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Can Ambac Rise From The Dead?

NEW YORK ( TheStreet) -- It's looking likely Ambac Financial ( ABK) will be forced to file for bankruptcy, according to industry watchers.

With its stock down to 63 cents a share the chance of the monoline insurer finding additional capital is slim to none, according to Ed Grebeck, CEO of Stamford, Connecticut-based debt-consulting firm Tempus Advisors.

"I can't see anyone who would finance Ambac -- or any bond insurer. Some of the biggest distressed investor names already lost a billion plus," Grebeck said in an email exchange with The Street.

Ambac is currently exploring a prepackaged bankruptcy, according to published reports.

However, since the nature of a prepackaged bankruptcy is for the company to reemerge into the market -- and Ambac's business of insuring mortgage-backed securities has essentially shut down since 2008 -- the likelihood of the company leaving bankruptcy with a similar business plan would be challenging.

"'Restructuring" and 'prepack' imply that there is something in the company worth saving," Grebeck added. "This franchise is destroyed. Even were restructuring possible -- who would pay for future financial wraps issued by them?"

Bringing Ambac through bankruptcy would also prove difficult because its insurance subsidiaries are exempt from the bankruptcy process and would be placed into "runoff," where they are kept running until all existing policies expire.

That would mean winding down a large chunk of the company's reserves would be handled by the insurance commissioner of Wisconsin, where its insurer is domiciled, said Jim Ryan, a senior analyst at Morningstar. "There is some value left. They have $6.5 billion in investments and loss reserves of $5.2 billion," said Ryan. "As long as they can safely pay outstanding claims, the backers would get what was left after runoff," Ryan said.

"The counterparties on the asset-backed securities (ABS) transactions would determine if they do a prepack or not," said Angelo Graci, a desk analyst at Chapdelaine Credit Partners. "I think this is a runoff situation. It would be hard to restructure it as it is now."

Moody's put out a note saying that Ambac's creditors-- which include Centerbridge Partners, Halcyon Capital Management, Mangrove Partners and Camden Asset Management--are likely to back the company similar to how the creditors backed CIT's (CIT) bankruptcy arrangements.
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