Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced
that it has commuted two CDO of CDO of ABS (commonly referred to as
CDO-squared) exposures and two high grade CDO of ABS exposures. The four
transactions, with an aggregate of approximately $3.5 billion notional
outstanding at September 30, 2008, were settled with counterparties in
exchange for a total cash payment by Ambac Assurance Corporation (AAC)
of $1.0 billion. The two CDO-squared transactions originally comprised
collateral consisting of A-rated CDO of ABS tranches, and the two high
grade CDO of ABS exposures originally comprised collateral consisting of
asset-backed securitizations rated A- or higher. Most of the collateral
had been downgraded to below investment grade since the inception of the
transactions. All four of the transactions had been internally
downgraded to below investment grade.
As a result of the settlements, Ambac expects to record positive
adjustments to its aggregate mark-to-market and impairment reserves. In
addition, the stress case losses in the rating agency capital models for
these transactions combined exceeded AAC’s final payments; therefore,
the settlements will result in an improved rating agency capital
position for AAC.
“My immediate focus as Ambac’s new CEO is to restore confidence in our
balance sheet through aggressive risk reduction,” said David Wallis,
Ambac’s Chief Executive Officer. “Ambac has consistently emphasized that
in this period of extreme uncertainty in the capital markets, the
de-risking and de-leveraging of our balance sheet is our highest
priority. These settlements represent positive and tangible steps
towards that goal. We have now successfully commuted five CDO
transactions representing $4.9 billion of notional exposure including
three of the CDO-squared transactions that had been widely perceived to
be the riskiest segment of our CDO portfolio. I am confident that
further progress towards remediation of our book will be achieved.”
About Ambac
Ambac Financial Group, Inc., headquartered in New York City, is a
holding company whose affiliates provide financial guarantees and
financial services to clients in both the public and private sectors
around the world. Ambac's principal operating subsidiary, Ambac
Assurance Corporation, a guarantor of public finance and structured
finance obligations, has earned a Baa1 rating (developing outlook) from
Moody's Investors Service, Inc. and a A rating (negative outlook) from
Standard & Poor's Ratings Services. Ambac Financial Group, Inc. common
stock is listed on the New York Stock Exchange (ticker symbol ABK).
Forward-Looking Statements
This release contains statements that may constitute "forward-looking
statements" within the meaning of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Any or all of
management’s forward-looking statements here or in other publications
may turn out to be wrong and are based on Ambac’s management current
belief or opinions. Ambac’s actual results may vary materially, and
there are no guarantees about the performance of Ambac’s securities.
Among events, risks, uncertainties or factors that could cause actual
results to differ materially are: (1) changes in Ambac’s and/or Ambac
Assurance’s credit or financial strength ratings; (2) the risk of credit
and liquidity risk due to unscheduled and unanticipated withdrawals on
investment agreements; (3) the risk that market risks impact assets in
our investment portfolio; (4) inadequacy of reserves established for
losses and loss expenses; (5) credit risk throughout our business,
including credit risk related to residential mortgage-backed securities
and CDOs and large single exposures to reinsurers; (6) market spreads
and pricing on insured collateralized debt obligations (“CDOs”) and
other derivative products insured or issued by Ambac; (7) the risk that
holders of debt securities or counterparties on credit default swaps or
other similar agreements seek to declare events of default or seek
judicial relief or bring claims alleging violation or breach of
covenants by Ambac or one of its subsidiaries; (8) default by one or
more of Ambac Assurance’s portfolio investments, insured issuers,
counterparties or reinsurers; (9) the risk that we may be required to
raise additional capital, which could have a dilutive effect on our
outstanding equity capital and/or future earnings; (10) our ability or
inability to raise additional capital, including the risks that
regulatory or other approvals for any plan to raise capital are not
obtained, or that various conditions to such a plan, either imposed by
third parties or imposed by Ambac or its Board of Directors, are not
satisfied and thus potentially necessary capital raising transactions do
not occur, or the risk that for other reasons the Company cannot
accomplish any potentially necessary capital raising transactions;
(11) the risk that Ambac’s holding company structure and certain
regulatory and other constraints, including adverse business
performance, affect Ambac’s ability to pay dividends and make other
payments; (12) legislative and regulatory developments, including the
Troubled Asset Relief Program and other programs under the Emergency
Economic Stabilization Act and other similar programs; (13) changes in
the economic, credit, foreign currency or interest rate environment in
the United States and abroad; (14) changes in capital requirements
whether resulting from downgrades in our insured portfolio or changes in
rating agencies’ rating criteria or other reasons; (15) changes in
accounting principles or practices relating to the financial guarantee
industry or that may impact Ambac’s reported financial results; (16) the
level of activity within the national and worldwide credit markets;
(17) competitive conditions, pricing levels and reduction in demand for
financial guarantee products; (18) changes in our business plan, our
decision to discontinue writing new business in the financial services
area, to significantly reduce new underwriting of structured finance
business and to discontinue all new underwritings of structured finance
business; (19) the risk that our underwriting and risk management
policies and practices do not anticipate certain risks and/or the
magnitude of potential for loss as a result of unforeseen risks;
(20) the risk of volatility in income and earnings, including volatility
due to the application of fair value accounting, or FAS 133, to the
portion of our credit enhancement business which is executed in credit
derivative form; (21) changes in expectations regarding future
realization of gross deferred tax assets; (22) risks relating to the
re-launch of Connie Lee as Everspan Financial Guaranty Corp.;
(23) operational risks, including with respect to internal processes,
risk models, systems and employees; (24) the risk of decline in market
position; (25) changes in prepayment speeds on insured asset-backed
securities; (26) factors that may influence the amount of installment
premiums paid to Ambac; (27) the risk of litigation and regulatory
inquiries or investigations, and the risk of adverse outcomes in
connection therewith, which could have a material adverse effect on our
business, operations, financial position, profitability or cash flows;
(28) changes in tax laws; (29) the policies and actions of the United
States and other governments; (30) other factors described in the Risk
Factors section in Part I, 1A of our Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 and in Part II, Item 1A of our
Quarterly Report on Form 10-Q for the quarters ended March 31, 2008 and
June 30, 2008, and also disclosed from time to time by Ambac in its
subsequent reports on Form 10-Q and Form 8-K, which are or will be
available on the Ambac website at www.ambac.com
and at the SEC’s website, www.sec.gov;
and (31) other risks and uncertainties that have not been identified at
this time. Readers are cautioned that forward-looking statements speak
only as of the date they are made and that Ambac does not undertake to
update forward-looking statements to reflect circumstances or events
that arise after the date the statements are made. You are therefore
advised to consult any further disclosures we make on related subjects
in Ambac’s reports to the SEC.
Ambac Financial Group, Inc.
Investor/Media:
Vandana Sharma,
212-208-3333
vsharma@ambac.com
or
Fixed
Income:
Peter Poillon, 212-208-3222
ppoillon@ambac.com
