Ambac to Sell Half the Company; Bet May Not Pay Off (Update7) By Christine Richard and Bryan Keogh March 6 (Bloomberg) -- Ambac Financial Group Inc., the bond insurer seeking capital to salvage its AAA credit rating, will sell half the company in a bet some investors said won't pay off. Ambac said yesterday it plans to issue $1 billion of common stock, more than doubling the number of shares outstanding. The New York-based company will also offer $500 million of units that convert to shares in 2011. Investors had anticipated Ambac would be bailed out by banks, which would pledge their own funds to support a capital raising of as much as $3 billion, enough to overcome record losses on subprime-mortgage debt. Instead, the company announced it would raise half that amount in a transaction that would push down the value of its stock. ``The new offering is highly diluting to existing shareholders,'' said Jim Ryan, an insurance analyst at Morningstar Inc., said in an interview with Bloomberg Television. ``The market was looking for a backstop, to say the least.'' The sale of common stock, managed by Credit Suisse Group, Citigroup Inc., Bank of America Corp. and UBS AG, is scheduled for tonight, according to data compiled by Bloomberg. Shares Fall Ambac fell $1.28, or 14.7 percent, to $7.42 today in New York Stock Exchange composite trading. The shares have tumbled 95 percent since May, reducing the company's market value to $754 million. CNBC reported that banks would step up to buy unsold shares. Reuters reported that banks had committed to buying more than half of the shares. Both cited unnamed sources. ``Given the sensitivity over this name, any support should be explicitly explained to the market,'' said Robert Haines, an analyst with CreditSights Inc. in New York. Duncan King, a spokesman for Credit Suisse Holdings US in New York, and Stephen Cohen, a spokesman for Citigroup Global Markets, declined to comment. By proposing a sale of common shares, Ambac is reverting to a plan it abandoned in mid-January. The company announced a $1 billion sale Jan. 16, sparking a 70 percent plunge in its stock, and canceled the offering Jan. 18. ``Based on our estimate that Ambac will eventually absorb about $11 billion of losses from insured CDOs and mortgage-backed securities related exposures, $1.5 billion of new capital at first blush does not seem like enough to fix the capital adequacy problem,'' Andrew Wessel, an analyst at JPMorgan Securities in New York, said in a March 6 research report. CDOs, or collateralized debt obligations, package pools of securities then split them into pieces with different ratings. Dividend Cut Ambac cut its dividend to 1 cent from 21 cents a share and said it will suspend writing guarantees on debt, including mortgage-backed bonds. The combined plans will probably bolster capital enough for an AAA rating, Moody's and S&P said yesterday. Stock investors were ``expecting something different in terms of some type of a more orchestrated event that looked less like a conventional offering of common stock and more like a carefully crafted infusion from business partners,'' said Colin Glinsman, who oversees about $25 billion as chief investment officer at Oppenheimer Capital in New York. Credit Default Swaps Credit-default swaps tied to Ambac's AAA rated insurance unit rose 45 basis points to 570 basis points, the highest in three weeks, according to CMA Datavision in London. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite. Ambac, its larger competitor MBIA Inc., and the rest of the industry stumbled after expanding beyond municipal insurance to guarantees on CDOs that have since tumbled in value. Bond insurers with AAA ratings have guaranteed $2.4 trillion of debt. The loss of Ambac's top rating would cast doubt on $556 billion of municipal and asset-backed securities insured by the company, forcing some investors to sell the debt and others to reduce their holdings. Bank Losses MBIA retained its top rating after the Armonk, New York- based company raised $3 billion, agreed to stop insuring asset- backed debt for at least six months and said it would separate its municipal and structured finance businesses within five years. Banks would lose as much as $70 billion if the top-rated bond insurers lose their credit ratings, Oppenheimer & Co. analysts estimated in January. MBIA's ratings were affirmed by Moody's and S&P last week. Banks bought bond insurance to hedge the risks of CDOs and other asset-backed securities they own. After Ambac canceled initial plans for a sale, eight banks formed a group to help the company find new ways to raise money. The banks' chances of losses caused investors to speculate they would do more to help Ambac raise money. ``The word we kept hearing was bailout,'' Paul Brennan, who helps manage about $12 billion of municipal bond funds at Nuveen Asset Management in Chicago, said in a Bloomberg Television interview. ``While this is a positive development, they do need more capital, it's not really what we would consider a bailout plan.''
