Ambac discussing strategic alternatives following elimination of plan to raise equity capital

By Jennifer Lanning Drey

Portland, Ore., Jan. 22 - Ambac Financial Group Inc. is exploring strategic alternatives with a number of parties after deciding to do away with its previously announced plan to raise $1 billion through equity and equity-linked securities offerings, Michael Callen, Ambac's chairman and interim chief executive officer, said Tuesday during the company's fourth-quarter earnings conference call.

Though constrained in the level of detail he could provide during the call, Callen said the company is talking to credible parties as well as with regulators who are already familiar with the company's plans.

"We are exploring the attractiveness of these alternatives as we look for opportunities that will grow shareholder value and enable us to build on Ambac's fundamental strengths. At the same time, we would expect that over the longer term, as the market normalizes and perceptions correspond more closely to reality, the market will more accurately assess our assets and strengths," Callen said in the company's earnings release.

During the question-and-answer portion of the call, Callen assured investors that the company remains mindful of share dilution in its plans, though again he said he was unable to provide further detail.

"Statements of guarantee would be out of order here but trust me, we know what the sensitivities are and what our loyalties have to be," he said.

The strategic alternatives are being pursued in light of Ambac's decision not to move forward with the capital-raising plan it announced on Jan. 16. At the time, the company believed the plan to raise $1 billion through equity and equity-linked securities would have allowed it to maintain its triple-A rating from the three ratings agencies.

However, following the announcement of the plan, Moody's Investors Service put Ambac on review for possible downgrade, causing its stock to decline and leaving the company uncertain as to how much capital it would in fact need to raise to maintain its triple-A rating.

The uncertainty combined with market conditions led Ambac to determine that raising equity capital no longer appeared to be an attractive option, Callen said.

Fitch downgraded Ambac's insurance financial strength rating to AA from AAA on Jan. 18.

Fundamentals defended

Ambac reported a $3.3 billion net loss for the fourth quarter, compared with fourth-quarter 2006 net income of $202.7 million. The decrease is due to $5.2 billion taken in non-cash mark-to-market losses on credit derivative exposures, the company reported Tuesday.

Despite the losses, Ambac's management spent much of Tuesday's call defending the company's fundamentals and liquidity position.

"The loss estimates incorporated in Ambac's stock price today and loss assumptions supporting various models cited in the market are very disparate and very drastic, and personally, I cannot find the logic underlying these assumptions," Callen said.

The interim CEO argued that the company's future potential is being underestimated, given that Ambac has claims-paying ability of $14.5 billion and corporate debt service requirements and expenses that are significantly lower than current dividend capacity from the operating company.

The company's chief financial officer, Sean T. Leonard, also told listeners that Ambac recently amended its $400 million credit facility to exclude mark-to-market adjustments, aside from amounts considered to be credit impaired, from the determination of net worth. Therefore, the company has not breached any of the covenants on the untapped facility, he said.

Leonard also said the holding company's next debt maturity is $143 million maturing in 2011 but that most of its debt is long term.

Ambac is a New York-based bond guarantor.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.