Ambac down 12 percent and the rest of the market dropped, as Ambac announced a $1 billion common stock offering and $500 million equity units (which must be converted to common stock by 2011).
Why the drop?
First, no white knight came in -- no bank that offered to bail them out -- which was a sign to investors.
Second, there may have been some disappointment that this deal was merely dilutive; some were hoping they might be bought outright.
Third, traders noted that this does nothing to relieve the negative outlook the ratings agencies have on them. There is the possibility that Ambac could need to raise more money in the next few months.
Finally, the company has announced that they are essentially in runoff, meaning they are taking in little if any new business -- even in the muni business. Also, they are paying $100 million in dividends to the holding company from the $1.5 billion in proceeds.
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