Another Housing Crisis Casualty: Ambac Financial Files for Bankruptcy
Nov 8th 2010 9:45PM
Updated Nov 8th 2010 9:58PM
Bond insurer Ambac Financial Group (ABK) said Monday that it has filed for Chapter 11 bankruptcy protection after it failed to raise additional capital.
The embattled company also failed to arrange a structured bankruptcy agreement with senior debt holders.
It has tried for two years to regain its footing after getting pummeled by the collapse of the housing market.
The company continues to operate under the jurisdiction of the bankruptcy court.
As of June 30, it had $1.62 billion in debt. Assets were listed in bankruptcy court documents as $394.5 million.
Debt Claims Halted
The bankruptcy filing halts any debt claims. The company also is seeking a court declaration that would wipe out its tax liability for tax years 2003 through 2008 and that would allow it to keep the tax refunds it received for those years.
Documents were filed in the U.S. Bankruptcy Court for the Southern District of New York.
The Vanguard Group was listed as holding 5.46% of the company's stock, or 16.5 million shares.
The shares are spread across seven funds and no single fund owns more than 5%, documents said.
Creditors holding the largest 20 unsecured claims include BNY Mellon, which held about $1.6 billion in unsecured notes.
The city of New York claimed a $42.3 million disputed tax assessment.
Several businesses claimed trade debt, including Algorithmics, which claims $81,656; RR Donnelly, $14,000; and Bloomberg LP at $6,602.
Negotiations Just Beginning
Ambac, which is based in New York, had said just a week ago that it planned to file for bankruptcy protection either through a prepackaged plan arranged with senior debt holders or through Chapter 11 proceedings.
A statement released late Monday indicated that an agreement with debt holders could not be reached.
However, Ambac has agreed to a nonbinding term sheet that will serve as a basis for further negotiations with the debt holders and that may allow the company to emerge from bankruptcy more quickly.
The company's stock traded above $95 a share in the spring of 2007, before the housing bust.
Shares closed at 52 cents Monday then fell 32 cents in aftermarket trading.
In March, Wisconsin regulators took over some of the most troubled assets of Ambac's main operating subsidiary, Ambac Assurance Corp., which is based in that state. Regulators feared the company would run out of money paying claims on policies related to risky structured finance transactions. Those include the credit default swaps and residential mortgage-backed securities held by major Wall Street banks that helped to accelerate the national financial crisis.
Bond insurers traditionally offered insurance mainly to government entities for debt that covered infrastructure construction and other municipal projects, but that changed as investors began betting on complex structured finance products like mortgage-backed securities in the late 1990s. The collapse of that market as foreclosures skyrocketed left Ambac and several competitors teetering when they were left on the hook for more coverage than they could financially handle.