Ambac up on Wilbur Ross buyout reports; Restoration Hardware, Catterton lower sale price

By Evan Weinberger

New York, Jan. 25 - Distressed debt maven Wilbur Ross turned his attention to the subprime mess in the summer. Could a foray into the morass of sinking bond insurers be on the way as well?

London's Evening Standard newspaper reported Thursday that the man who made his billions bailing out steel and textile companies was in serious negotiations to buy out Ambac Financial Group Inc. The report said the deal could be done within two weeks.

Other media reports say Ross is considering starting his own bond insurance business.

New York-based Ambac, much like its Armonk, N.Y.-based rival MBIA Inc., made its money insuring bonds issued by states, municipalities and later companies. Things turned bad when Ambac and MBIA got involved with the mortgage-backed securities and CDOs that have seen their value plunge since last year.

Ambac and MBIA traded on their triple-A ratings from the three major ratings agencies. Ambac, at least, can't do that anymore. Fitch Ratings downgraded Ambac to AA from AAA last week. Moody's Investors Service and Standard & Poor's are reviewing both MBIA and Ambac's ratings.

Ambac's stock has lost 87% of its value over the last year, according to Bloomberg, mostly due to its mortgage-backed securities portfolio. The bond insurer announced a $3.26 billion fourth-quarter loss Tuesday. Earlier, the company had slashed its dividend by two-thirds.

New York State has begun pushing Wall Street to bail out the monoline insurers. But the $15 billion state regulators are proposing is chump change compared with other estimates that surfaced Friday. Barclays estimates that a bailout could cost as much as $143 billion. Other reports said it would take up to $200 billion.

Warren Buffet's Berkshire Hathaway holding company has already received a license from New York State to start his own bond insurance company. Several private equity firms, including TPG, are considering setting up their own bond insurance wings, the Financial Times reported Friday.

A trader said he expected Ross to stick with an existing firm, like Ambac, rather than striking out to start his own. "He knows how to price risk. If he does it, it will be structured in a manner where he wins," the trader said. "Wilbur is a bright man and knows what he is doing."

Ambac (NYSE: ABK) stock rose more than 11% on the news early in the day but slid as the markets went south in the afternoon. In the end, Ambac's stock rose 21 cents, or 1.85%, for an $11.54 close.

MBIA stock (NYSE: MBI) fell 20 cents, or 1.39%, to close at $14.20.

Hamilton, Bermuda-incorporated bond insurer Security Capital Assurance Ltd. (NYSE: SCA) gained 34 cents, or 12.93%, for a $2.97 close.

A second Hamilton, Bermuda-incorporated bond insurer, Assured Guaranty Ltd., also rose Friday. The stock (NYSE: AGO) picked up 28 cents, or 1.32%, to close at $21.46.

Markets rise, then fall

Spurred by positive earnings from Microsoft Corp. and the potential move on Ambac, stock markets rallied early Friday.

They couldn't hold the gains, however, and a sell-off began in the afternoon. Unemployment worries and continued credit concerns drove stocks down. A bout of afternoon cashing in also worked to lower the three major indices after two days of big gains.

The Dow Jones Industrial Average fell 171.44 points, or 1.38%, to close at 12,207.17.

The Nasdaq gave back 34.72 points, or 1.47%, for a 2,326.20 close.

The Standard & Poor's 500 closed at 1,330.61, a loss of 21.46 points, or 1.59%.

Restoration Hardware goes on sale

Collapsing credit markets and a weakening overall economy caused the breakup of several leveraged buyouts in the second half of 2007.

Restoration Hardware Inc. and Catterton Partners won't be going down that road, however.

The Corte Madera, Calif.-based specialty home furnishings retailer and the Greenwich, Conn.-based private equity shop agreed Thursday to lower Catterton's purchase price for the chain.

Under the amended merger agreement, Catterton will pay $4.50 for each outstanding share of Restoration Hardware stock. The deal was originally announced in November at $6.70 per share.

The total value of the deal dropped to $179 million from $267 million.

Catterton also provided Restoration Hardware with a $25 million subordinated loan to give it some more working capital.

A gloomy retail outlook in the face of the slowing economy drove the two parties together.

"The amended merger agreement today comes as the company and the home related retail sector face increased pressure," Restoration Hardware said in a statement Thursday after the close. "The subordinated loan provides the company with substantially enhanced near-term liquidity to operate in the current environment.

"The amended merger agreement provides our shareholders a substantial premium to both the unaffected stock price on November 7, 2007, and our current stock price while providing greater certainty of closure."

To that end, the two sides agreed to extend the deadline for closing the deal to the end of June this year from the end of April.

The statement said Restoration Hardware and Catterton Partners still expect the deal to close by the end of the first quarter.

Restoration Hardware stock (Nasdaq: RSTO) was up 19 cents, or 4.91%, for a $4.06 close Friday.

© 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.