In its quarterly filing on Monday, Ambac Financial Group (ABK) revealed that it is facing liquidity constraints. At the end of the third quarter of 2009, the company’s liquidity consisted of $164.7 million of cash, short term investments and bonds. Management is unsure whether this will be sufficient for its liquidity needs through the second [...]

(ABK) Ambac Financial Group Faces Liquidity Crunch

In its quarterly filing on Monday, Ambac Financial Group (ABK) revealed that it is facing liquidity constraints. At the end of the third quarter of 2009, the company’s liquidity consisted of $164.7 million of cash, short term investments and bonds. Management is unsure whether this will be sufficient for its liquidity needs through the second quarter of 2011. 

Ambac’s access to other sources of liquidity also remains uncertain. The company has a $143.0 million debt payment obligation maturing in Aug 2011. Furthermore, an unfavorable outcome of the outstanding class action lawsuits against Ambac could cause additional liquidity strain. Given the company’s current condition, it is possible that its liquidity may run out prior to the second quarter of 2011. 

Ambac, the first monoline bond insurer, had never been downgraded or defaulted prior to 2007. In 2007, amid a housing market decline, defaults soared to record levels on subprime mortgages and innovative adjustable rate mortgages, which had been issued in anticipation of continued rises in house prices. The company posted losses as insured structured products backed by residential mortgages appeared headed for default. 

Ambac has suffered multiple rating downgrades from June 2008 through August 2009. Its principal operating subsidiary Ambac Assurance rating stands at Junk status, “CC". The financial strength rating downgrades have adversely impacted Ambac’s ability to generate new business and had negatively affected its operating and financial results. As housing market conditions have deteriorated and the illiquidity in the mortgage markets has become more pronounced, the company has experienced an increase in foreclosure loans. 

Ambac is developing strategies to address its liquidity needs. Such strategies may include a negotiated restructuring of its debt through a prepackaged bankruptcy proceeding. However, given the state of credit markets, it is unsure that Ambac will be successful in executing any or all of its strategies. If the company is unable to execute these strategies, it will consider seeking bankruptcy protection without creditor’s agreement, pertaining to a plan of reorganization.
Read the full analyst report on "ABK"
Zacks Investment Research

Goldman Sachs (GS) added Cytec Industries (CYT) to its Conviction Sell List, with a target of $31. The analyst warned of the bleak outlook for the late-cycle aerospace industry, and economic uncertainties in Europe, which represents 40% of sales JP Morgan (JPM) plans to reinstate 401K matching programs starting with 2009 as ...

• Goldman Sachs (NYSE:GS) added Cytec Industries (NYSE:CYT) to its Conviction Sell List, with a target of $31.  The analyst warned of the bleak outlook for the late-cycle aerospace industry, and economic uncertainties in Europe, which represents 40% of sales

• JP Morgan (NYSE:JPM) plans to reinstate 401K matching programs starting with 2009 as well as plans to hire 1,200 mortgage officers

• Yahoo (NASDAQ:YHOO) CEO Bartz said the company is hiring again as the firm expects to increase its operating profit margin to the 15-20% range on cost cutting and sales growth

• Adobe Systems (NASDAQ:ADBE) said it plans to cut 680 jobs, or about 9% of its workforce, as part of a restructuring plan.  The company said the move would result in pre-tax charges of $65 million to $71 million, with $18 million to $20 million to be taken in the fourth quarter

• Monsanto (NYSE:MON) confirmed its full-year 2010 earnings outlook and said it still sees a 2012 gross profit of at least $8.6 billion, claiming an accelerated launch of new corn and soybean products

• Bond insurer, Ambac Financial Group (NYSE:ABK) warned of a possible bankruptcy protection filing in its 10-Q

• Reports said General Electric (NYSE:GE) is in talks with United Technologies (NYSE:UTX) to sell its security systems unit for over $1.5 billion

• Wells Fargo (NYSE:WFC) upgraded Toll Brothers (NYSE:TOL) with a price target range of $24-$26

• Deutsche Bank (NYSE:DB) upgraded Smithfield Foods (NYSE:SFD) raising the price target from $12 to $20 due to an improving pork market

• Flowers Foods (NYSE:FLO) reported inline earnings of 34 cents a share on revenues of $603 million, off Zacks estimates of $617 million

Zacks Investment Research

Bond insurer Ambac Financial has warned bankruptcy is a distinct possibility, sending its shares plummeting more than 30% today. What is intriguing about this pending bankruptcy is how this company escaped bankruptcy in 2008, was downgraded continually in 2009, yet just reported billions in profit 5 days ago. Now it warns of bankruptcy?[More...]