Ambac Commutes $3.5 Billion In CDO Exposure For $1 Billion

November 20, 2008 5:45 a.m. EST

New York, NY (AHN) - The Ambac Financial Group Inc (NYSE: ABK) has paid $1 billion in cash to settle four collateralized debt obligation (CDO) transactions that has a combined exposure of about $3.5 billion.

The New York-based company said in a statement on Wednesday that the two CDO-squared transactions originally comprised collateral consisting of A minusrated CDO, and the two high grade CDO of ABS exposures originally comprised collateral consisting of asset-backed securitizations rated A minus or higher.

The company lost triple A rating recently due to CDO exposure and losses related to its insurance segment in the last few quarter. On September 18, 2008, Moody's put Ambac Assurance Corporation's (AAC) Aa3 rating on review for possible downgrade.

The company said that most of the collateral had been downgraded to below investment grade since the start of the transactions. The four transactions had been internally downgraded to below investment grade, it added.

"Ambac has consistently emphasized that in this period of extreme uncertainty in the capital markets, the de-risking and de-leveraging of our balance sheet is our highest priority, David Wallis, Ambac's chief executive officer, said in the statement.

"These settlements represent positive and tangible steps towards that goal."

The bond insurer has already commuted five CDO transactions representing $4.9 billion of exposure, including three of the CDO transactions that had been widely perceived to be the riskiest segment of the firm's CDO portfolio.

Early this month, the company had announced a net loss of $2.43 billion, or $8.45 on a per share basis in the third quarter, compared to net loss of $360.6 million, or $3.53 per share, in the same quarter a year earlier. The company reported writedowns of $2.70 billion on credit derivatives.

Financial guarantee revenues, excluding special items, were $294.4 million in the third quarter 2008, down 6 percent from the third quarter in 2007.