Ambac Files for Bankruptcy Under Chapter 11 of the United States Bankruptcy Code
NEW YORK, November 08, 2010 --Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) announced today that it has filed for a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (“Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”). The Company will continue to operate in the ordinary course of business as “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.
The Company was unable to raise additional capital as an alternative to seeking bankruptcy protection and was also unable to agree to terms with an ad-hoc committee of certain senior debt holders in order to restructure its outstanding debt through a prepackaged bankruptcy proceeding. However, Ambac has agreed to a non-binding term sheet that will serve as a basis for further negotiations with the ad-hoc committee and that may allow the Company to emerge from bankruptcy more expeditiously.
As of June 30, 2010, the Company had debt outstanding amounting to $1,622 million. As a result of the bankruptcy filing, Ambac’s outstanding debt securities are accelerated. Upon the bankruptcy filing, any efforts to enforce such payment obligations under the related debt indentures are stayed pursuant to Bankruptcy Code.
In connection with the bankruptcy filing, Ambac is seeking an interim order restricting certain transfers of equity interests in and claims against the Company that is retroactive to the time of filing. The purpose of the interim order is to preserve the Company’s net operating losses (“NOLs”), which totaled approximately $7 billion as of June 30, 2010. Under section 382 of the Internal Revenue Code of 1986, as amended, transfers by persons or entities holding five percent or more of the Company’s outstanding equity interests could impair or permanently eliminate the Company’s NOLs. Additionally, transfers of claims against the Company by persons or entities who may receive five percent or more of the reorganized Company’s stock pursuant to a bankruptcy plan of reorganization may impair or permanently eliminate the Company’s NOLs.
Pursuant to the Bankruptcy Code, the Company is seeking a declaration that it has no tax liability for tax years 2003 through 2008 and that it is entitled to retain the full amount of the tax refunds received for tax years 2003 through 2008.
Further details related to the bankruptcy filing will be available in a Form 8-K to be filed by the Company with the SEC (available at www.sec.gov or on the Company’s web site at www.ambac.com).
Ambac will release its third quarter 2010 results on November 9, 2010, after market close.
Ambac Financial Group, Inc., headquartered in New York City, is a holding company whose affiliates provided financial guarantees and financial services to clients in both the public and private sectors around the world. Ambac's principal operating subsidiary, Ambac Assurance Corporation, a guarantor of public finance and structured finance obligations, has a Caa2 rating under review for possible upgrade from Moody's Investors Service, Inc. and an R (regulatory intervention) financial strength rating from Standard & Poor's Ratings Services. Ambac Financial Group, Inc. common stock is listed on the New York Stock Exchange (ticker symbol ABK).
Forward Looking Statements
This release contains statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any or all of management’s forward-looking statements here or in other publications may turn out to be incorrect and are based on Ambac management’s current belief or opinions. Ambac’s actual results may vary materially, and there are no guarantees about the performance of Ambac’s securities. Among events, risks, uncertainties or factors that could cause actual results to differ materially are: (1) the impact of the bankruptcy proceeding on the holders of Ambac securities; (2) the unlikely ability of Ambac Assurance to pay dividends to Ambac in the near term; (3) the risk that holders of debt securities or counterparties on credit default swaps or other similar agreements bring claims alleging that the rehabilitation of the Segregated Account constitutes an event of default under the applicable debt indenture or an event of default under the applicable ISDA contract; (4) adverse events arising from the Segregated Account Rehabilitation Proceedings, including the injunctions issued by the Wisconsin rehabilitation court to enjoin certain adverse actions related to the Segregated Account being successfully challenged as not enforceable; (5) litigation arising from the Segregated Account Rehabilitation Proceedings; (6) decisions made by the rehabilitator for the benefit of policyholders may result in material adverse consequences for Ambac’s securityholders; (7) potential of rehabilitation proceedings against Ambac Assurance, with resulting adverse impacts; (8) the risk that reinsurers may dispute amounts owed us under our reinsurance agreements; (9) possible delisting of Ambac’s common shares from the NYSE; (10) the risk that market risks impact assets in our investment portfolio or the value of our assets posted as collateral in respect of investment agreements and interest rate swap and currency swap transactions; (11) risks which impact assets in Ambac Assurance’s investment portfolio; (12) risks relating to determination of amount of impairments taken on investments; (13) credit and liquidity risks due to unscheduled and unanticipated withdrawals on investment agreements; (14) market spreads and pricing on insured collateralized loan obligations (“CLOs”) and other derivative products insured or issued by Ambac; (15) inadequacy of reserves established for losses and loss expenses, including our inability to realize the remediation recoveries included in our reserves; (16) Ambac’s financial position and the Segregated Account Rehabilitation Proceedings may prompt departures of key employees; (17) the risk of litigation and regulatory inquiries or investigations, and the risk of adverse outcomes in connection therewith, which could have a material adverse effect on our business, operations, financial position, profitability or cash flows; (18) difficult economic conditions, which may not improve in the near future, and adverse changes in the economic, credit, foreign currency or interest rate environment in the United States and abroad; (19) the actions of the U. S. Government, Federal Reserve and other government and regulatory bodies to stabilize the financial markets; (20) likely unavailability of adequate capital support and liquidity; (21) credit risk throughout our business, including credit risk related to residential mortgage-backed securities and CLOs and large single exposures to reinsurers; (22) default by one or more of Ambac Assurance’s portfolio investments, insured issuers, counterparties or reinsurers; (23) the risk that our risk management policies and practices do not anticipate certain risks and/or the magnitude of potential for loss as a result of unforeseen risks; (24) factors that may influence the amount of installment premiums paid to Ambac, including the imposition of the payment moratorium with respect to claims payments as a result of Segregated Account Rehabilitation Proceedings; (25) changes in prevailing interest rates; (26) the risk of volatility in income and earnings, including volatility due to the application of fair value accounting, required under the relevant derivative accounting guidance, to the portion of our credit enhancement business which is executed in credit derivative form, and due to the adoption of the new financial guarantee insurance accounting standard effective January 1, 2009, which, among other things, introduces volatility in the recognition of premium earnings and losses; (27) changes in accounting principles or practices that may impact Ambac’s reported financial results; (28) legislative and regulatory developments; (29) operational risks, including with respect to internal processes, risk models, systems and employees; (30) changes in tax laws and other tax-related risks; (31) other factors described in the Risk Factors section in Part I, Item 1A of Ambac’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and also disclosed from time to time by Ambac in its subsequent reports on Form 10-Q and Form 8-K, which are available on the Ambac website at www.ambac.com and at the SEC’s website, www.sec.gov; and (32) other risks and uncertainties that have not been identified at this time. Readers are cautioned that forward-looking statements speak only as of the date they are made and that Ambac does not undertake to update forward-looking statements to reflect circumstances or events that arise after the date the statements are made. You are therefore advised to consult any further disclosures we make on related subjects in Ambac’s reports to the SEC.