Ambac unlikely to be seized by regulators - report

NEW YORK Nov 16 (Reuters) - Ambac Financial may fall short of statutory capital when it reports its numbers later on Monday, but regulators will likely hold off before before putting the insurer into receivership, independent research service CreditSights said.

Ambac Financial Group Inc ABK.N, one of the largest U.S. bond insurers, warned last week it could be forced to file for bankruptcy if it cannot solve its liquidity problems.

"While Ambac's statutory capital position could very well be in a deficit when numbers are released, we would note that regulators are likely to be predisposed toward any workout solution," CreditSights analyst Rob Haines said in a research note on Monday.

"At the insurance company level, we believe that the most likely action by Wisconsin insurance regulators will be no action," he said.

Wisconsin, where Ambac's bond insurance unit is incorporated, requires bond insurers to have a minimum capital base of $2 million, Haines said.

Insurance companies can be seized by regulators when they do not meet minimum requirements for statutory capital, a surplus of assets over liabilities.

Ambac has been struggling since taking massive losses on complex debt securities it insured and losing its top credit ratings last year.

"During our most recent meeting, the New York insurance regulators intimated to us that they were comfortable with a monoline being 'marginally insolvent' for a few quarters in the hopes that workout could be executed," though a material insolvency has to be addressed immediately, Haines said.

Because of the close collaboration on bond insurers between New York and Wisconsin, Ambac would likely be allowed to remain out of receivership for at least a few quarters if it became only marginally insolvent, he said.

Based on where Ambac's credit default swaps are trading, "investors are expecting negative results" when Ambac reports statutory capital, Haines said.

Five-year credit default swaps on Ambac Assurance Corp, the bond insurance unit, were trading at 78.5 percent upfront on Monday, up from 75 percent on Nov. 9 before its bankruptcy warning, according to data from CMA DataVision. That means it costs $7.85 million in an upfront payment plus $500,000 in annual premiums to insure $10 million of debt, reflecting high expectations of default.

Haines also said that any prepackaged bankruptcy at the holding company level is also premature.

At the holding company, Ambac had $165 million of cash, short-term securities and bonds at the end of the last quarter, while its annual debt service costs amount to only $89 million.

Even at an accelerated cash burn rate, the holding company's liquidity is solid well into 2010, he said. (Reporting by Dena Aubin; Editing by Dan Grebler)