Ambac Financial Group Inc. yesterday received regulatory approval from Wisconsin for its bond insurer subsidiary Ambac Assurance Corp. to provide up to $1 billion in support to Ambac's financial services unit through asset purchases and secured loans.
The approval allows the company to proceed with a more orderly wind-down of its financial services unit, which wrote guaranteed investment contracts backed by the bond insurer. Ambac plans to reduce its investment agreement liabilities 50% over the next five years, from their level of $6.7 billion as June 30.
Ambac had previously received approval to make up to $200 million in secured lending transactions between the two units. Ambac will execute any deals "on an arms-length basis and in accordance with Ambac Assurance's investment guidelines," the company said in a statement.
Downgrades forced Ambac to post collateral on the GICs. In the first quarter, Ambac said it would stop writing new financial services business, other than hedges to mitigate risks.
"I am pleased with the support that we have received from the [Office of the Commissioner of Insurance] as we seek an orderly reduction of risk in our financial services business," Ambac chief financial officer Sean Leonard said in a statement. "Increased financial flexibility will enable us to maximize the value of all the assets supporting our GIC liabilities."
Last week, Wisconsin gave Ambac approval to recapitalize bond insurer subsidiary Connie Lee Insurance Co. with $850 million. If Connie Lee receives triple-A ratings, it should begin writing new business no later than the fourth quarter of this year, Ambac said.