Ambac announced that it has completed its $1.5 billion equity offering and is working to restore market confidence, said John Uhlein, executive vice president at Ambac Financial Group.
Uhlein was among the panelists from the bond insurance industry who spoke at the American Securitization Forum's sunset seminar on financial guarantors. The panel was held in New York last Wednesday.
In what seemed to be a remarkably upbeat discussion, Uhlein noted that many of Ambac's previous stockholders invested in the offering and were supportive of the capitalization plan. He said that 20 investors owned approximately 80% of Ambac's stock before the offering. Cerberus Capital Management has also been publicly identified as an investor in the offering.
While Uhlein acknowledged that a prior deal to split the company had been discussed, ultimately Ambac decided that it would remain a single entity, primarily out of fear that a separated structured finance unit might not be able to generate enough capital to sustain a triple-A rating.
"If you want to be a triple-A company, you have got to make that decision," Uhlein said. He noted that a double-A rated monoline is much more of a niche market.
Furthering Ambac's decision was the diversification benefit that comes with one single entity.
Jack Dorer, managing director at Moody's Investors Service, said that the element of diversification would factor into the ratings of a new company. Right now, Moody's has added elements such as risk management, capital strengthening plans and reinsurance risk to its review criteria, among other factors.
While Ambac has taken a hiatus from underwriting transactions in the structured finance market (not that there is much of one) Uhlein said, it will be back. "Assured Guaranty will write business and keep the market warm for us when we return," he said.
Michael Schozer, president at Assured Guaranty, also sat on the panel discussion. He clarified the misconception that the bond insurers started out only insuring "good" public finance business and moved into the "evil" structured finance business later on in their existence.
Monolines, including XLCA, Assured Guaranty and FSA, all began by first insuring structured finance bonds and then moved into the municipal space, Schozer said. "Had this been [an issue with] one company, the company would have probably been consolidated away like Capital Markets Assurance Corp. (CapMAC)." A decline in the credit quality of its obligors in Korea, Indonesia and Thailand threatened the company's triple-A rating, until it was eventually acquired by MBIA in 1998.
Panelists also drew attention to the fact that the municipal business is not necessarily risk free, something they felt the market has overlooked.
"People are saying that muni bonds are risk free, but we have to be careful because people also said that MBS was risk free," said Heather Hunt, analyst at Citi Investment Research.
However, the municipal problems spurred by MBS in states like California might actually reinforce the need for insurers, Hunt said.
While troubles on the municipal side are highly unlikely to rival those in the structured finance market, they are currently being monitored, Dorer said.
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