Bond Insurer Ambac May Participate In Treasury Assets Sale
24 March 2009 - 1:28AM
Dow Jones News
Life and bond insurers soared after the announcement Monday that
they will be eligible to participate in the Treasury Department's
Public Private Partnership Investment Program.
Bond insurer Ambac Financial Group (ABK) is one that will
investigate Treasury's offer to backstop a market for securities it
holds in its investments, said Ambac spokeswoman Vandana
Sharma.
The public-private program will use $75 billion to $100 billion
in money from the Troubled Asset Relief Program called TARP to
generate $500 billion in purchasing power to buy legacy assets held
by investors, with a government backstop encouraging private sector
investors to purchase the assets.
"A broad array of investors are expected to participate in the
Legacy Loans Program," the Treasury said in a fact sheet it
provided Monday. "The participation of individual investors,
pension plans, insurance companies and other long-term investors is
particularly encouraged."
Up to now, insurers such as Ambac have unsuccessfully lobbied
for inclusion in government programs that have offered capital to
help make up for losses tied to mortgage loans.
Hartford Financial (HIG), Lincoln National Corp. (LNC), and
Genworth Financial Group (GNW) were among a dozen or so life
insurers that applied last year for bank status to potentially
qualify for direct capital investments under an earlier TARP
program.
Sharma said that the most likely way the company would
participate is by offering for sale securities it holds among its
own investments.
Much of Ambac's exposure to the market is through financial
guarantee insurance it offers on securities that are held by other
institutions, but often it holds control rights on the securities
if they default. Sharma could not immediately say if the control
rights could give Ambac the right to request the sale of defaulted
securities it owns.
Eligible assets will be determined by banks, regulators, the
Federal Deposit Insurance Corp. and the Treasury Department. The
FDIC will conduct an analysis to determine the amount of funding it
is willing to guarantee on securities offered for sale. Leverage
will not exceed a 6-to-1 debt-to-equity ratio.
Under the legacy securities program, non-recourse loans will be
made available to investors to fund purchases of legacy
securitization assets.
Eligible assets are expected to include certain non-agency
residential mortgage-backed securities that were originally rated
AAA and outstanding commercial mortgage-backed securities and
asset-backed securities that are rated AAA.
Shares of Ambac were up 20.8% recently to 85 cents, leading bond
insurers, while Prudential Financial Inc. (PRU) led life insurers,
trading up 13.2% to $18.89 recently.
-By Lavonne Kuykendall, Dow Jones Newswires; (312) 750 4141;
lavonne.kuykendall@dowjones.com
(Maya Jackson Randall contributed to this report.)