Ambac Assurance dividend payments unlikely; Ambac Financial may consider bankruptcy

By Caroline Salls

Pittsburgh, April 9 - Ambac Financial Group, Inc. said it is highly unlikely that Ambac Assurance Corp. will be able to make dividend payments to Ambac Financial for the foreseeable future, according to a 10-K filed with the Securities and Exchange Commission.

The company said Ambac Assurance no longer has any contingent capital facility in place, and there can be no assurances that it will be able to put one in place.

Given the loss of confidence in the companies' financial position, the downgrades in their ratings and the general unavailability of credit, Ambac said the companies have limited access to traditional sources of soft capital.

Based on the holdings of cash, short-term investments and bonds of $136.5 million as of Dec. 31, Ambac said its management believes that it will have enough liquidity to satisfy its needs through the second quarter of 2011, but no guarantee can be given that the company will be able to pay all of its operating expenses and debt service obligations, including $142.5 million of maturing debt obligations, in August 2011.

While management believes that Ambac will have enough liquidity to satisfy its needs through the second quarter of 2011, the company said no guarantee can be given that it will be able to pay all of its operating expenses and debt service obligations after that, and its liquidity could run out before the second quarter of 2011.

Additionally, Ambac said it may decide before the third quarter of 2010 not to pay interest on its debt.

According to the 8-K, Ambac Financial may consider a negotiated restructuring of its outstanding debt through a pre-packaged or other bankruptcy filing.

Ambac said its principal uses of liquidity are the payment of principal and interest on its debt, its operating expenses and capital investments in and loans to its subsidiaries.

In addition, the company said other contingencies, including an unfavorable outcome in outstanding class action lawsuits could cause additional liquidity strain.

While it does not believe previously reported segregated account rehabilitation proceedings constitute an event of default under its debt indentures, Ambac said the occurrence of an event of default on its debt could result in the acceleration of $1.643 billion principal amount of that debt.

Ambac, based in New York, is a holding company whose affiliates provide financial guarantees and financial services.

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