Yesterday, bond insurer Ambac Financial Group Inc. (ABK) filed for bankruptcy protection under Chapter 11 Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York.
Ambac had for the first time announced that it might file for bankruptcy protection if it fails to pull through its cash position way back in November 2009. The company reiterated that warning after Wisconsin took control of some of the company’s worst-hit assets in March 2010.
Ambac feared failure to cover its operating expenses and debt service obligations after second-quarter 2011. Ambac had then stated that failure on its part to pay the due interest or principal will accelerate the maturity of outstanding debt leading the company to raise new capital.
Ambac succumbed to the prepackaged bankruptcy route as it failed to raise additional capital. It was also unable to come to terms with an ad-hoc committee of certain senior debt holders to restructure its outstanding debt through a prepackaged bankruptcy proceeding.
Ambac is also appealing for an interim order that will prohibit certain transfers of equity interests in and claims against the company. The interim order will preserve the company’s net operating losses at $7 billion as of June 30, 2010.
Ambac has been vigorously trying to lower its debt level. On June 7, the company commuted $16.4 billion of exposure to collateralized debt obligations (CDO) of asset-backed securities (ABS) and $1.4 billion non-CDO of ABS.
Subsequently, on June 17, Ambac exchanged $8.5 million in debt for 5 million shares of its common stock. Again, at quarter end, the company converted another $11.8 million in debt to 8.6 million shares of Ambac’s common stock, to be straddled with $1.622 billion of outstanding debt as of June 30, 2010.
Ambac has been neck-deep in trouble for quite some time following the collapse of the U.S. housing market. The company has suffered multiple rating downgrades, adversely impacting its ability to generate new business.
Though the ailing bond insurer narrowed its loss in second-quarter 2010 compared with the prior-year quarter, it continued to suffer loss and loss expenses in consumer asset-backed securities and other structured finance exposures as well as a net operating loss in the Financial Services segment. A positive change in the fair value of credit derivatives offered a partial offset.
Though Ambac has filed for bankruptcy, it will continue its operations as ‘debtor-in-possession’ under the jurisdiction of the Bankruptcy Court. It is also filing a declaration stating that it has no tax liability for tax years 2003 – 2008 and that it will retain the full amount of the tax refunds received.
Headquartered in New York, Ambac Financial Group Inc. is a holding company whose affiliates provide financial guarantees and financial services to clients in both the public and private sectors around the world.
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