NEW YORK Nov 19 Ambac Financial Group ABK.N
said on Wednesday it has reached an agreement with
counterparties to tear up $3.5 billion of its exposures to
risky mortgage backed debt, which will improve its capital
The bond insurer, whose business has virtually dried up
since its insurance arm Ambac Assurance Corp lost its top "AAA"
ratings in June, said it paid $1 billion to terminate the
exposures it had from selling protection on the assets through
Collateralized Debt Obligations (CDOs).
"It's a positive deal for Ambac," said David Havens, desk
analyst at UBS in Stamford, Connecticut. "At the end of the day
Ambac would probably have had to pay more than $3.5 billion to
its counterparties, though that would have happened over a
longer period of time."
The company said it expects to be able to make positive
adjustments to its mark-to-market and impairment reserves as a
result of the settlements.
"Ambac has consistently emphasized that in this period of
extreme uncertainty in the capital markets, the de-risking and
de-leveraging of our balance sheet is our highest priority,"
Chief Executive David Wallis said in the release. "These
settlements represent positive and tangible steps towards that
Standard & Poor's cut its ratings on Ambac and its
insurance arm Assurance earlier on Wednesday, saying the
company remains exposed to heavy losses on U.S.
The agency cut its financial strength rating on Ambac
Assurance three notches to "A," or the sixth-highest investment
Earlier this month Moody's Investors Service cut Ambac
Assurance four notches to "Baa1," the third-lowest investment
grade, from "Aa3."
(Reporting by Karen Brettell;)