Ambac (ABK) is next bond insurer to look at break-up

February 18th, 2008 | Category: Deals, Bad News, Industry

Large mini-bond insurer Ambac (NYSE: ABK) is considering breaking itself into two pieces. One, which would handle its portfolio of municipal bonds could keep its high credit rating. The other piece would keep its structured financial investment in securities including subprime instruments. The moment part of the company may be nearly bankrupt.

According to The Wall Street Journal, “Bond insurers in recent weeks have become ground zero in the global credit crisis considering the companies contractually have agreed to stand behind billions of dollars in securities underpinned by U.S. subprime mortgage loans.”

While it is clear why that is good for

cities and states whose bonds are insured by the company considering that keeps their high credit ratings, it is less clear why it benefits Ambac’s common stockholders. whether the operation is broken into two parts, who owns the valuable piece and who owns the worthless piece? In the end, stockholders who have already seen 80% of the market value in Ambac vanish as its shares have fallen, may get very little.

Douglas A. McIntyre is an editor at 247wallst.com.

Original post by Douglas McIntyre

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