it was the Taaka...........
Ambac may struggle to raise new capital: analysts
Performance of new MBIA notes suggests difficulties for rival bond insurer
By Alistair Barr, MarketWatch
Last update: 6:14 p.m. EST Jan. 16, 2008
SAN FRANCISCO (MarketWatch) -- Ambac Financial Group may struggle to raise the new capital it needs to keep its crucial AAA rating, some analysts said on Wednesday.
Ambac (ABK) , a leading bond insurer, said it will try to raise at least $1 billion in new capital by selling equity and equity-linked securities. The company may also raise more capital by selling new debt securities and buying more reinsurance. See full story.
Ambac shares slumped 39% to close at $12.97 on Wednesday after the plan was announced.
Some analysts questioned whether Ambac will be able to raise as much as it hopes to, citing the company's falling book value and concerns about the ultimate losses it may suffer from exposure to mortgage-related securities including collateralized debt obligations (CDOs).
"It is unclear if the company will actually be able to raise the equity," said Ken Zerbe, an analyst at Morgan Stanley. "With the amount of uncertainty surrounding its ultimate losses and capital needs, we can understand if investors are somewhat hesitant to invest new funds."
In a best case scenario, Ambac may lose $2.3 billion from subprime mortgage and CDO exposures, Zerbe estimated. But in a worst-case situation, the company could lose more than $11 billion.
"At this level, the company cannot raise equity, it loses its AAA rating, and is put into run off," Zerbe wrote in a note to investors on Wednesday.
MBIA notes fall
Rival MBIA Inc. (MBI) raised $1 billion in new capital by selling surplus notes last week. The securities paid an initial interest rate of 14% to attract investors.
But despite that high yield, the notes have slumped this week, according to David Havens, head of investment grade corporate bond research at UBS.
The securities traded at 80 cents on the dollar earlier on Wednesday, weighed down by Ambac's announcement, recession fears and Standard & Poor's decision on Tuesday to increase its mortgage-loss assumptions, Havens explained.
Such weakness could make it more difficult for Ambac to raise money, especially by selling new debt, he added.
"The plan is very light on specifics and it appears that the poor performance of MBIA's surplus note makes for a real challenge, at least as far as debt market is concerned," Havens said.
Book value declines
Ambac also said on Wednesday that it may post a fourth-quarter net loss of up to $32.83 a share after cutting the fair market value of its credit derivative portfolio by $5.4 billion, before taxes. Most of these mark-to-market adjustments won't end up as actual losses, as long as further credit impairment doesn't happen, Ambac added.
But Ambac also warned that it will likely suffer actual losses. The mark-to-market adjustments include a $1.1 billion credit impairment from the deterioration of some CDOs backed by other types of asset-backed securities, the company explained. Ambac also said it's setting aside $143 million, before tax, to cover losses on securities backed by home equity lines of credit and second-lien home loans.
Such losses will cut Ambac's book value to $21.02 a share at the end of the fourth quarter, down from more than $55 a share at the end of September, Steve Stelmach, an analyst at Friedman, Billings, Ramsey, estimated in a note to investors on Wednesday.
"The immediate hit to book value will put significant pressure on valuation and could impair the company's ability to raise additional capital in coming weeks," the analyst warned.
The book value estimate includes $2.8 billion of after-tax mark-to-market write-downs. If those adjustments don't end up as actual losses, Ambac's book value will rebound strongly, but Stelmach said he isn't confident that will happen.
Stelmach cut his rating on Ambac to market perform from outperform on Wednesday because the slumping share price will make its capital raising plan much more expensive. End of Story |
