Ambac strikes deal to trade $8.5 million in debt for newly issued shares

Ambac reaches deal to swap stock for $8.5M debt

NEW YORK — Bond insurer Ambac Financial Group Inc. has reached deals with certain holders of its own bonds to swap debt for stock in a move to preserve cash and shore up its balance sheet.

The agreements call for the company to issue more than 5 million shares of common stock in exchange for $8.5 million in debt. The issuance will bring Ambac to a total of 293.4 million common shares outstanding.

The deal may help Ambac crawl back from the brink of bankruptcy.

The company earlier this month said it could default on its debt and issued its latest warning that it could file for bankruptcy protection. It was the embattled company’s latest warning amid two years of struggle to regain its footing after getting pummeled by the collapse of the housing market.

Some of Ambac’s most troubled assets were taken over by Wisconsin state regulators in March because of fears the company would run out of money paying claims on policies related to risky structured finance transactions. Those include the credit default swaps and residential mortgage-backed securities held by major Wall Street banks that helped to accelerate the national financial crisis.

The company did post a profit for the 2009 fourth quarter, but returned to a loss for the first quarter of this year, due in part to accounting standards put into place after the Wisconsin insurance commissioner’s actions.

The stock-for-debt swap encouraged some investors. The company’s battered stock added 2 cents to close at 80 cents. The once lofty equities traded over $95 a share two years ago, but haven’t topped $3.39 in the past 52 weeks.