Fitch Downgrades Ambac; Ratings Remain on Watch Negative

Business Wire, Jan 18, 2008

NEW YORK -- Fitch Ratings has downgraded the following ratings on Ambac Financial Group, Inc. and its affiliated entities (Ambac):

Ambac Assurance Corp.

Ambac Assurance UK Ltd.

Connie Lee Insurance Co.

--Insurer financial strength (IFS) to 'AA' from 'AAA'.

Ambac Financial Group, Inc.

--Long-term rating to 'A' from 'AA';

--$400 million 5.95% senior unsecured notes due Dec. 5, 2035 to 'A' from 'AA';

--$142.5 million 9.375% senior unsecured debentures due Aug. 1, 2011 downgraded to 'A' from 'AA';

--$75 million 7.5% senior unsecured debentures due May 1, 2023 downgraded to 'A' from 'AA';

--$400 million subordinated notes due Feb. 7, 2087 downgraded to 'A-' from 'AA-'.

The ratings also remain on Rating Watch Negative by Fitch.

The downgrades follow Ambac's announced decision to suspend efforts to raise capital at this time.

As Fitch announced on Dec. 21, 2007, when it placed Ambac on Rating Watch Negative, the company has a modeled capital shortfall of $1 billion at the 'AAA' rating threshold. The downgrade places Ambac's operating subsidiaries' IFS rating at a level consistent with their currently modeled capital adequacy threshold without the benefit of the noted capital increase. The downgrade in the holding company debt ratings reflects greater uncertainties surrounding Ambac's future earnings and fixed charge coverage ratios, together with movement to the more typical notching used at the 'AA' IFS rating level.

The decision to downgrade the IFS rating by two notches, coupled with the continuation of the Negative Rating Watch, reflects the significant uncertainty with respect to the company's franchise, business model and strategic direction; uncertain capital markets and the impact of Ambac's recent decisions on future financial flexibility; the company's future capital strategy; ultimate loss levels in its insured portfolio; and the challenges in the financial guaranty market overall. Fitch expects to resolve the Negative Rating Watch after the agency evaluates these various qualitative factors, and provide that feedback to the market upon the conclusion of this review.

Fitch will comment on the impact of the downgrade of Ambac's IFS rating on the ratings of securities insured by Ambac in a separate release.

Ambac Financial Group, Inc. is a U.S. holding company whose primary operating financial guaranty subsidiaries are Ambac and Ambac Assurance U.K Ltd. For Sept. 30, 2007, Ambac Financial reported consolidated assets under Generally Accepted Accounting Principles of $22 billion and shareholders' equity of approximately $5.6 billion. On an aggregated basis, net par outstanding for Ambac totaled $556 billion as of Sept. 30, 2007.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.