Ambac's new capital may protect rating: agencies

NEW YORK (Reuters) - Standard & Poor's and Moody's Investors Service said on Wednesday that Ambac Financial Group may hang on to the "AAA" ratings of its bond insurance arm if plans to raise at least $1.5 billion in new capital are successful.

The rating agencies kept the ratings on review for downgrade for now, but said success at strengthening the company's capital base, along with other plans for reducing risk, could result in an affirmation of Ambac Assurance Corp's crucial top ratings.

Ambac Financial Group said earlier on Wednesday it has begun a public offering of at least $1 billion of common stock and $500 million of equity units.

S&P and Moody's have had Ambac Assurance Corp's "AAA" rating on review for a possible downgrade since January. Fitch cut Ambac Assurance to "AA" from "AAA" on January 18 and kept the rating on review for another downgrade.

If Ambac raises the capital it needs, S&P said it would probably take Ambac off review for an immediate downgrade but give it a "negative" outlook, indicating the risk of a downgrade over the long term.

Fitch Ratings, however, said the rating would likely be affirmed at "AA" if the capital-raising plan is successful.

"Fitch does not believe it will be possible for Ambac to regain its 'AAA' rating until its subprime risk can be effectively contained," the agency said.

Massive delinquencies on U.S. subprime mortgages have battered the quality of structured products Ambac insured, increasing the capital it needs for top ratings.

(Reporting by Dena Aubin; Editing by Jan Paschal)