Ambac Financial Group Inc., which wrote coverage on billions worth of subprime bonds during the housing boom, Monday morning warned that it may file for bankruptcy protection by yearend if it's unable to reach an accord with senior debt holders on a pre-packaged bankruptcy agreement.
In a statement, the company said it currently cannot "raise additional capital as an alternative" to bankruptcy.
Its coverage on subprime ABS losses potentially extends to such investors as Fannie Mae and Freddie Mac.
It noted that if it does file for bankruptcy, "Such filing may be with or without agreement with major creditor groups concerning a plan of reorganization. The filing for bankruptcy protection would accelerate the maturity of all of the company's indebtedness."
Ambac also announced that its board voted to skip an interest payment on senior notes due in 2023. The payment was due Monday. If the bond insurer does pay within 30 days it will be in default.
The decision to skip the interest payment represents an attempt to force the hand of Ambac's debtholders, which have already been in talks with the firm about a pre-packaged bankruptcy deal. A default would place additional pressure on creditors who could face a lengthy and costly legal battle if they do not strike a deal on a pre-packaged restructuring of the firm.
