• 06 Mar 2008 at 2:52 PM
  • Ambac

Ambac’s Backstop: Would You Rely On These People?

Ambac and government officials, clearly dismayed at the skepticism over the $1.5 billion rescue financing plan announced yesterday, have been spreading the word that the banks underwriting the deal have agreed to “backstop” the deal if market demand for the shares and equity units falls short. Private equity investors have also agreed to buy what the Wall Street Journal describes as “a certain portion” of the shares on the open market.
But how firm are these commitments? It’s almost impossible to know because Ambac did not disclose the backstop yesterday when it filed the prospectuses for its pair of offerings with the SEC. That means investors are being asked to rely on vague talk from unnamed sources, which is hardly a recipe for confidence.
What’s worse, we’re all too well aware that banks and private equity firms have all found ways out of supposed firm commitments to takeover deals in recent months. If Ambac does continue to lose market share to competitors, including upstart bond insurer Warren Buffett, or if the credit markets continue to be turbulent, it wouldn’t be very hard for banks to decide the situation had worsened enough to let them out of their backstop commitments. All financings have conditionality built-in, allowing banks to withdraw under certain circumstances.
It doesn’t help that Ambac has been acting so odd through this. Why did they hold the news of the backstop back a whole day? Reuters reported today that the backstop was not disclosed “because backstops are sometimes seen by investors as a sign of issuer weakness.” That might make sense in when a company goes public with an IPO, but it’s hard to believe that there are any investors who aren’t already clued in to Ambac’s weakness. In this case it smells like pure spin.
ABK Problems Not Over [CNBC]
Ambac’s Capital Plan: Far Enough? [Wall Street Journal]
Banks Committed to Backstop Ambac Shr Sale-Source [Reuters]

  • 05 Mar 2008 at 3:11 PM
  • Ambac

Ambac Offering: Is That It?

Ambac Financial Group, the so-called monoline bond insurer which has operating under the shadow of a credit-rating downgrade that would likely wipe-out its business, announced plans to sell $1.5 billion of common stock and equity units to bolster its capital. The market promptly threw up all over the trading floor.
It’s a safe bet that Ambac has the offering fully subscribed at this point. If they didn’t have commitments from buyers they wouldn’t have given us the $1.5 billion figure. But the announcement fell short of the hopes and rumors that had become ubiquitous on Wall Street in the last two weeks. Reports had lead many to believe that Ambac would be receiving an immediate capital infusions from a consortium of banks. Instead we got a prospectus for a public offering. The market was looking for between $2 billion and $3 billion. It got one and half billion. It looks like the private equity money walked away from the deal, leaving Ambac short of market expectations.
The ratings agencies seem to be split. Moody’s Investor Services said it believes that if the offerings are successful they would be able to affirm the company’s top-notch AAA rating. Fitch immediately announced that Amac would unlikely to recover its AAA rating with this move—they’re keep Ambac at AA and on negative credit watch. Standard & Poor’s, which affirmed Ambac’s ratings last week, hasn’t said anything.
Shares of Ambac promptly dropped as much as 20 percent but have started to recover a bit.
The prospectus for the equity units is here. And the common stock prospectus is here.

Barry Ritholtz wonders if there might not be some kind of market manipulation behind the rumors that saw Ambac’s shares run-up earlier today.

WSJ Marketbeat announced “Ambac Bailout Imminent! Maybe! Possibly!”
Then we learn that the deal was dead, and that Ambac needs to raise $1.5 billion dollars. Thus, all of those rumors and CNBC appear to have been patently false.
But here’s the question that keeps coming up: Who are the people leaking this information? And, is this legal? Now, we have learned that all of these attempts at manipulating the market were based on rumors that proved to be false.

  • 06 Feb 2008 at 10:16 AM
  • Ambac

Buyback To Oblivion: MBIA and Ambac

“So, in the name of enhancing shareholder value, Ambac and MBIA respectively spent $1,015,036,000 and $1,843,044,000 worth of cash for stock buybacks (over the past seven years). But, and now you know this, such cash expenditures reduced liquidity and net worth by those exact amounts. How can this be deemed responsible behavior when both companies are expressly in the business of insuring bonds and providing financial guarantees?” asks Eric Englund.

  • 29 Jan 2008 at 2:09 PM
  • Ambac

That Monoline Bailout: The Entity, 2008 Edition

It’s the new MLEC. And it’s probably not going to work out. Willbur Ross is not about to buy up Ambac. But, hey, everyone can be happy because Warren Buffett is riding to the rescue.

One of the things that is very apparent from Merrill’s earning’s statement is that the banks face serious counter-party risk now that bond insurers have run into trouble. Merrill took “credit valuation adjustments” of $2.6 billion related to hedges with financial guarantors on US ABS CDOs.
“These amounts reflect the write down of the firm’s current exposure to a non-investment grade counterparty from which the firm had purchased hedges covering a range of asset classes including U.S. super senior ABS CDOs,” Merrill stated.
But this could only be the tip of the iceberg. The downgraded counterparty is said to be ACA. But other bond insurers, including the giant Ambac, are facing write-down risk. Last night Moody’s told the market that Ambac is in serious risk of a downgrade.
According the FT Alphaville, the bank’s total exposure via credit default swaps purchased from the bond insurers for super senior CDOs is $19.9 billion, so if there are more downgrades there is a potential for even larger “credit valuation” write-downs. And that’s just Merrill.