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S&P Cuts Ambac; Hybrid Security Now Junk
Earlier this month, Ambac said it lost $2.4 billion, or $8.45 a share, in the third quarter.
November 19, 2008
Standard & Poor's cut Ambac Assurance Corp.'s financial strength rating to 'A' from 'AA', also lowering its ratings on holding company Ambac Financial Group's senior debt and hybrid security. The hybrid security is now junk rated.
S&P's outlook on the ratings is negative.
"The rating action on Ambac reflects our view that the company's exposures in the US residential mortgage sector and particularly the related collateralized debt obligation structures have been a source of significant and comparatively greater-than-competitor losses and will continue to expose the company to the potential for further adverse loss development," S&P said. "These losses have slightly more than offset the benefits to the company of lower capital requirements that result from a declining book of business."
In addition, to support funding needs at affiliate Ambac Capital Funding, a provider of investment agreements, to meet increased collateralization and termination requirements, Ambac has purchased assets from and made loans to the affiliate. This has lowered slightly the credit quality of Ambac's investment portfolio and increased the gap between the book value and fair market value of the assets in the portfolio.
Ambac Financial's senior debt was lowered to 'BBB' from 'A' and it's hybrid security was lowered to 'BB+' from 'BBB+.'
Earlier this month, Ambac said it lost $2.4 billion, or $8.45 a share, in the third quarter, compared with a third-quarter 2007 net loss of $360.6 million, or $3.53 a share.
The loss was due to recording net mark-to-market losses on credit derivatives, increased loss provisioning primarily related to second-lien residential mortgage-backed securities insurance transactions and market losses on RMBS within the financial services investment portfolio.
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