Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today released the
text of a business activity update targeted at all its major
constituents. The text of the release follows: Ambac is committed
to preserving and rebuilding our business franchise. Our recent
capital raise of $1.5 billion and affirmation of our triple-A
ratings with negative outlook from Moody�s and S&P were
critical steps in pursuing this goal. Preserving our client
relationships and identifying business opportunities are also key
to reestablishing Ambac�s leading position in the monoline
financial guarantee market. The following is a business summary of
first quarter 2008. The capital raise reduced the uncertainty
around our ratings, which has generated greater interest in our
core products. While volume and insured penetration have decreased
significantly in the general public finance market, Ambac is
beginning to see more opportunities to provide insurance both in
the new issue (competitive and negotiated deals). Furthermore,
secondary market transactions with Ambac insurance are steadily
increasing. In the structured finance market, we will not be
writing new transactions for a period of six months from March 6,
2008 (the �moratorium period�). In the meantime, the Group
continues to meet with clients. Furthermore, Ambac discontinued
underwriting certain structured finance businesses, including CDOs
and RMBS. (For more details, see our SEC filings.) Across all
business lines, we are discussing with issuers and investors our
financial strength and our progress toward stabilizing and
advancing the drivers of our business. Another key focus at this
time is helping clients affected by the disruptions in the variable
rate markets -- both for Auction Rate Securities (ARS) as well as
for Variable Rate Demand Obligations (VRDO). The dislocations in
these markets have caused significant financial difficulties for
certain clients and we are committed to finding resolutions to
these challenges. Ambac�s overall objective is to continue helping
our clients solve their capital funding needs in the most efficient
manner possible. As we do so, we believe we will demonstrate to the
market why Ambac remains well-positioned in its business lines.
Below is a brief description, by business area, of some of the
efforts we have undertaken to further our objectives. General
Municipal Business The East and West Regions, as well as the
General Municipal Underwriting Group, have seen a substantial
increase in both new issue and secondary market insurance requests.
While our business volume is still down significantly, we are
seeing increased trading value of Ambac-wrapped securities relative
to pre-capital raise levels and a renewed interest in Ambac�s
participation in the market. Since our capital raise, we have
insured eight new issues in the primary market and have issued
commitments to insure several transactions that have not yet been
priced in the market. These insured new issues included a $46.8
million Compton, CA lease financing in the negotiated market, as
well as a $62.0 million Alaska Municipal Bond Bank issue and a
$51.5 million Rialto, CA Tax Allocation Bond which sold in the
competitive market. Currently, however, the majority of our
business opportunities remain in the secondary market, where we
have insured 21 transactions since the capital raise. In addition,
much of our recent focus has been on helping solve our clients�
problems in the variable rate markets. We have received 84 requests
for amendments, waivers or consents to restructure deals in order
to lower interest rates. Public Finance has worked closely with
many clients in finding several successful and innovative solutions
such as the conversion from auction rates to a VRDO with the
addition of direct-pay line of credit (LOC) as was done for the
University of South Florida. We have also agreed to amendments in
Standby Bond Purchase agreements for immediate termination events
for the Utah Water Finance Agency, among others. Ambac has
developed several alternatives that issuers are finding to be
feasible alternatives given the current municipal finance
marketplace. We have been in continuous contact with many of our
key clients, including bankers, financial advisors, issuers and
policyholders. During the past several weeks, Ambac has met with
each of the major New York investment banks and several regional
banks across the country. In the coming weeks and months, we will
continue to meet with our key constituents as we move forward in
renewing market confidence. Utilities The Ambac Utilities Group
remains committed to supporting the financial initiatives of its
issuers, particularly during this period of unprecedented
volatility and uncertainty. In recent weeks, we have focused our
efforts on addressing the strains brought on by the dysfunctional
markets for auction rate securities and other variable rate
securities. Since February 14, 2008, we have received and approved
over 55 amendment and consent requests from issuers to facilitate
the conversion of auction rate securities or remarketing of
Ambac-insured securities. While most of these conversions have
involved the temporary repurchase of outstanding securities,
certain have involved conversions to fix interest rates through
maturity, including recent transactions for Kentucky Utilities
Company (5.75% to 6.0%) and Southern Indiana Gas & Electric
Company (5.4%). Still others have involved the conversion to short
and intermediate term fixed interest rates, including recent
transactions for Tampa Electric Company (5.0%) and Oglethorpe Power
Company (4.625%). We are also maintaining our extensive dialogues
with issuers, investors and intermediaries to develop and evaluate
even more innovative solutions to the current crisis. To-date, we
have discussed potential options and solutions with nearly 40 of
our auction rate and variable rate issues and we are committed to
responding to the needs of our entire client base and to helping
them preserve the value of Ambac�s guarantee. We will also continue
to disseminate information relevant to Ambac�s own initiatives
through periodic mailings and during the course of our normal
dialogue. While we are disappointed not to have insured any new
issue utility transactions during the first quarter of 2008, we
have been increasingly active in the secondary market as select
investors have taken advantage of the value of the Ambac guarantee.
