AMBAC Inc.'s first ever public stock sale could come this morning, as underwriters and company officials await only final pricing approval from the Securities and Exchange Commission.
Solomon Brothers Inc. and Morgan Stanley & Co. have slated a sale of 17.6 million shares of common stock at $22.50 per share to $26.50 per share, to raise between $396 million to $466 million.
If approval comes this morning, the shares would be placed immediately, according to Wall Street sources. If not, the deal is unlikely to be priced until Monday or Tuesday because underwriters traditionally avoid bringing initial public offerings on Fridays.
As of late yesterday, the SEC had not yet approved the sale. An SEC examiner has requested clarifications pertaining to accounting language, financial statements, and other aspects of AMBAC's original May 1 filing. Officials with the firm have complied by supplying two sets of amendments, the most recent on Monday, according to Stephen D. Cooke, senior vice president and general counsel at AMBAC.
According to a preliminary prospectus dated June 10, the stock sale will satisfy the legal concerns surrounding Citibank's ownership of AMBAC. Citibank has been using the assets of the municipal insurer to bolster its balance sheets, but not reserving for the liabilities such business entails.
In February 1990, letters were released from Federal Reserve Chairman Alan Greenspan and Comptroller of the Currency Robert L. Clarke stating such selective consolidation was inappropriate accounting and inconsistent with international bank capital adequacy standards.
"No later than the completion of the equity offerings, Citicorp will deconsolidate AMBAC for accounting and bank capital adequacy purposes," the prospectus says. "With respect to bank capital adequacy deconsolidation, Citicorp has reached understandings with the staff of the Board of Governors of the Federal Reserve System and with the Comptroller to make substantial and good faith efforts to reduce its indirect equity interest to less than 25% of the company as soon as practicable."
The SEC requests and subsequent amendments are typical of initial public offerings.
"The more amendments you do, the closer you get the finalization," Mr. Cooke said. Each subsequent request for clarification, he explained, represents a smaller pool of topics to be addressed. Mr. Cooke declined to forecast when SEC approval would come.
AMBAC's pricing ambitions have eroded slightly since the municipal bond insurer registered to sell stock with the SEC. Originally, Salomon and Morgan proposed a maximum of $28 per share, which would have raised $566.72 million.
But before AMBAC could get out of the gate, competitor Municipal Bond Investors Assurance Inc. rushed to market with a secondary offering of 11.5 million shares, sopping up demand from institutional investors and raising $402.5 million. Since then, the stock market has see-sawed uncertainly. Yesterday, its soft footing was evident in a 31-point drop.
Currently, the underwriters plan to price the stock rather low. Based on 1990s net income of $105.5 million, a price of $22.50 per share would put AMBAC's price/earnings ratio at 7, while the $26.50 price would put the ratio a just below 9. "The lower price is cheap," said one stock trader, who asked not to be identified.
By comparison, Municipal Bond Investors Assurance Inc.'s price/earnings ratio is about 10. The underwriters are not bound to the price levels currently stipulated. If the deal goes well, the stock could be adjusted higher. The proposed maximum of $28 per share, for example, would result in a price/earnings ratio of 9.3.
Underwriters yesterday said he stumbling stock market is not necessarily a major problem. "We're in 2,900 to 3,200 range and we're likely to stay there for some time," said an underwriter associated with the AMBAC sale. "But when prices come down, it can in fact make the new deal look more attractive compared with the rest of the market."
Other Wall Street sources said the catch is that a down market also means buyers are not active, which could mean fewer parties step up to the plate for a new issue. The vast majority of AMBAC stock is expected to be sold to institutional buyers, such as taxable mutual funds, professional asset managers, and pension plans.
One syndicate source estimated that 80% to 85% of MBIA's outstanding stock is held by institutional funds, and said by AMBAC sale is likely to end up similarly. Three million of the 17.6 million shares to be sold will be marketed to overseas investors.
AMBAC officers this week toured the country, pitching the stock to various groups of investors. Yesterday, the road show wound up presentations in Chicago and the Midwest, a company spokeswoman said.
AMBAC backed the second-largest amount of new-issue bonds in 1990, insuring $10.15 billion for a 31% share of the insured market. The firm took the largest share of the market -- almost 34% -- in the first quarter of 1991 by insuring $2.79 billion.
