Ambac CEO: Winning Confidence Will Take Time
Ambac Financial Group Chief Executive Michael Callen said Friday it will take several months to regain the market's confidence.
However, Callen said there was "no possibility" that the company would ever fail to pay a claim.
"How could we not pay the claims?" Callen said, in an interview on CNBC. He said Ambac had $16.5 billion in claims-paying resources, and the credit rating agencies base their ratings on the ability of the company to pay claims in the worst-case scenario.
The interview with Callen followed an offering Thursday night in which Ambac raised $1.5 billion through the sale of stock and convertible securities. The offering "came out even better than we thought it might have" given the market conditions, he said.
According to Callen, Ambac should not need to return to the market any time soon.
"Some day, perhaps," he said. "If our business is successful. No time soon."
Ambac sold $1.25 billion of common shares at $6.75 a share, or 9 percent below their closing price on Thursday. The stock offering nearly tripled the number of Ambac shares outstanding.
The company also sold $250 million of mandatory convertible securities, paying 9.5 percent per year and with a conversion premium of 18 percent. Those securities convert to shares beginning in 2011.
In addition, Ambac cut its quarterly dividend and suspended writing insurance on structured finance to help boost funds available for claims.
The offering was completed by Ambac in order to prevent ratings downgrades from credit rating agencies Standard & Poor's and Moody's Investors Service, which have kept Ambac's triple-A rating on review for a possible downgrade.
Shares of Ambac were down about 11 percent to $6.64 before the opening bell. Ambac's shares have fallen more than 90 percent since the start of 2007.
According to Callen, the actions taken by the company should not be viewed as a rescue or a bailout.
"The company had liquidity, a strong capital position...the only issue was whether it was AAA or AA," he said. "Many companies would like to have that problem. Our earnings are assured for the next two years."
Financial markets have been waiting for Ambac to raise capital for weeks. Many investors feared that Ambac's potential losses would trigger ratings downgrades for the bond insurer, which in turn could lower the ratings on the bonds it insures.
Those downgrades could have forced investors to sell billions of dollars of Ambac-guaranteed bonds, lifting borrowing costs for cities and consumers alike. Ambac had guarantees on about $524 billion of outstanding debt as of Dec. 31.
"I'd rather they didn't need new capital. But hopefully this will take care of one of the lingering concerns about the company," Peter Kovalski, a portfolio manager at Alpine Woods Capital Investors, which owns Ambac shares and ordered more in this offering, told Reuters.
In an interview with CNBC, W.L. Ross Chief Executive Wilbur Ross said he hoped the guessing game with Ambac will be coming to an end.
Investors had hoped that the bond insurer would get funding from banks as a vote of confidence. Ambac instead announced a public offering, which many portfolio managers interpreted as a vote of no confidence in the insurer.
A person familiar with the matter said on Thursday that a group of banks had in fact agreed to backstop a portion of the share sale, but had elected not to publicize that fact.
Both Standard & Poor's and Moody's Investors Service said on Wednesday they would likely affirm their top, triple-A ratings on Ambac Assurance, Ambac's main unit, if the company successfully raised capital.
But S&P said it would likely put Ambac on "negative outlook," signaling a downgrade was more likely over the medium term.
Fitch rates Ambac Assurance "AA" and said on Wednesday that raising the additional capital would allow the insurer to keep that rating.
--Reuters contributed to this report.