Ambac Financial Group aims for prepackaged bankruptcy deal; 2Q loss narrows but shares drop

Ambac Financial in bankruptcy talks; shares plunge

NEW YORK — The beaten-down shares of Ambac Financial Group Inc. took another pounding Tuesday after the bond insurer said it is negotiating a bankruptcy deal.

The once high-flying stock fell 21 cents, or 22 percent, to 68 cents in Tuesday trading.

In March 2007, Ambac shares topped $95. But the company has been awash in losses related to the collapse of the mortgage market since shortly after hitting that peak, and has been trading under $2 for most of the past two years. The New York Stock Exchanged warned last month it may delist the stock because it’s been trading under $1.

In a regulatory filing accompanying its second-quarter results late Monday, Ambac said management believes has enough cash to last another year, but could not guarantee it won’t run out sooner. It listed $56.7 million in cash and cash equivalents on its balance sheet for the quarter ended June 30.

The New York-based company said it is looking to raise new capital, and is also trying to restructure its outstanding debt through a prepackaged bankruptcy proceeding. A prepackaged bankruptcy typically involves a deal worked out with creditors that aims to reduce the length of time in bankruptcy.

If no deal is reached, Ambac said it will likely have to file for Chapter 11 bankruptcy protection without a prearranged reorganization plan. Ambac first warned of possible bankruptcy in November. It repeated the warning in March, when the Wisconsin insurance commissioner ordered its main operating subsidiary, Ambac Assurance Corp., to set up a separate account for policies related to high-risk structured finance transactions. Ambac Assurance is based in Wisconsin.

The company said it may decide to withhold interest payments on its debt prior to either move.

For the second quarter, Ambac posted a net loss of $57.6 million, or 20 cents per share, a fraction of the loss of $2.37 billion, or $8.24 per share, for the 2009 period. The results reflect loss and loss expenses in consumer asset-backed securities and other structured finance securities Ambac insured.

Net investment income for the period was $69 million, down 45 percent from $125.5 million in the 2009 period.