Ambac, When Companies Just Can't Get It Right (ABK)

Ambac Financial Group, Inc. (NYSE: ABK) was trying to have a good day yesterday, but it is one of those companies where almost all good news is met by more selling.  The news yesterday that helped was that it disclosed its March 31, 2010 portfolio of financial guarantee liability exposures adjusted for the impact of the previously announced commutations, including the commutation of $16.4 billion of CDO of ABS exposure.  The problem is that last night Ambac issued a release disclosing new information about its financial guarantee investment portfolio as of May 25, 2010, and the default risk is back in traders’ minds.

It was not at all by accident that we listed Ambac as one of ten brands that could disappear in the near future.

In last night’s disclosures, Ambac said it could default on its existing loan obligations and also that it was still considering filing for a prepackaged bankruptcy.  In fact, it said that as early as this quarter it may decide to skip interest payments on its outstanding debt.  That is financial default by most counts unless waivers are granted.

Reuters reported that a group of debt holders is already trying to get Ambac to file for a prepackaged bankruptcy, although this has been known for some time.  If this price action continues in Ambac shares, the company could suddenly find itself facing a delisting or a reverse split.  And that might be a rosy scenario if you consider the bankruptcy risk here.  How many bankruptcies work out well for the existing shareholders of common stock?

Shares closed up almost 4% at $1.07 yesterday, but the stock had been as high as $1.27 for the day on hopes that it was getting exposures cut.  This morning shares are down 19% at $0.86.  Some companies just can’t be trusted at all.  Ambac is one of those companies.

JON C. OGG