Ambac plan unlikely to boost ratings-Fitch analyst

By Walden Siew

NEW YORK (Reuters) - A $1.5 billion capital raising plan by Ambac Financial Group Inc (ABK.N) is unlikely to lead to a ratings upgrade for Ambac's insurance unit, Fitch Ratings analyst Thomas Abruzzo said on Friday.

Fitch in January cut Ambac Assurance Corp to "AA," the third highest rating, from its top "AAA" grade. Ambac said on Friday that it sold $1.5 billion of shares and convertible debt, an effort to shore up its capital and preserve its top ratings by the other two main rating companies, Standard & Poor's and Moody's Investors Service.

Bond insurers' ratings have come under pressure after many of the companies expanded beyond their traditional business of insuring safe municipal debt, and into collateralized debt obligations. CDOs include pieces of deteriorating subprime mortgages whose values have plummeted, wreaking havoc on global credit markets.

"They still don't have triple A levels of capital, even with this raise," Abruzzo said in an interview. "They need to effectively lower the downside risk on the structured finance CDOs that they have insured," which amounts to about $32 billion, he said.

Abruzzo said the rating company would likely keep the Ambac unit at its "AA" rating.

"There's no expectation of upgrading," he said. "Until the company can effectively contain the downside risk in that asset class, we don't envision returning Ambac to triple A or stabilizing their rating and potentially upgrading."

(Editing by Andrea Ricci)