Ambac Financial Group Inc., which was the second-largest U.S. bond insurer before suffering huge losses on risky mortgages, said it may file for bankruptcy protection as soon as this year after skipping a bond interest payment.
Ambac shares slid as much as 59.8 percent Monday.
The announcement is the latest setback for Ambac, which has struggled to stay solvent after the housing market collapse. Ambac had pursued higher profit by expanding beyond municipal bond insurance and starting to insure riskier debt. That move backfired as credit tightened and more borrowers defaulted.
In a regulatory filing, Ambac said it has been unable to raise capital to avoid bankruptcy and is in talks with a group of senior bondholders to pursue a bankruptcy filing that would preserve a $7 billion tax benefit.
Ambac said that, if it cannot agree on a “prepackaged” bankruptcy soon, it intends to seek Chapter 11 protection this year, perhaps without the support of creditors. It said this would cause $1.62 billion of debt to be payable immediately.
The New York-based company previously said it might seek a prepackaged bankruptcy, but that its liquidity might not run out until the first quarter of 2011. Failure to win creditor support could result in a lengthy reorganization.
“Ambac has been a corpse for some time,” said Matt Fabian, managing director of Municipal Market Advisors, an independent research firm. “With the credit crisis ongoing and getting worse, it will make any kind of bankruptcy restructuring more difficult, and painful for creditors. The bankruptcy process appears to be going faster than investors expected.”
Ambac decided not to make a $2.8 million payment due Nov. 1 on its $75 million of 7.5 percent bonds maturing in May 2023. It said it will be in default if it fails to pay within 30 days and bondholders may demand it repay all principal.
The next interest payment on Ambac debt is due Nov. 15.
Ambac shares were down 33.8 cents, or 40.7 percent, at 49.2 cents in afternoon trading after earlier sinking to 33.4 cents. The shares traded above $70 as recently as October 2007.
Prices on Ambac bonds fell roughly 40 percent Monday, according to bond pricing service Trace. The cost of protecting Ambac debt against default through credit default swaps rose.
