New York-based Ambac, the second-largest bond insurer, jumped as much as 37 percent in New York Stock Exchange trading on optimism the company may be sold. Ambac posted a $3.26 billion loss after writing down the value of guarantees on subprime debt by $5.21 billion, according to a statement by the company today.
Ambac said ratings companies are ``underestimating'' its ability to weather the rout in credit markets. Ambac, an underwriter of $556 billion of municipal and structured finance debt, last week scrapped a $1 billion equity sale after a 71 percent drop in the stock and the departure of its chief executive officer, prompting Fitch Ratings to reduce its insurance rating to AA from AAA.
``They can't issue equity and they can't issue debt,'' said Robert Haines, an analyst at bond research firm CreditSights Inc. in New York. ``The new CEO might be prepping the company for a potential sale.''
Michael Callen, who became interim CEO after Robert Genader left last week, said in a statement today that Ambac is ``exploring the attractiveness'' of various alternatives. He wasn't more specific.
The fourth-quarter net loss, which equated to $31.85 a share, took the 2007 deficit to $3.23 billion, the company's first ever annual loss. Ambac on Jan. 16 forecast a fourth- quarter net loss of about $32.83 a share. The company reported an operating loss, excluding writedowns on contracts to guarantee subprime securities, of $6.21 per share.
Hobbled by Expansion
The AAA rated bond insurers place their stamp on $2.4 trillion of debt. Losing those rankings may cost borrowers and investors as much as $200 billion, according to data compiled by Bloomberg. The industry guaranteed $127 billion of collateralized debt obligations linked to subprime mortgages that have plunged in value as defaults by borrowers with poor credit soar to records.
Ambac, which pioneered municipal bond insurance in 1971, has been hobbled by its expansion into CDOs, which package pools of debt and slice them into pieces with varying ratings. The CDO declines forced Ambac and others to reduce the value of contracts designed to protect CDO holders from default. Ambac said most of the writedowns aren't necessarily permanent losses and it hasn't paid any claims on its CDO portfolio.
Dividend Cut
Ambac shares rose 99 cents, or 16 percent, to $7.19 at 9:41 a.m. in New York Stock Exchange composite trading. The stock has tumbled 93 percent in the past year, shaving $8.8 billion from the company's market capitalization.
Ambac on Jan. 16 slashed its dividend 67 percent and said it would sell stock or equity-linked notes to bolster its capital, in part to meet Fitch's demand to raise $1 billion by the end of January. Two days later it scrapped the share sale.
The plan provoked a boardroom dispute that led to the departure of Genader, who disagreed with the capital raising, according to the company's regulatory filings.
Ambac's loss reported today followed the company's first- ever loss in the third quarter. Before 2007, Ambac had reported profit increases every year for the past decade.
``In retrospect, insurers wish they'd never heard the term structured finance, much less written the business,'' said Donald Light, an insurance analyst at Celent, a consulting firm in Boston.
Credit-Default Swaps
Prices for credit-default swaps that pay investors if Ambac can't meet its debt obligations imply a 72 percent chance it will default in the next five years, according to a JPMorgan Chase & Co.
Contracts on Ambac climbed 2.5 percentage points to 30.5 percent upfront and 5 percent a year today, prices from CMA Datavision in London show.
No comments:
Post a Comment