Ambac to issue up to $1 billion in equity and equity-linked securities to reinforce financial strength

By Evan Weinberger

New York, Jan. 16 - Ambac Financial Group, Inc. announced that it will raise at least $1 billion through equity and equity-linked securities offering Wednesday in the wake of steep fourth quarter losses in the company's credit derivative portfolio stemming from the subprime mortgage meltdown.

The losses cost the company's chief executive his job. Ambac also slashed its quarterly dividend by 66% Wednesday and moved up its quarterly earnings report until Jan. 22. Ambac said it expects to announce steep quarterly losses. Ambac was originally expected to announce earnings on Jan. 30.

New debt securities and reinsurance may also be part of Ambac's capital raising plan.

Ambac provided no details on the coming securities offering. The company did not respond to a telephone call from Prospect News.

The company said that the $1 billion raised through equity and equity-linked securities will allow it to keep its triple-A rating.

Ambac announced an estimated fourth quarter pre-tax loss of $5.4 billion in its credit derivative portfolio, a $3.5 billion loss after taxes. Of the $5.4 billion pre-tax mark-to-market loss in its portfolio, approximately $1.1 billion came from what the company calls "certain collateralized debt obligations and asset-backed securities transactions." Much of that was made up of subprime mortgage-backed securities which have been downgraded below investment grade and seen their value gutted.

"Ambac continues to believe that the balance of the mark-to-market losses taken to date are not predictive of future claims and that, in the absence of further credit impairment, the cumulative marks would be expected to reverse over the remaining life of the insured transactions," Ambac said in a statement.

On top of the losses in its credit derivative portfolio, Ambac expects to announce a $143 million pre-tax loss for the fourth quarter driven by faulty loans.

Ambac expects to see a net loss of up to $32.83 per share for the fourth quarter of 2007 after all of the credit derivative and operating losses are totaled up.

In the face of these losses, Ambac announced that Michael A. Callen will take over as chairman and interim CEO of the company. He currently sits on several committees of Ambac's board. Outgoing chief executive Robert J. Genader is retiring, Ambac said.

Credit Suisse has been retained as Ambac's financial adviser.

Ambac is a New York-based bond guarantor.

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