Ambac will miss an interest payment on its 7.5 percent of May 2023 notes that’s due today, according to a regulatory filing, which says the company has a 30-day grace period until a default is triggered and bondholders can accelerate full payment. “The company has been unable to raise additional capital as an alternative to seeking bankruptcy protection,” the filing said.
The bond insurer, based in New York, is seeking a prepackaged restructuring as it tries to preserve a $7 billion net operating loss tax benefit, according to the filing. The company’s ability to use the so-called tax carry forward would be limited if stock issued to debt holders in a bankruptcy filing causes shareholders owning 5 percent or more of the company’s stock to increase their ownership in the company by 50 percent or more.
In March, Wisconsin Insurance Commissioner Sean Dilweg seized $35 billion of Ambac’s risky mortgage-insurance policies and said he was splitting the insurance unit in two to segregate policies on which Ambac expects to pay significant claims. The move was needed to keep the company afloat and forestall an “uncontrollable scramble for assets” among policyholders and counterparties, Dilweg said.
Wisconsin insurance regulators released a report in May showing that Ambac’s losses on 18 collateralized debt obligations, or CDOs, backed by mortgages would result in claims of as much as $8.7 billion. CDOs parcel fixed-income assets such as bonds or loans and slice them into new securities of varying risk intended to provide higher returns than other investments with the same rating.
And as the housing market still has a long way to drop now due to Foreclosuregate all but stopping all transactions, there will be more bond monolines that get eaten by bankruptcy when their "assets" are revealed to be nothing more than toxic CDO mortgage cole slaw, chopped up and repackaged for investment.
Those investments are all going rancid at once.