Ambac soars after regulators OK
Shares of Ambac Financial Group Inc. surged Wednesday, a day after the bond insurer said its plans for a new insurance subsidiary had been approved by Wisconsin insurance regulators.
Shares soared $1.60, or 22.6%, to $8.67 in morning trading. The stock, which has traded in a 52-week range of $1.04 to $73.20, is still down 73% for the year to date.
Under the plan, Ambac’s financial-guarantee subsidiary Connie Lee Insurance Co. will receive an investment of $850 million and be revived as a new operation under a new, yet-to-be-announced name.
The subsidiary will provide insurance only on U.S. public finance and global infrastructure, and avoid insurance contracts for complex financial products that have plagued Ambac’s existing insurance business and other bond insurers since late last year.
Ambac (ABK) has also submitted formal business proposals to the major credit-rating agencies in an effort to obtain a stand-alone "AAA" rating for the new insurance unit.
Bond insurers, which rely on top-notch ratings to generate new business, have been besieged since late 2007 by worries that an increase in defaults among mortgages will lead to a spike in defaults among bonds and debt cash advance pay day loans. That led ratings agencies to cut their ratings and sent their shares plummeting.
By opening Connie Lee and receiving a triple-A rating from Moody’s, Standard & Poor’s and Fitch, Ambac Financial could essentially replace its current bond insurance business with a new, untainted one with a high rating likely to generate revenue.
Filed under: term by John