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05 December 2023

Ambac raises $1.5bn to help save credit rating

By Agencies


Ambac Financial Group said on Friday it sold $1.5 billion of shares and convertible debt, helping to protect the bond insurer from rating downgrades but not satisfying some analysts who wanted it to raise more.


Ambac said it sold $1.25bn (Dh4.58bn) of common shares at $6.75 a share, or nine per cent below their closing price on Thursday. The stock offering nearly tripled the number of Ambac shares outstanding.


The company also sold $250 million (Dh917.5m) of mandatory convertible securities, paying 9.5 per cent per year and with a conversion premium of 18 per cent. Those securities convert to shares beginning in 2011.


Chief Executive Michael Callen said the capital raising should be sufficient for the company's Ambac Assurance Corp unit to retain its critical "triple-A" financial strength ratings.


Asked on CNBC television if Ambac would seek more capital, he said "no time soon," assuming the business is successful.


Shares of Ambac fell 87 cents, or 11.7 per cent, to $6.55 in pre-market electronic trading. They have fallen more than 90 per cent since the start of 2007.


The bond insurer needs to shore up its capital base as it faces big expected payouts from guaranteeing subprime mortgage bonds and other risky debt. Rating agencies said on Wednesday that they would likely affirm Ambac's top ratings if it successfully issued securities.


"I'd rather they didn't need new capital. But hopefully this will take care of one of the lingering concerns about the company," said Peter Kovalski, a portfolio manager at Alpine Woods Capital Investors, which owns Ambac shares and ordered more in this offering.


Financial markets have been waiting for Ambac to raise capital for weeks. Many investors feared that Ambac's potential losses would trigger ratings downgrades for the bond insurer, which in turn could lower the ratings on the bonds it insures.


Those downgrades could have forced investors to sell billions of dollars of Ambac-guaranteed bonds, lifting borrowing costs for cities and consumers alike. Ambac had guarantees on about $524bn of outstanding debt as of December 31.


But even with the threat of a downgrade less imminent, some analysts wonder whether Ambac is raising enough funds, given its potential losses.


Goldman Sachs analysts said earlier on Thursday that Ambac needed to raise $2.5bn.




Some investors in the company's shares say that Ambac has more than enough capital and available funds to pay expected claims. At the end of December, Ambac said it had about $14.5bn of funds to pay claims, including money it will receive from policies in the future.


The share and convertible sales boost that level to $16bn. Measures like cutting its quarterly dividend and suspending writing insurance on structured finance will also help boost funds available for claims.


Ambac has had to write downbns of dollars of credit derivatives, but those writedowns will not necessarily translate to actual losses.


Markets globally are jittery. Hedge funds are widely seen as liquidating assets, and banks are less willing to extend credit.


US corporate bond risk premiums are rising to record highs as stocks tumble, Japanese government bond futures are hitting their highest levels in two-and-a-half years, and the UK FTSE 100 share index has fallen nearly 11 per cent this year.




Ambac's sale of shares and convertibles ends weeks of negotiations among banks and New York State Insurance Superintendent Eric Dinallo regarding new capital for Ambac.


Investors had hoped that the bond insurer would get funding from banks as a vote of confidence. Ambac instead announced a public offering, which many portfolio managers interpreted as a vote of no confidence in the insurer.


A person familiar with the matter said on Thursday that a group of banks had in fact agreed to backstop a portion of the share sale, but had elected not to publicise that fact.


Ambac sold roughly 185 million shares on Thursday night. It had 101.6 million shares outstanding as of February 20, according to its annual report filed with regulators last week.


Both Standard & Poor's and Moody's Investors Service said on Wednesday they would likely affirm their top, triple-A ratings on Ambac Assurance, Ambac's main unit, if the company successfully raised capital.


But S&P said it would likely put Ambac on "negative outlook," signalling a downgrade was more likely over the medium term.


Fitch rates Ambac Assurance "AA" and said on Wednesday that raising the additional capital would allow the insurer to keep that rating. (Reuters)