A group of banks planning a rescue of Ambac Financial Group is willing to consider leaving the bond insurer with just a single "triple-A" credit rating, according to people involved in the deal.
In the past, the bank consortium had wanted two triple-A ratings to underwrite new business.
Ambac is looking to raise capital as its expected losses have mounted after insuring repackaged subprime mortgage bonds and other risky assets.
The banks working on the Ambac bailout met this weekend with New York State Insurance Commissioner Eric Dinallo to come up with alternative plan that pasts muster with the rating agencies.
The raters said the banks needed more capital for a bailout that split the business of cdo insurance from municipals. Now the banks seem to be favoring a unified approach.
As first reported by CNBC, the bailout effort ran into trouble last week when the bond rating agencies said they wanted to see more capital injected into the bond insurer. A consortium of banks had already agreed to come up with $2.5 billion in capital.
Like other bond insurers, Ambac is in danger of losing its critical triple A debt rating unless it raises enough capital to offset billions of dollars in losses from risky subprime related debt.
Early Friday afternoon, Moody's said that Ambac will likely lose its triple A rating if a bailout plan isn't worked out. Standard & Poor's made similiar comments earlier in the week.
The banks are now trying to come up with a different type of structure for the bailout that will satisfy the rating agencies.
People close to the proposed bailout remain confident a deal will still happen, possibily by sometime next week. Banks and the rating agencies are aware that if Ambac collapses, it would trigger another wave of panic in debt markets and send the stock market reeling.
If the new structure is approved by the rating agencies, a deal could be put into place by early this week, sources said.