Ambac postpones launch of muni bond venture

Ambac Financial Group Inc. said Friday it has indefinitely postponed its launch of a separate unit to handle municipal bond insurance, a decision that sent the bond insurer's already-battered shares tumbling.

Shares of Ambac fell 12 cents, or nearly 10 percent, to $1.13 in afternoon trading.

Ambac has been working for several months to launch Everspan Financial Guarantee Corp. as a standalone business to keep it insulated from Ambac's riskier operations that have triggered losses amid troubled credit markets. The unit was to specialize in public finance, rather than commercial bond insurance.

But Ambac said Friday that it has been unable to raise enough capital to achieve the financial strength ratings it had hoped to achieve for the new business so it could be competitive. Everspan had been seeking to raise money from outside investors in addition to any amounts contributed by Ambac Assurance Corp., Ambac's bond insurance subsidiary.

"Although Ambac engaged in discussions with third parties to raise capital for Everspan, none of these discussions have resulted in a satisfactory outcome," Ambac said.

Postponing the launch "was a difficult decision," said Davis Wallis, president and CEO of New York-based Ambac. "We will closely monitor the capital markets and will revisit this opportunity when the economic environment has stabilized."

Ambac simultaneously announced the related retirement of Everspan Chief Executive Douglas Renfield-Miller, who also serves as an executive vice president at Ambac and Ambac Assurance. Until Renfield-Miller's retirement takes effect Jan. 1, he will serve in a support and consulting role for Ambac, the company said.

Like others in its industry, Ambac was hit hard in the past two years by losses on its coverage of risky financial instruments such as mortgage-backed securities, and has been working to reduce its exposure to such debt instruments.

Ambac's stock traded above $10 per share in early September, but sank as low as 35 cents in early March.