Banks Committed to Backstop Ambac Shr Sale-Source

NEW YORK (Reuters) - Banks have made a firm commitment to buy more than $500 million of Ambac Financial Group ABK.N shares if other investors do not buy them, a person briefed on the matter said on Thursday.

Ambac said on Wednesday it was selling at least $1 billion of shares and $500 million of mandatory convertible bonds. The deals are expected to be priced after the market closes on Thursday.

Banks are backstopping more than half the originally announced minimum size of the share offering, the source said.

That part of the deal was not disclosed, because backstops are sometimes seen by investors as a sign of issuer weakness. Investors also may fear that if a backstop is used, the banks involved may sell the shares after a few days, pushing prices lower.

But markets instead on Wednesday saw the lack of a backstop as a sign that banks lacked faith in the bond insurer. According to investors who listened to the company’s conference call on Wednesday, many investors had questions about why banks were not providing support for the deal. Ambac’s shares dropped more than 18 percent on Wednesday.

The backstop is coming from both banks with exposure to Ambac, and those without significant exposure.

Reporting by Dan Wilchins, editing by Maureen Bavdek