Google Chart of ABK share price: Ambac’s share price hit an all-time low on Wednesday, falling below $1 a share for the first time in the company’s history as a public company.
Posted on 11/23/2008 4:25:00 AM PST by TigerLikesRooster
The death throes of the bond insurers
Google Chart of ABK share price: Ambac’s share price hit an all-time low on Wednesday, falling below $1 a share for the first time in the company’s history as a public company.
Why? A rather savage downgrade from S&P, which cut the bond insurer’s financial strength rating to A from AA, The outlook on the ratings is negative, meaning further cuts are likely in the medium term.
S&P’s rationale (emphasis FT Alphaville’s):
| The rating action on Ambac reflects our view that the company’s exposures in the U.S. residential mortgage sector and particularly the related collateralized debt obligation (CDO) 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. 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 Inc., a provider of investment agreements, to meet increased collateralization and termination requirements, Ambac has purchased assets from and made loans to the affiliate that have 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. Nevertheless, in our opinion, the company still exhibits sound claims-paying ability at its current rating and adequate liquidity levels… The negative outlook reflects our view that Ambac’s exposure to domestic nonprime mortgages and related exposures to CDO of ABS have likely damaged its franchise and that the company faces extremely limited new business flow. |
(Excerpt) Read more at ftalphaville.ft.com ...
Ping!
GooD!!
Perhaps the days of "oversight" being a noun are over.
Oh, the dim-0-crats won ... never minds!
A bond insurer that does not have a AAA/stable rating isn’t a bond insurer for long.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.