Ambac Financial Group
Encyclopedia
The Ambac Financial Group, Inc., generally known as Ambac (originally the American Municipal Bond Assurance Corporation) , is an American
holding company
whose subsidiaries provide financial guarantee products, such as bond insurance
and other financial services to clients in both the public and private sectors around the world. Ambac is regulated by the insurance commission of Wisconsin. Through its financial services subsidiaries, the company provides investment agreements, interest rate swap
s, investment advisory and cash management
services, primarily to states, municipalities and their authorities. It has its headquarters in Lower Manhattan
, New York City
.
credit rating
was lowered from AAA (the highest) to AA when its plans to raise two billion dollars in new capital failed. Moody's
and S&P, however, chose to affirm Ambac's AAA with their agencies after it succeeded in raising $1.5 billion in new capital in March 2008. In early 2008, the spectre of the major bond guarantors failing to be able to pay off insurance claims on a trillion dollars of securities backed by sub-prime mortgages and other securitized
debt led to attempts to shore them up with infusions of capital. On June 19, 2008 Moody's downgraded Ambac's credit rating three notches to Aa3.
Ambac's ratings continued to decline during 2008–2010. Currently, Moody's Investors Service has lowered the rating of the senior unsecured debt of Ambac Financial Group Inc. (Ambac Financial) to C from Ca, and placed the Caa2 insurance financial strength ratings (IFSR) of Ambac Assurance Corporation (AAC) on review for possible upgrade on 3/26/2010. On March 25, 2010, Standard & Poor's Ratings Services revised its counterparty credit, financial strength, and financial enhancement ratings on Ambac
Assurance Corp. (Ambac) to 'R' from 'CC'. An 'R' rating is a non-investment grade rating. On June 8th, 2010 Ambac announced that it would likely seek a pre-packaged bankruptcy as it was unable to pay dividends from its bond insurance unit to the holding company. Since that time Ambac has dropped appreciably in share price to approximately 0.50 per share as of the end of August 2010.
Maintaining a high credit rating is critical for bond insurance firms. Companies and governments buy insurance to reduce their borrowing costs by assuming the higher rating of the insurer. Keeping up this rating is thus the basis of the insurer's business model.
Ambac missed an interest payment on its debt on November 1, 2010, and filed for chapter 11 bankruptcy protection on November 8, 2010.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
holding company
Holding company
A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...
whose subsidiaries provide financial guarantee products, such as bond insurance
Bond insurance
Bond insurance is a type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in the event of a payment default by the issuer of the bond or security...
and other financial services to clients in both the public and private sectors around the world. Ambac is regulated by the insurance commission of Wisconsin. Through its financial services subsidiaries, the company provides investment agreements, interest rate swap
Interest rate swap
An interest rate swap is a popular and highly liquid financial derivative instrument in which two parties agree to exchange interest rate cash flows, based on a specified notional amount from a fixed rate to a floating rate or from one floating rate to another...
s, investment advisory and cash management
Cash management
In United States banking, cash management, or treasury management, is a marketing term for certain services offered primarily to larger business customers...
services, primarily to states, municipalities and their authorities. It has its headquarters in Lower Manhattan
Lower Manhattan
Lower Manhattan is the southernmost part of the island of Manhattan, the main island and center of business and government of the City of New York...
, New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
.
Credit rating
Ambac and other bond guarantors, such as MBIA, were hit hard by the 2007 subprime mortgage financial crisis, and, on January 18, 2008, its FitchFitch Ratings
The Fitch Group is a majority-owned subsidiary of FIMALAC, headquartered in Paris. Fitch Ratings, Fitch Solutions and Algorithmics, are part of the Fitch Group....
credit rating
Bond credit rating
In investment, the bond credit rating assesses the credit worthiness of a corporation's or government debt issues. It is analogous to credit ratings for individuals.-Table:...
was lowered from AAA (the highest) to AA when its plans to raise two billion dollars in new capital failed. Moody's
Moody's
Moody's Corporation is the holding company for Moody's Analytics and Moody's Investors Service, a credit rating agency which performs international financial research and analysis on commercial and government entities. The company also ranks the credit-worthiness of borrowers using a standardized...
and S&P, however, chose to affirm Ambac's AAA with their agencies after it succeeded in raising $1.5 billion in new capital in March 2008. In early 2008, the spectre of the major bond guarantors failing to be able to pay off insurance claims on a trillion dollars of securities backed by sub-prime mortgages and other securitized
Securitization
Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...
debt led to attempts to shore them up with infusions of capital. On June 19, 2008 Moody's downgraded Ambac's credit rating three notches to Aa3.
Ambac's ratings continued to decline during 2008–2010. Currently, Moody's Investors Service has lowered the rating of the senior unsecured debt of Ambac Financial Group Inc. (Ambac Financial) to C from Ca, and placed the Caa2 insurance financial strength ratings (IFSR) of Ambac Assurance Corporation (AAC) on review for possible upgrade on 3/26/2010. On March 25, 2010, Standard & Poor's Ratings Services revised its counterparty credit, financial strength, and financial enhancement ratings on Ambac
Assurance Corp. (Ambac) to 'R' from 'CC'. An 'R' rating is a non-investment grade rating. On June 8th, 2010 Ambac announced that it would likely seek a pre-packaged bankruptcy as it was unable to pay dividends from its bond insurance unit to the holding company. Since that time Ambac has dropped appreciably in share price to approximately 0.50 per share as of the end of August 2010.
Maintaining a high credit rating is critical for bond insurance firms. Companies and governments buy insurance to reduce their borrowing costs by assuming the higher rating of the insurer. Keeping up this rating is thus the basis of the insurer's business model.
Ambac missed an interest payment on its debt on November 1, 2010, and filed for chapter 11 bankruptcy protection on November 8, 2010.