RIP, muni bond insurance

November 1, 2010: 2:11 PM ET

The market no longer believes in the business of insuring municipal bonds.

In 1975, President Ford chose not to bail out New York City. Would that happen today?

Ambac has gotten more serious about its months-long threat to file for bankruptcy, today going so far as to miss an interest payment to its creditors and say in a regulatory filing that it's seeking a "restructuring of its outstanding debt through a prepackaged bankruptcy proceeding." My colleague Colin Barr has a good breakdown of the company's financial troubles here.

Ambac's troubles are more than just the woes of one company. That the bond insurer has been unable to "raise additional capital as an alternative to seeking bankruptcy protection," as it says in its filing, indicates that investors are ready to let Ambac, and the bond insurance industry, go to seed.

"This is an industry in its death throes," says Ed Grebeck, the chief executive of debt strategy firm Tempus Advisors, and an adjunct professor at New York University. Grebeck says to look no further than Assured Guaranty (AGO), the only bond insurer left standing. With the flood of muni debt that his hit the market, "you would expect the only guarantor left standing to be printing money, but it has not," Grebeck says.

Some analysts believe a company like Ambac (ABK) could come back as a plain vanilla bond insurer, having divested its disastrous business of insuring CDOs and asset-backed securities. Certainly the biggest bond insurers are trying to heal their significant wounds. But Grebeck says this ignores the two main reasons that the market is unlikely to believe in the business of insuring municipal bonds. More

  • Ambac sees bankruptcy ahead

    A signal moment of the financial meltdown came a step closer to reality Monday.

    Bond insurer Ambac (ABK) failed to make a scheduled $2.8 million interest payment on some debt and warned that it expects to be in bankruptcy by year-end, one way or another.

    New York-based Ambac said it decided not to make a scheduled payment on $75 million of 7.5% debentures due 2023. If the firm doesn't make the payment MORE

    - Nov 1, 2010 11:47 AM ET
  • Update: Ambac tumbles again

    Ambac tumbled 24% after the bond insurer said it is pursuing a prepackaged bankruptcy filing.

    The New York-based company lost $58 million in the latest quarter, which doesn't look too bad compared to its year-ago loss of $2.4 billion. Ambac (ABK) also said the statutory surplus at its Ambac Assurance unit surged to $1.5 billion from $160 million in March, following an agreement this spring to settle some insurance contracts covering bubble-era MORE

    - Aug 10, 2010 10:23 AM ET
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