Going forward, we hope to restore similar confidence in the primary
marketplace. Health Care While the Health Care Group has not
insured any new issue transactions, we have executed one small
secondary market deal, which is indicative that Ambac�s trading
value is improving. We have also provided a significant amount of
reinsurance capacity on another transaction that closed in the
first quarter of 2008. Throughout this time period, we have been
extremely active with our clients, especially as it relates to
their variable rate debt. Among all of the business units at Ambac,
Health Care probably has the highest proportion of transactions
involving underlying variable rate debt. These have been
predominantly in the form of Auction Rate Securities and that
particular market in general has suffered the most. We have been
working diligently to help resolve our clients� problems and have
had some key successes in this area. Ambac insurance was used on at
least one conversion from auction rate to fixed rate and several
more such conversions are scheduled for the second quarter of 2008.
We have also successfully incorporated incremental credit
enhancement on a VRDO, amending the Immediate Termination Events
resulting in much lower rates. Student Loans Ambac has
traditionally enjoyed a leading market share in student loan
securitizations, and this asset class remains an area of focus for
the firm. However, while we anticipate future opportunities,
current conditions are challenging. Since most student loan
securitizations were placed in the variable rate debt market, with
interest rates that reset on a short-term basis, today�s credit
spread environment is costing our clients money. As a result, Ambac
has been focusing on steps to minimize their borrowing costs. Thus
far, these steps have included helping issuers refinance out of the
auction rate debt market and changing deal documentation to
increase investor confidence in deals backed by bank-liquidity
facilities. We have four such transactions in progress for a total
of $850 million par amount outstanding. We expect to approve
another nine such amendments in the near future for another $1
billion in par amount outstanding. Additionally, for the last
couple of months, we have been approving waivers to suspension
events which were triggered because the bonds experienced failed
auctions or remarketings. These waivers allow our clients to
continue to offer new loans to their borrowers instead of forcing a
redemption of the wrapped notes. Our clients can therefore continue
their business while solutions to the cost of credit can be
explored. Ambac firmly believes that financing sources will return
to this market. We will continue to work with our clients to help
them get through these difficult times. Student loans have
performed well with little credit deterioration, and the deals
enjoy direct government support for many or all of the underlying
assets. This is an asset class that Ambac will remain committed to
over the long-term. Housing Finance Our focus in the Housing
Finance area has been on continuously apprising our key banking,
developer and investor clients of the current events affecting
Ambac. This process has been handled by conference calls and/or
personal meetings. In the past few months, we have received several
requests for secondary market insurance of various military housing
deals. We have also been participating in the due diligence process
on two significant Air Force transactions scheduled for closing in
2008. We have been proactive in keeping investors up-to-date on the
performance status of our approximately $7 billion military housing
portfolio. We have also received a number of requests from issuers,
bankers and financial advisors for document amendments, consents
and waivers for clients suffering from the dislocation in the
variable rate debt markets. One good example of an amendment that
generated significant interest rate savings was for Connecticut
Housing, where we amended the Immediate Termination Events in the
Standby Bond Purchase Agreements to reference the Issuer�s ratings
instead of Ambac�s ratings. We are also pursing a similar strategy
with California Housing. Project Finance Although little activity
has occurred in the infrastructure finance sector during the first
quarter of 2008, rapidly deteriorating infrastructure asset
conditions and burgeoning populations continue to create a critical
need for new and/or modernized infrastructure in North America. In
particular, a strong pipeline of essential infrastructure
transactions have already been announced for the period 2008-2010,
including PPP financings for the I-595 road in Florida and
Chicago�s Midway Airport. However, financing conditions continue to
be challenging, with many of North America�s municipal
infrastructure budgets strained and lenders continuing to be
capital-constrained. Nonetheless, we have received a number of
