Wednesday, March 5, 2008

Ambac - No Rescue, No Split, No Sale, No Bailout, No Backstop, No $3 billion

Ambac Financial Group, Inc. (NYSE:ABK) (Ambac) today announced that it has commenced a public offering for at least $1 billion worth of shares of its common stock, par value $0.01 per share ("Common Stock"). Ambac has also granted the underwriters in that public offering a 30-day option to purchase from Ambac additional shares of Common Stock to cover over-allotments, if any.

In addition, Ambac announced that it has concurrently commenced a public offering of Equity Units, with a stated amount of $50 per unit for a total stated amount of $500 million. Ambac has also granted the underwriters a 30-day option to purchase additional Equity Units to cover over-allotments, if any. Source
[Y]ou can imagine my surprise when the stock was halted today. WSJ Marketbeat announced "Ambac Bailout Imminent! Maybe! Possibly!"

Then we learn that the deal was dead, and that Ambac needs to raise $1.5 billion dollars. Thus, all of those rumors and CNBC appear to have been patently false. Source
``This wasn't what the market was hoping for,'' said Robert Haines, an analyst at CreditSights Inc., a bond research firm in New York. ``There's no bailout. It's just a capital raise, and there's no guarantee they'll get it done.'' Source
Today's announcement by Ambac, that it will raise $1.5 billion in equity and equity units, came as a shocker. It had been leaked more than a week ago that the bond insurer planned to raise a total of $3 billion, $2.5 billion of it in equity backstopped by the eight banks previously involved in bailout talks, and $500 million in debt. Now the deal is only $1.5 billion in equity, no mention of debt, and apparently no bank backstop either.

If the banks were unwilling to offer even a mere backstop, it suggests that Ambac wasn't able to provide satisfactory information about its prospects, confirming the critics' case.

The fact that the equity-raising is so far below the earlier plan is a bad sign for Ambac's ability to maintain its AAA. This is at most a short-term stay of execution unless the housing market miraculously improves. Needless to say, the share price beat a hasty retreat. Source