Ugly. So many shares it will be range bound for months best case. Worst case zero on worsening credit crisis. Therefore muni mkt/banks will still be held hostage for forseeable future. Way to go Dinallo! lol Can't wait to see the writedowns for feb/march. Ambac bond insurer raises $1.5 billion-source Thu Mar 6, 2008 10:20pm EST NEW YORK, March 6 (Reuters) - Ambac Financial Group Inc (ABK.N: Quote, Profile, Research) sold $1.5 billion of securities on Thursday, a market source said, raising the minimum capital it expected to, but less than some analysts had hoped. The offering should allow the second largest bond insurer to keep the top credit ratings crucial for its business, but some investors wonder if Ambac is raising enough capital given its potential losses. Ambac sold $1.25 billion of common shares, which were priced at $6.75 a share, or 9 percent below their closing price on Thursday. That amounts to the sale of roughly 185 million shares. Ambac had 101.6 million shares outstanding as of Feb. 20, according to its annual report filed with regulators last week. Ambac also sold $250 million of mandatory convertible securities, with an annual dividend of 9.5 percent and a conversion premium of 18 percent, the source said.
Ugly is an understatement, looks to me like they will not survive and this was good money thrown after bad. Interesting to note the abscence if the usual Black Friday threads on ET this evening... even with the vix up a bit today there still seems to be a great deal of complacency.
They TRIPLED the outstanding shares! 6-9 range until volume subsides.Then probably fade to zero assuming AAA CDO meltdown continues. Ambac Prices $1.16B Public Offering Friday March 7, 7:11 am ET Ambac Financial Group Prices $1.16B Offering of About 171.1M Shares at $6.75 Per Share NEW YORK (AP) -- Struggling bond insurer Ambac Financial Group Inc. said Friday it priced a $1.16 billion public offering of about 171.1 million common shares at $6.75 per share. The company said it gave the underwriters a 30-day option to buy up to an additional 25.7 million shares to cover any overallotments. Ambac also priced a $250 million public offering of 5 million equity units at $50 per unit and gave the underwriters a 13-day option to buy up to an additional 750,000 units to cover any overallotments. In addition, Ambac made a private placement of approximately 14.1 million shares for $95 million with two unnamed financial institutions. The company said it plans to give proceeds from the offerings to its Ambac Assurance Corp. division so it can raise its capital position. Ambac will keep about $100 million of the proceeds to pay principal and interest on debt, pay operating expenses and pay capital stock dividends. Ambac also said that proceeds from a settlement related to purchase contracts for some of the equity units will be put toward repaying $142.5 million of debt maturing Aug. 1, 2011, with remaining proceeds held by the company. The company's finances are at issue because it writes guarantees on billions of dollars of questionable structured finance assets. Ambac previously said it would stop providing insurance on structured finance deals for at least the next six months in an attempt to hold onto its capital. Fitch Ratings recently cut Ambac's rating from its top level.
ABK CEO was truly hilarious. Talk about trying to put some lipstick on a pig. Its pretty obvious the regulators were not gonna let this dog die. They couldn't do a split because of costs and litigation. So they did the worst deal they could for possibly the minimum needed for AAA. Ugly. "how could we not pay claims?" he said. But the point is DOES ABK DESERVE AAA?...not!
I agree that the CEO was hilarious. Could shareholders sue him if (when) the company goes bankrupt, given that he said that "No possibility company could fail to pay a claim" ? What a clown.
omg, it can get any funnier, they knew they were about to get the boot. I wonder how they will spin this one