inquiries in 2008, evidencing that, in this tough environment, the
Ambac wrap continues to offer cost-effective funding solutions for
issuers and municipalities. Inquiries include requests for
insurance in connection with several new transportation PPP deals
and a number of potential restructurings of existing assets. We
continue to pursue all of these opportunities aggressively, with
the ultimate goal of restoring overall market confidence in the
value of Ambac enhancement as soon as possible. In addition to our
ongoing primary market initiatives, we continue to seek secondary
market opportunities in the infrastructure sector for those
investors who wish to take advantage of the cost efficiency of an
Ambac guarantee. We are in contact with a number of such investors
and are monitoring opportunities closely. In particular, we
recently executed a secondary market trade�for a small amount of
the debt issued by the North Texas Toll Authority�in connection
with its purchase of the SH-130 toll road concession, enabling one
of our clients to achieve a high-return, low-risk reward in the
secondary markets. As in previous years, the PPP and Infrastructure
Group remains committed to providing innovative and cost-efficient
solutions for issuers, sponsors, government entities and banking
clients alike. We continue to proactively maintain our contact with
our major clients and have recently provided them with an update on
our plans with respect to future PPP and Infrastructure Finance
business. We also continue to assist those clients who are seeking
relief from the dislocation of the auction rate and variable rate
markets and are working closely with a number of clients in order
to find effective and quick solutions to the higher interest rate
burdens they are currently incurring. Operating Assets We have been
meeting with all of our major banking relationships and issuers in
order to provide them with an update on Ambac and to maintain our
visibility during the moratorium period. We also have been
responding to amendment and consent requests on existing deals in
our portfolio, several of which have been signed over the last few
weeks. While unable to pursue such opportunities during the
moratorium period, we have been approached about several
transactions, including one for a term operating asset
securitization going to market later this year. Current market
conditions have resulted in a lack of new term issuances but
issuers appear to be ready to access the markets once conditions
stabilize. Structured Insurance Financial guarantors have played a
crucial role in the securitization of life insurance risks since
the inception of the insurance-linked securities market. Investors
are still learning how to best evaluate the risks in these
structures and, therefore, they still value the diligence and
oversight that Ambac brings to these financings. Sponsors and
bankers are pleased with Ambac�s reaffirmation of our commitment to
Structured Insurance and our team looks forward to being actively
engaged in new opportunities after the moratorium period. We
believe that the combination of pent-up industry demand and
decreased monoline industry capacity will drive favorable credit
terms and economics for Ambac, while providing value to Issuers in
this market segment. Multi-Seller Conduit Enhancement Currently,
our efforts are focused on responding to the informational needs of
commercial paper (CP) investors regarding Ambac�s financial
strength. We are committed to being as transparent as possible with
the taxable short term markets participants. Client sponsors have
reported that the CP investor tone improved following Moody�s and
S&P�s triple-A ratings affirmation on March 12, 2008 and
reaffirmation by Moody�s of such rating on April 23, 2008. They
also report their business continues strong as the multi-seller
conduits benefit from both their distinction from structured
investment vehicles and from the 100%-supported nature of their
asset-backed commercial paper (ABCP). We are expanding our
surveillance process for the multi-seller bank programs that Ambac
supports with program-wide enhancement. We believe that the value
of our unique third-party surveillance will continue to be
recognized by investors and bank regulators going forward. This, in
turn, will further differentiate the Ambac-enhanced, multi-seller
conduits from unenhanced vehicles. Secondary Markets Ambac is
gaining significant momentum and restoring investor confidence in
the secondary markets, focusing for the present on the public
finance markets. While the number of transactions we have completed
to date in 2008 remains below our 2007 volume, secondary market
transactions with Ambac insurance are steadily increasing. Over the
past few weeks, Ambac has qualified more than 50 competitive new
issue transactions and provided insurance on approximately 13% of
those deals, which is only slightly below last year�s success rate.
