Ambac Commutes Approximately $3.5 Billion of CDO Exposure for Cash Settlement of $1 Billion
19 Novembre 2008 - 11:11PM
Business Wire
Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced
that it has commuted two CDO of CDO of ABS (commonly referred to as
CDO-squared) exposures and two high grade CDO of ABS exposures. The
four transactions, with an aggregate of approximately $3.5 billion
notional outstanding at September 30, 2008, were settled with
counterparties in exchange for a total cash payment by Ambac
Assurance Corporation (AAC) of $1.0 billion. The two CDO-squared
transactions originally comprised collateral consisting of A-rated
CDO of ABS tranches, and the two high grade CDO of ABS exposures
originally comprised collateral consisting of asset-backed
securitizations rated A- or higher. Most of the collateral had been
downgraded to below investment grade since the inception of the
transactions. All four of the transactions had been internally
downgraded to below investment grade. As a result of the
settlements, Ambac expects to record positive adjustments to its
aggregate mark-to-market and impairment reserves. In addition, the
stress case losses in the rating agency capital models for these
transactions combined exceeded AAC�s final payments; therefore, the
settlements will result in an improved rating agency capital
position for AAC. �My immediate focus as Ambac�s new CEO is to
restore confidence in our balance sheet through aggressive risk
reduction,� said David Wallis, Ambac�s Chief Executive Officer.
�Ambac has consistently emphasized that in this period of extreme
uncertainty in the capital markets, the de-risking and
de-leveraging of our balance sheet is our highest priority. These
settlements represent positive and tangible steps towards that
goal. We have now successfully commuted five CDO transactions
representing $4.9 billion of notional exposure including three of
the CDO-squared transactions that had been widely perceived to be
the riskiest segment of our CDO portfolio. I am confident that
further progress towards remediation of our book will be achieved.�
About Ambac Ambac Financial Group, Inc., headquartered in New York
City, is a holding company whose affiliates provide financial
guarantees and financial services 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 a Baa1
rating (developing outlook) from Moody's Investors Service, Inc.
and a A rating (negative outlook) from Standard & Poor's
Ratings Services. Ambac Financial Group, Inc. common stock is
listed on the New York Stock Exchange (ticker symbol ABK).
Forward-Looking Statements 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 Ambac�s and/or
Ambac Assurance�s credit or financial strength ratings; (2)�the
risk of credit and liquidity risk due to unscheduled and
unanticipated withdrawals on investment agreements; (3)�the risk
that market risks impact assets in our investment portfolio;
(4)�inadequacy of reserves established for losses and loss
expenses; (5)�credit risk throughout our business, including credit
risk related to residential mortgage-backed securities and CDOs and
large single exposures to reinsurers; (6)�market spreads and
pricing on insured collateralized debt obligations (�CDOs�) and
other derivative products insured or issued by Ambac; (7)�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;
(8)�default by one or more of Ambac Assurance�s�portfolio
investments, insured issuers, counterparties or reinsurers; (9)�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; (10)�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;
(11)�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; (12)�legislative and regulatory developments, including
the Troubled Asset Relief Program and other programs under the
Emergency Economic Stabilization Act and other similar programs;
(13)�changes in the economic, credit, foreign currency or interest
rate environment in the United States and abroad; (14)�changes in
capital requirements whether resulting from downgrades in our
insured portfolio or changes in rating agencies� rating criteria or
other reasons; (15)�changes in accounting principles or practices
relating to the financial guarantee industry or that may impact
Ambac�s reported financial results; (16)�the level of activity
within the national and worldwide credit markets; (17)�competitive
conditions, pricing levels and reduction in demand for financial
guarantee products; (18) changes in our business plan, 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; (19)�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; (20)�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; (21)�changes
in expectations regarding future realization of gross deferred tax
assets; (22) risks relating to the re-launch of Connie Lee as
Everspan Financial Guaranty Corp.; (23)�operational risks,
including with respect to internal processes, risk models, systems
and employees; (24)�the risk of decline in market position;
(25)�changes in prepayment speeds on insured asset-backed
securities; (26) factors that may influence the amount of
installment premiums paid to Ambac; (27)�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; (28)�changes in tax laws; (29)�the
policies and actions of the United States and other governments;
(30) other factors described in the Risk Factors section in Part I,
1A of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2007 and in Part II, Item 1A of our Quarterly Report
on Form 10-Q for the quarters ended March 31, 2008 and June 30,
2008, 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 website at www.ambac.com and at the SEC�s
website, www.sec.gov; and (31)�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.
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