Ambac’s rating was cut four levels by Moody's

The Ambac building at One State Street Plaza is seen
in New York March 5, 2008. REUTERS/Joshua Lott
From Bloomberg
November 5, 2008 17:55 EST

Ambac Financial Group Inc.'s bond insurance rating was cut four levels by Moody's Investors Service from Aa3 to Baa1, forcing the company to post collateral and causing a cash shortfall of about $3 billion at its investment unit. That was based on figures released today after the company reported a $2.43 billion net loss. Ambac Chief Executive Officer David Wallis told investors today the company would seek regulatory approval to shift money from its insurance arm to the financial services unit to bridge the gap.

Ambac's guaranteed investment contracts require it to terminate transactions or post collateral if it is downgraded. Ambac Chief Executive Officer David Wallis told investors today the company would seek regulatory approval to shift money from its insurance arm to the financial services unit to bridge the gap.

Ambac said today it took third-quarter charge of a $2.7 billion to reflect a decline in the value of securities it had guaranteed using credit-default swaps. That type of mark-to- market loss, which doesn't always indicate an expected cash payment, this time forced the bond insurer to set aside about $2.5 billion to make good on those contracts, according to the statement. Ambac also took a charge of $607.7 million for expected claims on bonds backed by home equity loans.

Moody's cited four reasons for its downgrade. The ratings company said it anticipates increasing losses from mortgage debt. If the economy worsens even more, creating an ``extreme stress'' scenario, those losses could be even higher, Moody's said. The company also faces diminished business prospects and impaired ``financial flexibility,'' Moody's said.

Moody's and Standard & Poor's stripped Ambac and MBIA Inc. of their top ratings in June. Moody's also has MBIA's A2 rating on review for a downgrade. S&P rates Ambac AA and MBIA AA. MBIA today also reported an $806.5 million net loss after setting $961 million aside for guarantees on bonds backed by home-equity loans.

Sources :

Bloomberg: Ambac Insurance Strength Rating Lowered by Moody's (Update2), November 5, 2008 17:55 EST

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