposure to residential mortgage-backed securities.

The agency said its review indicates that Ambac's capital adequacy under Fitch's Matrix financial guaranty capital model currently falls below guidelines for the current rating by around $1 billion. If at any time during the next four to six weeks, Ambac is able to obtain further capital commitments or put in place additional reinsurance or other risk mitigation measures, the agency said it will likely affirm the ratings with a stable outlook. If Ambac is unable to address its capital shortfall in the noted timeframe, Fitch said it expects to downgrade Ambac's ratings.

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