Ambac Mentions Prepack in Latest Filing

Updated from report at 1:10 PM EST to add closing share price, further information on the company's filings.

NEW YORK (TheStreet) -- Ambac Financial Group(ABK Quote) has raised the specter of pursuing a prepackaged bankruptcy filing in its latest Form 10-Q filing for the third quarter.

The stock plunged 33.1% to finish at 79 cents. The selling gained momentum at roughly 2:00PM EST. The session's low of 75 cents is a level shares haven't seen since early April, although the stock did touch 76 cents on July 10. Volume was 109.1 million, roughly five times the issue's three-month daily average of 21.7 million.

Tuesday's action more than wiped out the roughly 40% jump that followed the release of the company's third-quarter report on Nov. 4. The headline profit number for the September quarter -- $2.19 billion -- was the result of unrealized gains within the credit derivatives portfolio, rather than a performance improvement.

In addition to the presence of language that specifically mentions the potential for a prepackaged bankruptcy filing -- a change from the company's previous Form 10-Q for the second quarter filed on August 10 -- the shares were also likely pressured by the weak results from fellow bond insurer MBIA Inc.(MBI Quote), whose stock was losing 16.7% to $4.00 after it turned in a quarterly net loss of $727.8 million, or $3.50 a share, as a result of increased unrealized losses on credit derivatives.

In the latest Form 10-Q filing, Ambac says its management believes it has "sufficient liquidity to satisfy its needs" through the second quarter of fiscal 2011, although it also includes the customary caveat that "no guarantee can be given" for a number of scenarios dealing with dividend payments, operating expenses and debt service obligations. In the Form 10-Q for the second quarter, Ambac said it could run "out of liquidity by the first quarter of 2011 or potentially sooner," if certain strategies weren't successful.