Recently, Ambac Financial Group (ABK) made an announcement that it was facing a liquidity crisis and would delay reporting its Q4 and year-end earnings
At 11:42 AM this morning, the International Swaps and Derivatives Association ruled that Ambac has officially triggered a default, setting off multiple CDS default contracts on its insurer.
Why the big fuss? Well because derivatives and bond traders a like weren’t sure if the company would be forced into default. Now that the message is clear, CDS traders will settle $33 billion worth of default swap contracts taken out on Ambac Financial Group’s bond insurance unit. Bloomberg provides the details via terminal:
Bloomberg: Credit-default swaps traders will settle a net $33 billion of contracts protecting against a default by Ambace Financial Group Inc’s bond insurance unit after Wisconsin regulators seized guarantees tied to subprime mortgages.
An auction will be held to settle the contracts after a committee of 15 banks and investors agreed that contracts on Ambac Assurance Corp. were triggered, the International Swaps and Derivatives Association said today on its Web site.
Ambac saw its stock plummet yesterday morning amid concerns of the future of the company. Its stock is now a penny stock and as of last night, a 5-year CDS for Ambac was running at 7458.88 basis points or 74.5%.