(By Mayur Pahilajani - iStockAnalyst Writer)
(New York, NY) - Ambac Financial Group, Inc. (NYSE: ABK) is preparing to launch a new municipal bond issuer in the second quarter, following the lead of its rival MBIA Inc. (NYSE: MBI) that started its own new municipal-only financial guarantor last week.
The second-largest bond insurer expects the strategic initiative to add "greater stability" to its business, and make Ambac “more resistant” to external pressures.
Just like MBIA, which is the largest bond insurer by outstanding guarantees, Ambac has decided to keep Everspan Financial Guarantee Corp. separate from the remaining of its operations in order to receive higher credit ratings.
“Our experienced management team is in place, our Board is largely identified and we have an established infrastructure that allows us to start up operations immediately upon receipt of capital and ratings,” Everspan Chief Executive Officer Douglas Renfield-Miller said in a statement today.
Renfield-Miller added, “There are no current plans for Everspan to assume any of Ambac’s legacy public finance or other exposures. We believe Everspan’s capacity is best utilized for new business and that the market will value a clean entity.”
Ambac Financial plans to operate Everspan with its own segregated capital, separate risk management and a separate Board of Directors, with no exposure to structured finance business. Last year, Ambac Financial and MBIA lost their top credit ratings, following its guarantees to repackaged debt that led to massive losses over the last five quarters from mid-2007.
Over the past several months, the rating agencies like Moody’s Investors Service and Standard & Poor’s have indicated that the bond insurers may not have enough cash reserves to issue payments for claims on expected defaults of risky financial products like collateralized debt obligations and still manage to keep some for them.
“Whether Ambac can succeed at doing that or not remains to be seen,” Gary Ransom, an analyst at Fox-Pitt Kelton Cochran Caronia Waller in Hartford, Connecticut, told Bloomberg ahead of the earnings yesterday.
