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Daily Insurance Industry News
Sunday 21st of January 2018
February 26, 2008

Ambac rescue package too little, too late

by Gill Montia

Story link: Ambac rescue package too little, too late

A rescue package for Ambac, the bonds insurer in danger of having its credit rating downgraded, may have come too little, too late.

A consortium of banks, including Barclays and Royal Bank of Scotland, are working on a $3 billion package that has yet to be finalised but it is rumoured that Ambac could need far more than the $3 billion proposed.

If the rescue attempt fails, Ambac could enter into a financial decline that will mean further writedowns for the banking sector.

Ambac guarantees the payment of interest and principal on certain securities and is currently facing a steep rise in claims because of defaults on sub-prime mortgages.

The company underwrites $550 billion of debt, including $67 billion of collatoralised debt obligations (CDOs), which are bundles of bonds and other assets backed by sub-prime mortgages.

It is understood that as part of the rescue plan, Ambac will need to raise $2.5 billion through a rights issue and a further $500 million by issuing new debt.

Any discounted shares not sold under the rights issue will be bought by the banking consortium.

However, Tamara Kravec, an analyst for Banc of America Securities, comments: “Is $3 billion enough? Our worst-case scenario puts losses at around $8 billion.”

Meanwhile, MBIA, a rival bond insurer, is being sued by law firm, Coughlin Stoia Geller Rudman & Robbins, for allegedly issuing false and misleading statements about its exposure to CDOs.

 

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