January 18, 2008 / 7:27 PM / 10 years ago

UPDATE 1-S&P may slash "AAA" ratings of Ambac Assurance

(Adds detail, S&P quotes)

NEW YORK, Jan 18 (Reuters) - Standard & Poor's on Friday said it may cut its top "AAA" ratings for Ambac Financial Group's insurance unit, Ambac Assurance Corp, citing the bond insurer's decision to scrap a planned $1 billion equity issue.

"The decision not to proceed with the equity offering is symptomatic of an environment in which Ambac's capital-raising options are impaired," S&P said in a news release.

S&P also said it may cut its "AA" rating for parent company Ambac Financial Group.

Ambac's planned equity issuance was meant to shore up its balance sheet as securities linked to mortgages and other consumer debt suffer from unexpectedly high losses.

A ratings cut would place Ambac at a competitive disadvantage to other insurers, and could dramatically reduce its new business.

"Ambac continues to explore capital-raising options, but it is increasingly uncertain whether it can implement any of these over the near term," S&P said.

The rating firm said it identified a capital shortfall of approximately $400 million in new capital, based on the results of a recent stress test.

"The amount of capital that Ambac may need to sustain our view of the current ratings could continue to increase," the rating firm said. (Reporting by Neil Shah; Editing by Theodore d'Afflisio)

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