UPDATE 2-Bond insurer Ambac raises $1.5 billion -source

(Adds analyst comment, detail on share sale, background)

By Dan Wilchins

NEW YORK, March 6 (Reuters) - Bond insurer Ambac Financial Group Inc ABK.N sold $1.5 billion of securities on Thursday, a market source said, raising the minimum capital it expected to, but less than some analysts say the company needs.

The offering will likely allow the second largest bond insurer to hold on to the top credit ratings crucial for its business.

"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.

But some analysts wonder if Ambac is raising enough capital, given its potential losses from insuring repackaged subprime mortgages and other risky debt.

Ambac sold $1.25 billion of common shares at $6.75 a share, or 9 percent below their closing price on Thursday, the source said. The stock offering nearly tripled the number of Ambac shares outstanding.

It also sold $250 million of mandatory convertible securities, paying 9.5 percent per year and with a conversion premium of 18 percent.

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.

Investors that can only hold top-rated debt could then have to sell billions of dollars of Ambac-guaranteed bonds, lifting borrowing costs for cities and consumers alike.

Some analysts believe that Ambac's potential losses from insuring subprime mortgage bonds and other risky debt are so high that even this new capital will not suffice.

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

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

KEEPING TOP RATINGS

The extra capital should allow both Standard & Poor's and Moody's Investors Service to keep their top "triple-A" credit ratings on Ambac Assurance Corp, Ambac's main unit. Both rating agencies said on Wednesday they would likely affirm Ambac Assurance's ratings if it successfully raised capital.

But S&P said on Wednesday 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.

Ambac's shares fell 14.71 percent on Thursday to $7.42 on the New York Stock Exchange, a day after falling more than 18 percent. Ambac's shares have fallen more than 90 percent since the start of 2007. (Reporting by Dan Wilchins; Editing by Alan Raybould)