Ambac Does Not Make November 1 Coupon Payment, To File Bankruptcy Within A Month If Unable To Raise Additional Capital

Tyler Durden's picture

From a just released 8-K:

On October 29, 2010, the Board of Directors of Ambac Financial Group, Inc. (the “Company”) decided not to make a regularly scheduled interest payment on the Company’s 7.50% Debentures due May 1, 2023 (the “2023 Notes”). The interest payment was scheduled to be made on November 1, 2010. If the interest is not paid within 30 days of the scheduled interest payment date, an event of default will occur under the indenture for the 2023 Notes. The occurrence of an event of default would permit the holders of the 2023 Notes to accelerate the maturity of the notes. As of June 30, 2010, the Company had total indebtedness of $1,622 million. The next scheduled payment of interest on the Company’s indebtedness is November 15, 2010.

To date, the Company has been unable to raise additional capital as an alternative to seeking bankruptcy protection. As such, the Company is currently pursuing with an ad hoc committee of senior debt holders a restructuring of its outstanding debt through a prepackaged bankruptcy proceeding. There can be no assurance that any definitive agreement will be reached. If the Company is unable to reach agreement on a prepackaged bankruptcy in the near term, it intends to file for bankruptcy under Chapter 11 of the United States Bankruptcy Code prior to the end of the year. Such filing may be with or without agreement with major creditor groups concerning a plan of reorganization. The filing for bankruptcy protection would accelerate the maturity of all of the Company’s indebtedness.

A significant consideration for any restructuring or reorganization is the impact, if any, on the Company’s estimated $7.0 billion net operating loss (“NOLs”) tax carry forward. The Company considers the NOLs to be a valuable asset. However, the Company’s ability to use the NOLs could be substantially limited if there were an “ownership change” as defined under Section 382 of the Internal Revenue Code of 1986, as amended. In general, an ownership change would occur if shareholders owning 5% or more of the Company’s stock increased their percentage ownership (by value) in the Company by 50% or more, as measured over a rolling three year period beginning with the last ownership change. These provisions can be triggered by new issuances of stock, merger and acquisition activity or normal market trading. On February 2, 2010, the Company entered into a Tax Benefit Preservation Plan to reduce the risk of an ownership change resulting from the trading of the Company’s stock.

If the Company files for bankruptcy protection, stock issued to the Company’s debt holders in connection with a reorganization could trigger an ownership change if a significant portion of the debt being exchanged had been held by such debt holders for less than 18 months prior to the filing for bankruptcy and certain other factual or legal exceptions were not applicable. Accordingly, extensive buying of the Company’s debentures prior to a bankruptcy filing by persons who could hold 5% or more of the Company’s stock following a bankruptcy reorganization could substantially limit the Company’s ability to use its NOLs.

Prior to the occurrence of an event of default under the indenture for the 2023 Notes, the Company intends either (i) to pay interest on the 2023 Notes, (ii) to solicit acceptances for a prepackaged plan of reorganization and, if such solicitation is successful, then to file for bankruptcy with a related prepackaged plan or (iii) to file for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Several factors may influence which of the above courses of action the Company may take, including the status of negotiations with the ad hoc committee of senior debt holders and actions required to preserve the NOLs.

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TheGreatPonzi's picture

Will it be bailed-out?

LeBalance's picture

doesn't it need to be?  (in order for the underlying asset not to see the light of day: mark-to-market)

ZeroPoint's picture

Nah. It's not TBTF. Instead, it will be shotgun married to AIG, a 'solid fundamentals' business that never, ever needed a bail-out.


End snark here.


FischerBlack's picture

LOL, their greatest asset is $7 Billion in losses. And we're not in the Matrix?

Eternal Student's picture

When money (as in those FRN's in your wallet) is debt, I suppose that would make sense. Or at least be consistent.

MaximumPig's picture

Feds had their chance to save AMBAC when it would have helped the municipalities whose bonds AMBAC insure, not gonna happen now.

TheGreatPonzi's picture

America is an incredible country. You can't go bankrupt. Create companies, if they win you win, if they lose you win. What a wonderland.

Handle with care's picture

I remember two years ago everyone was freaking out that if the monolines fail the market will collapse yet the futures barely moved

TheGreatPonzi's picture

I don't know why we still care about companies and the real economy. The only thing that matters is the central bank policies and their impact on the USD.

Ricky Bobby's picture

+10 I am sick of the Fed daytrading our economy.

ZackAttack's picture

Should've died three years ago. Just goes to show you... the bezzle and bullshit can kick the can further than you could ever imagine.

plocequ1's picture

Dont worry Kids, The  ficticious legend called "The middle class Taxpayers" will pay the bill.

cowdiddly's picture

+++I hear that they are going to pass a squatters tax. This will only affect occupants of foreclosed homes but does not apply to the Hoovervilles springing up all around every major city. That will be covered under the new tent( TARP II) tax.

kaiserhoff's picture

Obamavilles full of hopium

RockyRacoon's picture

You sure they aren't Bushburgs?  I don't think sales of tents spiked on inauguration day.

firstdivision's picture

For some reason I see this as a shot across the bow of the financial world.  They now see that the threads they are hanging by are becoming frayed.  Thinking it might be time to take a lawn chair onto the roof to watch the fireworks.

LongSoupLine's picture

Interesting...I don't see anything about this on CNBS, so it must not exist.

DollarDive's picture

Wonder what the effect will be on the loss of credit rating on all the bonds they insure will be ? If a bond goes from AAA to caa1, can the banks still hold them in their investment grade portfolio ?  

curbyourrisk's picture

Paging Charlie Gasparino......Come in Charlie....

Miss Expectations's picture

Here's a Bloomberg interview with Michael Callen (September 28, 2008)...Hear him say (about ratings downgrade)..."Not a solvency issue." @ 5:00

DollarDive's picture

Callen is another crook that should be in prison.

slaughterer's picture

No bailout, no pre-pack.  Ambac BK = Christmas gift to their CDS counter-parties.   TBTF escape unscathed from ABK's claims concerning MBSs issued by TBTFs.  Uncle Sam ain't going to bail out ABK.  Everybody happier with a Pre-Pack--except equity and preferred.

Waterfallsparkles's picture

Knowing Wall Streets reverse Psychology, I would not be surprised to see a Short Squeeze.

ElvisDog's picture

Oh man, I was counting on that 7.5% coupon payment until 2023. Who could have predicted that income stream would go away??

tallystick's picture

Large amounts of Ambac CDS in Maiden Lane.

Looks like $50B in Ambac

kaiserhoff's picture

Implications of the bankrupty are not entirely clear...

Oh, but they are:

1  AMBAC goes belly up

2  Insurance is gone on billions, probably trillions in bonds and derivatives

3 Rating agencies must downgrade

4 From 2 and 3 above - Institutions that can't hold junk debt are forced into fire sales

5 Financial apocalypse


partimer1's picture

How the f*ck this company survives to this day?  I thought it was gone two years ago. It is amazing to even see it around today. It probably says all about the system and policy.

RockyRacoon's picture

Can I post my NOLs as an asset as well?  If so, I'm rich!

ZeroPower's picture

I believe you can! When you go to the bank asking for loan, just tell them you've got some future tax liabilities, nay, ASSETS which can serve as collateral!

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