Ambac's Surprisingly Strong Day
Maurna Desmond, 03.07.08, 6:40 PM ET
forbes.com
Ambac finally made its shareholders some cash after losing more than 90% of its value over the last year. After making a public offering of 171.1 million shares, investors rallied for the company and stock closed up 28.0%, or $2.08, to $9.50 on Friday, after dropping 15% during the day.
(how misleading is that? If you didn't see the chart, you'd have no idea what really happened! The stock never traded in the green until EOD!)
Ambac Chief Executive Michael Callen said on television Friday that the beleaguered bond insured raised $1.5 billion in capital. He added that he plans to restore investors' confidence in the company within the year.
The capital raise follows Ambac's Wednesday announcement that it would look to the market for cash instead of a government bailout. (See "Banks Backing Ambac, Sort Of")
Ambac's priced its $1.3 billion public offering of 171.1 million shares of common stock at $6.75 per share and granted underwriters a 30-day option to purchase up to an additional 25.7 million shares to cover over-allotments. Callen also said in statement Friday that per the capital raise "Ambac Assurance subsidiary will maintain its triple-A financial strength ratings with Moody's and Standard & Poor's." Ambac also is raising money via a complicated security that is similar to a convertible bond. Credit Suisse, Citigroup, Banc of America and UBS handled the transaction.
Ambac has indicated that current investors had agreed to take up a significant amount of the new shares. The underwriters bought $405 million in common stock and banks bought 40% of the shares. The Royal Bank of Scotland and BNP Paribas bought $95 million in shares through a private placement, according to TradetheNews.com.
Callen said Wednesday that the offering is meant to serve existing shareholders: "In this offering, we are targeting our core investor base, the long-term holders of our stock, who have been loyal to Ambac." To further prove his commitment to the company, Callen bought 25,000 of the shares himself. A small group of other executives bought 68,250 shares between them.
Ambac will inject the new funds into its insurance division which has been pummeled by subprime mortgage woes to bolster its capital position, less approximately $100 million. This is planned to be maintained to provide liquidity and to pay principal and interest on its existing debt. The money also will be used to pay operating expenses and stock dividends.
Ambac's announcement on Wednesday surprised and disappointed investors who had been primed by press reports to expect a bank bailout. The bond insurer's triple-A ratings have been threatened for months. (See: "Ambac Gets A Little Help From Its Friends") Instead, the company announced it was turning to the financial market for cash to bolster its balance sheet after an ill-fated expansion into providing insurance for mortgage-related securities. (See: "Ambac To Pass The Hat") |
