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Ambac Provides First Quarter 2008 Business Activity Update
Business Wire, May 6, 2008
NEW YORK -- Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today released the text of a business activity update targeted at all its major constituents. The text of the release follows:
Ambac is committed to preserving and rebuilding our business franchise. Our recent capital raise of $1.5 billion and affirmation of our triple-A ratings with negative outlook from Moody's and S&P were critical steps in pursuing this goal. Preserving our client relationships and identifying business opportunities are also key to reestablishing Ambac's leading position in the monoline financial guarantee market. The following is a business summary of first quarter 2008.
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The capital raise reduced the uncertainty around our ratings, which has generated greater interest in our core products. While volume and insured penetration have decreased significantly in the general public finance market, Ambac is beginning to see more opportunities to provide insurance both in the new issue (competitive and negotiated deals). Furthermore, secondary market transactions with Ambac insurance are steadily increasing. In the structured finance market, we will not be writing new transactions for a period of six months from March 6, 2008 (the "moratorium period"). In the meantime, the Group continues to meet with clients. Furthermore, Ambac discontinued underwriting certain structured finance businesses, including CDOs and RMBS. (For more details, see our SEC filings.)
Across all business lines, we are discussing with issuers and investors our financial strength and our progress toward stabilizing and advancing the drivers of our business. Another key focus at this time is helping clients affected by the disruptions in the variable rate markets -- both for Auction Rate Securities (ARS) as well as for Variable Rate Demand Obligations (VRDO). The dislocations in these markets have caused significant financial difficulties for certain clients and we are committed to finding resolutions to these challenges.
Ambac's overall objective is to continue helping our clients solve their capital funding needs in the most efficient manner possible. As we do so, we believe we will demonstrate to the market why Ambac remains well-positioned in its business lines. Below is a brief description, by business area, of some of the efforts we have undertaken to further our objectives.
General Municipal Business
The East and West Regions, as well as the General Municipal Underwriting Group, have seen a substantial increase in both new issue and secondary market insurance requests. While our business volume is still down significantly, we are seeing increased trading value of Ambac-wrapped securities relative to pre-capital raise levels and a renewed interest in Ambac's participation in the market. Since our capital raise, we have insured eight new issues in the primary market and have issued commitments to insure several transactions that have not yet been priced in the market. These insured new issues included a $46.8 million Compton, CA lease financing in the negotiated market, as well as a $62.0 million Alaska Municipal Bond Bank issue and a $51.5 million Rialto, CA Tax Allocation Bond which sold in the competitive market. Currently, however, the majority of our business opportunities remain in the secondary market, where we have insured 21 transactions since the capital raise.
In addition, much of our recent focus has been on helping solve our clients' problems in the variable rate markets. We have received 84 requests for amendments, waivers or consents to restructure deals in order to lower interest rates. Public Finance has worked closely with many clients in finding several successful and innovative solutions such as the conversion from auction rates to a VRDO with the addition of direct-pay line of credit (LOC) as was done for the University of South Florida. We have also agreed to amendments in Standby Bond Purchase agreements for immediate termination events for the Utah Water Finance Agency, among others. Ambac has developed several alternatives that issuers are finding to be feasible alternatives given the current municipal finance marketplace.
We have been in continuous contact with many of our key clients, including bankers, financial advisors, issuers and policyholders. During the past several weeks, Ambac has met with each of the major New York investment banks and several regional banks across the country. In the coming weeks and months, we will continue to meet with our key constituents as we move forward in renewing market confidence.
Utilities
The Ambac Utilities Group remains committed to supporting the financial initiatives of its issuers, particularly during this period of unprecedented volatility and uncertainty. In recent weeks, we have focused our efforts on addressing the strains brought on by the dysfunctional markets for auction rate securities and other variable rate securities. Since February 14, 2008, we have received and approved over 55 amendment and consent requests from issuers to facilitate the conversion of auction rate securities or remarketing of Ambac-insured securities. While most of these conversions have involved the temporary repurchase of outstanding securities, certain have involved conversions to fix interest rates through maturity, including recent transactions for Kentucky Utilities Company (5.75% to 6.0%) and Southern Indiana Gas & Electric Company (5.4%). Still others have involved the conversion to short and intermediate term fixed interest rates, including recent transactions for Tampa Electric Company (5.0%) and Oglethorpe Power Company (4.625%).
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