Wisconsin's insurance commissioner's office has indicated that Ambac Financial Group Inc.'s planned reactivation of muni-only insurer Everspan Financial Guaranty Corp. would need to earn at least one double-A rating for regulators to approve a capital contribution by Ambac Assurance Corp. to Everspan, according to a filing Ambac made with the Securities and Exchange Commission.

Ambac plans to invest in Everspan, the old Connie Lee Insurance Co., with a capital injection, the filing said. Everspan currently has $150 million in capital.

Wisconsin insurance regulators said the ratings levels of AA from Standard & Poor's and A2 from Moody's Investors Service cited by Ambac are consistent with what has been discussed in preliminary conversations.

The comments came in a shelf registration Ambac filed that would allow it to issue up to $1 billion in various securities. The shelf registration makes it easier for an issuer to come quickly to market, and Ambac already had one outstanding.

Ambac executives said last month they have been seeking third-party capital to help with the planned reactivation of Everspan. The muni-only insurer will need sufficient ratings to generate new business, and Moody's and Standard & Poor's have made third-party capital "foremost" among the requirements for achieving those ratings, Ambac said.

Ambac chief executive officer David Wallis last month said Everspan would need a double-A rating from at least one rating agency to write new business. Bond insurer Ambac Assurance is rated Baa1 on review for downgrade by Moody's and A with a negative outlook by Standard & Poor's.

Ambac's plan for a muni-only insurer differs from MBIA Inc.'s restructuring because Everspan will not take on the guarantees of Ambac Assurance. MBIA's National Public Finance Guarantee Corp. took on MBIA's existing public finance book.

It remains unclear if investors will accept Everspan as an insurer.

"Everspan's success is dependent on the willingness of municipal issuers to use Everspan's financial guarantee and the willingness of municipal bond investors purchase such securities," Ambac said.

Along with reactivating Everspan, Ambac is attempting to "reduce risk and mitigate losses in its insured portfolio." If it cannot reactivate Everspan in a "timely manner," the company said it will focus on reducing operating expenses and pursuing other initiatives outside the financial guarantee industry.

It is already considering providing mortgage servicing and consulting throughout the credit sector.

Ambac, which reported a loss of $5.6 billion in 2008, closed up $0.02 yesterday to $0.92. Its stock has fallen more than 99% since hitting a high of $96.10 in May 2007.

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