* Ambac 3rd-quarter statutory capital of $856 mln
* Results follow concerns over potential shortfall
* Shares rise 44 percent to $1.01 in regular session
(Adds information on S&P ratings action, updates shares)
By Lilla Zuill
NEW YORK, Nov 18 Ambac Financial Group Inc
ABK.N said on Wednesday that the statutory capital of its
main unit was well above a regulatory minimum at the end of the
third quarter, easing concerns the company would fall short of
funds and risk being taken over by state officials.
Ambac shares soared 44 percent to $1.01 during the regular
session on the New York Stock Exchange and were a penny higher
in late trading after Standard & Poor's said it could raise
Ambac said statutory capital for Ambac Assurance Corp was
$856 million. That is many times more than the minimum capital
base of $2 million required of bond insurers by the insurance
regulator for Wisconsin, where the company's bond insurance
unit is based.
Regulators can seize a company when capital -- a surplus of
assets over liabilities -- sinks below regulatory minimums.
"Ambac fights on to live another day, another quarter and
perhaps beyond," Hexagon Securities analyst David Havens said
after the disclosure.
Ambac said it benefited from several factors, including
$311 million from reinsurance payments, and its ability to
commute, or cancel, four asset-backed securities derivative
contracts that had been worth more than $5 billion, for cash
payments of $520 million.
The company also expected to receive $440 million in tax
refunds as a result of new legislation. This should give AAC's
regulatory capital a boost in the fourth quarter, said Ambac.
Later on Wednesday, S&P said it lowered the counterparty
and financial enhancement ratings on Ambac Assurance Corp to
'SD' (selective default) because it viewed the commutations as
distressed exchanges. But the ratings firm added that the $520
million in payments was substantially less than the losses it
expected and it expects to raise these ratings in the near
future, most likely to the 'CCC' category.
Like larger rival MBIA Inc (MBI.N), Ambac has struggled to
write new business since it lost top-notch ratings last year
and has continued to struggle with derivatives losses,
including losses tied to repackaged residential mortgage debt.
Ambac, once the No. 2 U.S. bond insurer, warned on Nov. 10
that bankruptcy could be an eventual possibility, based on
projections that it could run out of liquidity by the second
quarter of 2011.
After Ambac's announcement, the cost to insure the
company's debt narrowed, although the rates show investors
still believe there is significant risk.
Credit default swaps on Ambac Assurance fell around 6
percentage points to 73.5 percent the sum insured as an upfront
cost, or $7.35 million to insure $10 million in debt for five
years, plus annual payments of $500,000, according to Phoenix
(Reporting by Lilla Zuill and Karen Brettell; editing by Lisa
Von Ahn, Tim Dobbyn and Andre Grenon)