Once again, fears are being raised about monoline insurer Ambac’s ability to weather the storm.
Here’s the latest from DebtWire:
The CDS market is signaling increased fears that Ambac operating company Ambac Assurance will enter receivership within the year as fear of a municipal bond crisis spreads.
The cost of short-term credit default swaps written on Ambac’s holding company Ambac Financial widened significantly in February relative to the price of protection on Ambac Assurance. Investors repriced the differential between the credits on growing expectations that the opco will enter receivership this year, according to two CDS traders and three analysts.
Previously, investors believed that state regulators might order American Assurance to stop paying out
insurance claims but would balk at placing the company in receivership. Under that scenario, the holdco would survive on dividends from the opco until at least 2011 that would be cut off immediately in a receivership scenario.
The bankruptcy filing in February of Las Vegas Monorail Corporation (LVMC) and the prospect of proliferating municipal defaults forced fund managers to revisit those assumptions.
Two investors who said that they placed a low probability on receivership in November indicated in interviews this week that they believe the chance of receivership has increased. Both sources cited fear of a municipal default epidemic and the opacity of Ambac’s finances as contributing factors.
“The logic is that the holdco wouldn’t survive a receivership at the opco,” said a buysider.
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