April 23, 2008 / 7:14 PM / 11 years ago

Ambac Assurance credit default swaps hit record high

NEW YORK (Reuters) - The cost to insure the securities guaranteed by Ambac Financial Group’s ABK.N top rated bond insurance arm surged to a record on Wednesday after the company reported a wider-than-expected first-quarter loss.

Ambac, which struggled to raise capital earlier this year, posted a surprisingly wide loss after setting aside $1 billion to cover future payouts on mortgage bonds. For details, see <ID:nN23404196>

Credit default swaps on Ambac Assurance Corp started trading for the first time at an upfront cost of 11 percent, in addition to annual premiums of 500 basis points, according to data provider CMA DataVision.

This means it would cost $1.1 million as an upfront payment to insure $10 million in debt for five years, in addition to annual payments of $500,000.

Credit default swaps typically start trading on an upfront basis when concerns grow that a default is more likely, as sellers of protection grow nervous that a default could happen before they receive the quarterly premiums for the insurance.

Ambac Assurance’s swaps closed on Tuesday at around 700 basis points, according to CMA.

Credit default swap spreads on MBIA Inc’s (MBI.N) bond insurance arm also widened by around 95 basis points to 805 basis points, or $805,000 per year for five years to insure $10 million in debt, CMA data showed.

Reporting by Anastasija Johnson, Karen Brettell; editing by Gary Crosse

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