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Thursday, March 6, 2008

Ambac 'Bailout': Why Bother?

Ambac Will Sell Half the Company in Bet That May Not Pay Off: “Ambac Financial Group Inc., the bond insurer seeking capital to salvage its AAA credit rating, will sell half the company in a bet some investors say won't pay off.

Ambac said yesterday it plans to issue $1 billion of common stock, more than doubling the number of shares outstanding. The New York-based company will also offer $500 million of units that convert to shares in 2011.

Investors had anticipated Ambac would be bailed out by banks, which would backstop a capital raising of as much as $3 billion, enough to overcome record losses on subprime-mortgage debt. Instead, the company announced it would raise half that amount in a transaction that would dilute existing shareholders, sending Ambac down 19 percent in New York Stock Exchange trading.”

The offering is so dilutive, that Ambac is selling half the company in this offering… or so. Maybe more. Awesome. Just awesome.

The market cap of Ambac is now less than $1 billion… and falling fast. Raising $1 billion just wipes out the poor bagholders still ‘long and strong’ Ambac.

The deal isn’t even backstopped. Let me emphasize that again: The banks are NOT even backstopping this. The banks have so little faith in Ambac that they aren’t putting another penny of their own capital at risk.

“By proposing a sale of common shares, Ambac is reverting to a plan it abandoned in mid-January. The company announced a $1 billion sale Jan. 16, sparking a 70 percent plunge in its stock, and canceled the offering Jan. 18.”

Idiots. That $1.5 billion isn’t enough to last more than a couple months. Max. Why bother? Honestly.

That raises another interesting point: Who would bid for these shares? Who is buying ABK in this offering? The answer is probably that a bunch of ‘hedgies’ are massively short ABK and massively onside. The easiest way to get out of a short position in a dieing company, without spiking the price, is to buy their shares in an offering. I’m pretty confident a few of these ‘hedgies’ would be more than happy to take some money off the table now. Especially since the $1 billion isn’t large enough to prevent the inevitable.

The topic is more than well covered by others. Nuff said.

But first, a quick little heads up:

Money-Market Rate for Euros Climbs to Seven-Week High (Update3): “The cost of borrowing euros for three months rose to the highest level in seven weeks as the coordinated effort by central banks to revive lending falters.

The euro interbank offered rate, or Euribor, for the loans climbed 3 basis points to 4.43 percent today, the highest since Jan. 17, the European Banking Federation said. It was the biggest gain since Jan. 25.

The increase in money-market rates adds to evidence a concerted plan by central banks to promote lending and limit the fallout from the U.S. housing slump isn't working. Banks' asset writedowns and credit losses exceeded $181 billion since the beginning of 2007, data compiled by Bloomberg show. Total writedowns may top $600 billion, UBS said last week.”

LIBOR and EURIBOR went hog wild in December, and we all know what happened to risky assets a couple of weeks later…

Related Posts On Other Blogs:

Mish’s Global Economic Trend Analysis
Ambak “Bailout” Land with Big Thud
MBIA Cannot Estimate January’s Losses
MBIA Maintains Highest Rating, Pfizer Cut
S&P Sniffs Horse Hockey, Calls It A Rose

Naked Capitalism
Ambac Reverses Course, Decided Not To Split
MBIA Financials In Doubt
Monoline Death Watch: California Sells Big Unisured Issue; Marty Whitman Sounds Off

Market Ticker
ADP Unemployment Report

Related Headlines
Carlyle Fund Gets Default Notice After Margin Calls (Update5)
Peloton ABS Fund Investors May Get Nothing Back (Update2)

4 comments:

Anonymous said...

As the ultimate novice in all of these blogs and also a middle aged reasonably prudent with my money guy, I just want to see this thing flame out and get it over with. I just wish the powers that be wouldn't stand in the way. Propping it up will only lead to a harder fall. Better now than years down the road when it combines with the trillions in "required" mandates. For several years I've seen the major automakers pension, health care, etc mandated expenses as purely a small view of what the country is facing starting in a few short years. The picture of Ford is probably very close to what the entire country will be facing. The stock price plummeting and a bleak looking future. Like Ford, the country will have to cut entitlements.

I've noted previously that I moved much of my retirements to money markets (Oct/Nov 2007) and hope they don't break the buck. I read on one of these blogs that the best place to be might be right in the mouth of the beast. Maybe it could be pictured like the human body being depleted of oxygen. All remaining energies being directed to the central core in an effort to survive. Maybe as the beast thrashes in its death throes it wipes out many things in order to save itself.

Personally, my wife and I don't require much. I found an awesome woman. Neither of us have a need for fluff stuff. We have rabbit ears on our TVs (just got the coupons for the analog to digital boxes), we have lots of books, and a front porch on the house we're working feverishly to pay off about end of 2010 if it will just hold on a few more years.

Brant, Atlanta, GA

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