The AMBAC stock sale was postponed indefinitely yesterday, apparently due to less-than-spectacular demand, adverse stock market conditions, and lengthy inquiries from the Securities and Exchange Commission, according to underwriting officials.
An official with senior-underwriter Salomon Brothers Inc. said the 17.6 million-share initial public offering was "postponed due to market conditions. It is not withdrawn."
Officials at both Salomon Brothers and co-manager Morgan Stanley & Co. declined to address a possible waning of institutional demand, but junior syndicate sources said buying interest was far weaker than hoped. The stock was tentatively priced rather low -- $22.50 to $26.50 per share -- which would have resulted in a price/earnings ratio of about 7 to 9.
One of the reasons the stock may have drawn few institutional buyers is that AMBAC is seen as a mature firm in a mature industry. As one bond insurance veteran said, "It's not like this is a rocketship IPO.
"A lot of the business that AMBAC [and other insurers] did in the last few years was written at very low premiums," he continued. "It's not going to have a very strong earnings-per-share momentum."
Also, since the deal depended so heavily on institutional buyers -- up to 88%, according to a Salomon official -- the stock market's recent swooning made strong pricing unlikely. When everyone's selling, one source explained, it's a bad time to ask institutions for bids.
Concurrent with the market's swoon has been a pounding of Municipal Bond Investors Assurance Inc.'s common stock, which over the past week lost more than 11% of its value, falling to $31 per share yesterday from $35. One underwriter close to the deal said the bankers had been keeping a close eye on MBIA's price.
On the other hand, stock brokers reacted with disbelief to the contention that demand had dried up. "I had orders in for 5,000 shares, and I still couldn't get stock," said a source with a major wire house. "When Salomon does a deal, it always gets done, I can't believe they don't want AMBAC."
Officials at AMBAC declined to comment.
A Citibank spokeswoman referred all calls to Salomon Brothers, and a spokeswoman at Salomon Brothers said only that the deal was held up due to the market climate. She declined to comment on how long the deal would be postponed.
The SEC, meanwhile, has been asking questions about the safety of the overall municipal market and exploring the relationship between various default rates and "zero-loss" pricing, which derives premium rates by assuming little or no default experience, according to sources close to the deal.
Yesterday, AMBAC filed a third amendment to its original SEC registration, a 72-page document that reiterated much of the earling filing and answered questions. Equity market sources, however, said that once a deal is postponed in this manner, it is unlikely to be brought to market for several months.