Week-on-week volume of secondary market transactions is also
growing rapidly, as new business production during the first two
weeks of April was equivalent to our entire secondary markets
production in the first quarter of 2008. The Secondary Markets desk
is targeting the development of opportunities in those structured
finance sectors in which Ambac has committed to remain active. As a
result, we have received inquiries on both wrapped and unwrapped
structured finance paper. The majority of these inquiries have been
for wrapped deals where investors seek to restore triple-A ratings
on paper insured by monolines that have suffered ratings
downgrades. Additionally, the Secondary Markets group has been
working with bankers that are holding and looking to manage
unwrapped exposures that were previously expected to be taken out
via capital markets executions this year. The Secondary Markets
group is increasing our marketing efforts with established
relationships in the bank, broker and dealer community while
seeking new opportunities with fixed income investors. Going
forward, the Secondary Markets group expects to benefit from the
reduced number of competitors in the marketplace. In summary, Ambac
is diligently working to restore market confidence. While
conditions remain challenging, we are committed to achieving stable
ratings and to meeting the financing needs of our clients. This
release contains statements that may constitute "forward-looking
statements" within the meaning of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Any or all of
management�s forward-looking statements here or in other
publications may turn out to be wrong and are based on Ambac�s
management current belief or opinions. Ambac�s actual results may
vary materially, and there are no guarantees about the performance
of Ambac�s securities. Among events, risks, uncertainties or
factors that could cause actual results to differ materially are:
(1)�changes in the economic, credit, foreign currency or interest
rate environment in the United States and abroad; (2)�the level of
activity within the national and worldwide credit markets;
(3)�competitive conditions and pricing levels; (4)�legislative and
regulatory developments; (5)�changes in tax laws; (6) changes in
our business plan, including changes resulting from our decision to
discontinue writing new business in the financial services area, to
significantly reduce new underwriting of structured finance
business and to discontinue all new underwritings of structured
finance business for six months from March 6, 2008; (7)�the
policies and actions of the United States and other governments;
(8)�changes in capital requirements whether resulting from
downgrades in our insured portfolio or changes in rating agencies�
rating criteria or other reasons; (9)�changes in Ambac�s and/or
Ambac Assurance�s credit or financial strength ratings;
(10)�changes in accounting principles or practices relating to the
financial guarantee industry or that may impact Ambac�s reported
financial results; (11)�inadequacy of reserves established for
losses and loss expenses; (12)�default by one or more of Ambac
Assurance�s�portfolio investments, insured issuers, counterparties
or reinsurers; (13)�credit risk throughout our business, including
large single exposures to reinsurers; (14)�market spreads and
pricing on insured collateralized debt obligations (�CDOs�) and
other derivative products insured or issued by Ambac; (15)�credit
risk related to residential mortgage securities and CDOs; (16)�the
risk that holders of debt securities or counterparties on credit
default swaps or other similar agreements seek to declare events of
default or seek judicial relief or bring claims alleging violation
or breach of covenants by Ambac or one of its subsidiaries;
(17)�the risk that our underwriting and risk management policies
and practices do not anticipate certain risks and/or the magnitude
of potential for loss as a result of unforeseen risks; (18)�the
risk of volatility in income and earnings, including volatility due
to the application of fair value accounting, or FAS 133, to the
portion of our credit enhancement business which is executed in
credit derivative form; (19)�operational risks, including with
respect to internal processes, risk models, systems and employees;
(20)�the risk of decline in market position; (21)�the risk that
market risks impact assets in our investment portfolio; (22)�the
risk of credit and liquidity risk due to unscheduled and
unanticipated withdrawals on investment agreements; (23)�changes in
prepayment speeds on insured asset-backed securities; (24) factors
that may influence the amount of installment premiums paid to
Ambac; (25)�the risk that we may be required to raise additional
capital, which could have a dilutive effect on our outstanding
equity capital and/or future earnings; (26)�our ability or
inability to raise additional capital, including the risks that
regulatory or other approvals for any plan to raise capital are not
obtained, or that various conditions to such a plan, either imposed
by third parties or imposed by Ambac or its Board of Directors, are
not satisfied and thus potentially necessary capital raising
transactions do not occur, or the risk that for other reasons the
Company cannot accomplish any potentially necessary capital raising
transactions; (27)�the risk that Ambac�s holding company structure
and certain regulatory and other constraints, including adverse
business performance, affect Ambac�s ability to pay dividends and
make other payments; (28)�the risk of litigation and regulatory
inquiries or investigations, and the risk of adverse outcomes in
connection therewith, which could have a material adverse effect on
our business, operations, financial position, profitability or cash
flows; (29)�other additional factors described in the Risk Factors
section of Ambac�s Current Report on Form 8-K dated March 12, 2008
and in its Annual Report on Form 10-K for the fiscal year December
31, 2007 and also disclosed from time to time by Ambac in its
subsequent reports on Form 10-Q and Form 8-K, which are or will be
available on the Ambac web site at www.ambac.com and at the SEC�s
web site, www.sec.gov; and (30)�other risks and uncertainties that
have not been identified at this time. Readers are cautioned that
forward-looking statements speak only as of the date they are made
and that Ambac does not undertake to update forward-looking
statements to reflect circumstances or events that arise after the
date the statements are made. You are therefore advised to consult
any further disclosures we make on related subjects in Ambac�s
reports to the SEC. Ambac Financial Group, Inc., headquartered in
New York City, is a holding company whose affiliates provide
financial guarantees and to clients in both the public and private
sectors around the world. Ambac's principal operating subsidiary,
Ambac Assurance Corporation, a guarantor of public finance and
structured finance obligations, has earned triple-A ratings from
Moody's Investors Service, Inc. and Standard & Poor's Ratings
Services; and a double-A rating from Fitch, Inc. Moody's, Standard
& Poor's and Fitch all maintain a �negative outlook�. Ambac
Financial Group, Inc. common stock is listed on the New York Stock
Exchange (ticker symbol ABK).
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