Ambac files for bankruptcy under Chapter 11

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NEW YORK (AP) — Bond insurer Ambac Financial Group Inc. said Monday that it has filed for Chapter 11 bankruptcy protection after it failed to raise additional capital.

The embattled company also failed to arrange a structured bankruptcy agreement with senior debt holders.

It has tried for two years to regain its footing after getting pummeled by the collapse of the housing market.

The company continues to operate under the jurisdiction of the bankruptcy court.

As of June 30, it had $1.62 billion in debt.

As a result of the bankruptcy filing, Ambac’s outstanding debt securities are accelerated. Upon the bankruptcy filing, any efforts to enforce such payment obligations are stayed pursuant to federal bankruptcy laws.

In connection with the bankruptcy filing, Ambac is seeking an interim court order restricting certain transfers of equity interests in and claims against the company that is retroactive to the time of filing.

The company also is seeking a court declaration that would wipe out its tax liability for tax years 2003 through 2008 and that it may retain the full amount of the tax refunds received for those years.

Documents were filed in the U.S. Bankruptcy Court for the Southern District of New York.

Ambac had said just a week ago that it planned to file for bankruptcy protection either through a prepackaged plan arranged with senior debt holders or through Chapter 11 proceedings.

A statement released late Monday indicated that agreement could not be reached.

However, Ambac has agreed to a nonbinding term sheet that will serve as a basis for further negotiations with the debt holders and that may allow the company to emerge from bankruptcy more expeditiously.

The company’s stock traded above $95 a share in the spring of 2007, before the housing bust.

Shares closed at 52 cents Monday then fell 33 cents in aftermarket trading.

In March, Wisconsin regulators took over some of the most troubled assets of Ambac’s main operating subsidiary, Ambac Assurance Corp., which is based in that state. Regulators feared the company would run out of money paying claims on policies related to risky structured finance transactions. Those include the credit default swaps and residential mortgage-backed securities held by major Wall Street banks that helped to accelerate the national financial crisis.

Bond insurers traditionally offered insurance mainly to government entities for debt that covered infrastructure construction and other municipal projects, but that changed as investors began betting on complex structured finance products like mortgage-backed securities in the late 1990s. The collapse of that market as foreclosures skyrocketed left Ambac and several competitors teetering as they were left on the hook for more coverage than they could financially handle.

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