Ambac Rocky Balboa oder chapter 11

{"s" : "abk","k" : "c10,l10,p20,t10","o" : "","j" : ""} The increase in the estimated impairment losses in the second quarter is net of the impact of a settlement that reduced a significant portion of exposure under a CDO of ABS transaction that closed in July and a commutation of all of the exposure under a different CDO of ABS transaction that we expect will close by the end of July. The two transactions, with an aggregate of approximately $2.8 billion net notional outstanding at March 31, 2009, are expected to be settled with counterparties for a total cash payment of approximately $750 million.

Estimated impairment losses on credit derivatives is a statutory accounting measurement reported in AAC’s statutory filings as “Estimated impairment losses on subsidiary guarantees and commitments.” An increase in estimated impairment losses is recorded as a reduction to statutory income and therefore reduces statutory surplus. At March 31, 2009, AAC reported statutory capital and surplus of $372.8 million and contingency reserves of $1,946.6 million. AAC has requested the approval of the Office of the Commissioner of Insurance of the State of Wisconsin (OCI) to release a substantial portion of its contingency reserves, however, there can be no assurance that the OCI will approve such release. The amount of contingency reserves released, if any, will increase AAC’s statutory capital and surplus by such amount.

At March 31, 2009, AAC reported total claims-paying resources of approximately $11.9 billion. Total claims-paying resources will be reduced by commutation and settlement payments related to the CDO of ABS portfolio, including the two transactions referred to above, and claims paid related to the direct financial guarantee portfolio since March 31, 2009. Total claims-paying resources is a term used by rating agencies and other analysts to quantify total resources available to pay claims in stress case scenarios and represents an aggregate of contingency reserves, capital and surplus, unearned premiums, losses and loss adjustment expenses, estimated impairment losses on credit derivatives and the present value of future installment premiums. Except for the present value of future installment premiums, each item is a statutory accounting measurement.

Under U.S. generally accepted accounting principles (GAAP), Ambac reports unrealized gains (losses) on credit derivative contracts which is impacted by market valuations of the CDO exposures and includes the effect of AAC’s own credit default swap spreads in the measurement. This mark-to-market valuation often differs significantly from the statutory measure of impairment discussed above. For the second quarter of 2009, Ambac expects to report a net unrealized gain of approximately $34 million for GAAP reporting purposes. Ambac also expects to report total net loss and loss expenses of approximately $1.3 billion for the second quarter of 2009 for GAAP reporting purposes.

Ambac also announced that, in order to preserve cash at Ambac Financial Group, Inc., it will discontinue paying the semi-annual interest on its directly-issued subordinated capital securities (DISCs) beginning August 1, 2009. Additionally, to preserve cash and surplus at AAC, it will discontinue paying the monthly dividend on AAC’s outstanding auction market preferred shares beginning August 1, 2009.

Ambac is providing this preliminary information about its second quarter results prior to the scheduled earnings announcement date in light of market events of recent months. Investors should not expect Ambac to provide information about the results of future quarters in advance of scheduled quarterly earnings announcement dates. In addition, investors should not expect Ambac to update the information provided in this release in advance of the scheduled announcement date for its second quarter financial results.

Second Quarter Earnings Release and Conference Call

Ambac will host a conference call on August 5, 2009 at 11:00 a.m. Eastern time to discuss second quarter 2009 earnings, which are scheduled to be released at 8:30 a.m. Eastern time on that day. The dial in number for the call is 877-407-9210 (U.S.) and 201-689-8049 (outside the U.S.).

The conference call will also be broadcast live on Ambac’s web site at www.ambac.com.

Beginning at 2:00 p.m. Eastern time on August 5 through August 14, the conference call will be available in replay. The replay numbers are 877-660-6853 (U.S.) and 201-612-7415 (outside the U.S.). The account and confirmation numbers for the replay are 286 and 327951, respectively. A recording will also be available on Ambac’s web site approximately one hour after the end of the conference call.

About Ambac

It also said the writedowns come amid expectations that some interest rates will rise, resulting in an increase in estimated future cash outflows.

The company said Ambac Assurance unit ended March with $11.9 billion of claims-paying resources, an amount that will be reduced by some payments related to the derivatives.

Ambac, MBIA Inc (MBI.N) and many competitors lost their "triple-A" ratings after venturing beyond low-risk municipal bond insurance, and providing guarantees of payments on riskier mortgage securities. That move backfired as housing prices tumbled and defaults soared.

Ambac said it does not plan to update its financial status before it reports second-quarter results on August 5. (Reporting by Jonathan Stempel; editing by Carol Bishopric)

The company will pay around $750 million to tear up $2.8 billion in notional exposures via these CDOs, it said.

Moody's also cut Ambac Financial's ratings by three notches to Ca, ten steps below investment grade, saying the unit would be less likely to access resources at Ambac Assurance going forward.

This raises the risk that the parent company will launch an exchange on its outstanding debt at less than its par value, Moody's said.

Ambac said that its insurance arm has petitioned the insurance regulator in Wisconsin to release "a substantial portion" of its contingency reserves, though there is no assurance this request will be approved.

Standard & Poor's on Tuesday slashed Ambac Assurance's counterparty credit rating eleven notches to CC -- 10 steps below investment grade, reflecting a high risk of regulatory intervention. [ID:nN28285452]

(Reporting by Karen Brettell;)