Ambac Reinsures $29 Billion Portfolio to Help Capital

Ambac Reinsures $29 Billion Portfolio to Help Capital

Dec. 13 (Bloomberg) -- Ambac Financial Group Inc., the world's second-largest bond insurer, will pass off the risk of $29 billion in securities it guarantees in an effort to convince ratings companies that it still deserves a AAA credit rating.

Assured Guaranty Ltd. will reinsure the securities, New York-based Ambac said today in a statement.

Ambac, whose credit rating stands behind $556 billion of securities, is among seven AAA rated bond insurers under the scrutiny of Moody's Investors Service, Fitch Ratings and Standard & Poor's. Moody's and Fitch said last month that Ambac was ``moderately likely'' to breach capital requirements because of a deterioration in the credit quality of the securities it guarantees.

``Reinsurance is a valuable, capital-efficient and shareholder-friendly tool for managing risk and capital,'' Ambac Chief Executive Officer, Robert Genader said in the statement.

A loss of the top rating would wipe out Ambac's main business of guaranteeing debt. If all the companies were to falter, $2.4 trillion of insured securities would be thrown into doubt, costing as much as $200 billion, according to data compiled by Bloomberg.

MBIA, Security Capital

MBIA Inc., the largest bond insurer, this week said Warburg Pincus LLC will invest about $1 billion in the company, helping shore up its capital. Armonk, New York-based MBIA today canceled a conference call scheduled for tomorrow because the ratings companies won't have completed their reviews.

Security Capital Assurance Ltd. may lose its AAA credit rating at Fitch, the ratings company said yesterday, sending the shares down 22 percent.

Ambac insures $8.8 billion of securities backed by subprime mortgages and $29.2 billion of collateralized debt obligations that prepackage pools of subprime mortgage debt and slice them into new pieces with varying degrees of risk, according to the company's Web site.

Ambac fell 77 cents, or 3.1 percent, to $24.10 at 10:52 a.m. in New York Stock Exchange composite trading. The stock is down 72 percent this year before today on concern that it may lose its AAA ranking.

BLOOMBERG