Ambac raises $1.5 billion to help save credit rating

By Dan Wilchins

NEW YORK (Reuters) - Ambac Financial Group Inc (ABK.N) said on Friday it sold $1.5 billion of shares and convertible debt, helping to protect the bond insurer from rating downgrades but not satisfying some analysts who wanted it to raise more.

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

The company also sold $250 million of mandatory convertible securities, paying 9.5 percent per year and with a conversion premium of 18 percent. Those securities convert to shares beginning in 2011.

Chief Executive Michael Callen said the capital raising should be sufficient for the company's Ambac Assurance Corp unit to retain its critical "triple-A" financial strength ratings.

Asked on CNBC television if Ambac would seek more capital, he said "no time soon," assuming the business is successful.

Shares of Ambac fell 87 cents, or 11.7 percent, to $6.55 in pre-market electronic trading. They have fallen more than 90 percent since the start of 2007.

The bond insurer needs to shore up its capital base as it faces big expected payouts from guaranteeing subprime mortgage bonds and other risky debt. Rating agencies said on Wednesday that they would likely affirm Ambac's top ratings if it successfully issued securities.

"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.

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.

Those downgrades could have forced investors to sell billions of dollars of Ambac-guaranteed bonds, lifting borrowing costs for cities and consumers alike. Ambac had guarantees on about $524 billion of outstanding debt as of December 31.

But even with the threat of a downgrade less imminent, some analysts wonder whether Ambac is raising enough funds, given its potential losses.

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

MARKETS JITTERY

Some investors in the company's shares say that Ambac has more than enough capital and available funds to pay expected claims. At the end of December, Ambac said it had about $14.5 billion of funds to pay claims, including money it will receive from policies in the future.

The share and convertible sales boost that level to $16 billion. Measures like cutting its quarterly dividend and suspending writing insurance on structured finance will also help boost funds available for claims.