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US CREDIT-Ambac, MBIA liquidity at risk without new business

 NEW YORK, Aug 13 (Reuters) - Ambac Financial Group ABK.N
and MBIA Inc MBI.N risk a liquidity crunch in coming years as
continuing losses at their bond insurance arms deplete capital
and plans to write new business remain on hold.
 Bond insurers have been decimated by losses from selling
hundreds of billions of dollars of protection on debt that
included large exposures to deals packed with risky
mortgage-backed securities.
 Attempts to launch new municipal bond insurance operations
have also run into snags. Ambac in June delayed plans to launch
a new insurance arm after struggling to raise capital for the
unit, called Everspan.
 MBIA plans to write new business through a unit called
National Public Financial Guarantee Corp, but it is facing
litigation from a group of banks that is delaying this effort.
 The banks allege the transfer of assets to the new company
leaves fewer resources to pay claims in its bond insurance
arm.
 MBIA spokesman Kevin Brown said the company's goal remains
to write new business from National.
 Unless they are able to write new business, dividends to
the holding companies will be restricted, and eventually will
run through their available liquidity.
 "Ambac would only have enough liquidity through the second
quarter of 2011 barring any external sources of funds,"
JPMorgan credit analysts said Arun Kumar and Brett Gibson said
this week in a report.
 Analysts at Barclays Capital agree.
 Efforts to tear up exposures, "will be overwhelmed by
further incurred losses and statutory surplus will turn
negative in coming quarters," analysts Brian Monteleone, Thomas
Walsh and Ming Zhang said in a report.
 Ambac spokesmen Peter Poillon declined to comment on the
reports.
 MBIA also faces a potential cash crunch in 2011, though the
company may face fewer restrictions in being able to upstream
dividends to its parent unit, said JPMorgan.
 "We estimate that without dividends from the operating
company or any other type of external capital infusion, MBIA
will have enough holding company cash to make it through the
fourth quarter of 2011 (absent any claim from the asset
management division)," the bank said.
 However, "we note that relative to Ambac, the dividend
restrictions from the operating company are more relaxed in New
York and that MBIA has the option of getting dividends from
either MBIA Insurance Corp or National, making us more
comfortable that they will be able to upstream dividends in the
next few years," they said.
 MBIA is based in New York while Ambac is based in
Milwaukee, Wisconsin.
 Credit default swaps on both companies, meanwhile, are
reflecting high concerns over their liquidity.
 Ambac Financial's five-year credit default swaps are
trading at around 52 percent upfront, or $5.2 million to insure
$10 million in debt, plus annual payments of $500,000,
according to Markit Intraday.
 MBIA credit default swaps are trading at around 30 percent
upfront, Markit data show.
 Ambac and MBIA have been terminating contracts with
counterparties in an effort to reduce exposures to risky
assets. Ambac said last week it paid around $750 million to
reduce its exposure to risky debt by $2.8 billion.
 Both companies have also filed suits against some
counterparties to tear up contracts, arguing that the risks of
the deals were misrepresented. For details, see
[ID:nN07402014].
 (Editing by James Dalgleish)















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