Updated from 9:33 a.m. EST
has slashed its dividend and announced a plan to raise $1 billion in an attempt by the monoline bond insurer to maintain its coveted triple-A rating.
The New York-based financial guarantor, which provides insurance on debt securities from municipal bonds to esoteric mortgage securities, also said CEO Robert Genader would be leaving the firm. He'll be replaced by Ambac director Michael Callen, who will become chairman and interim CEO, according to a filing with the
Securities and Exchange Commission
The firm said it plans to issue at least $1 billion of equity and equity-linked securities and may also raise additional capital from reinsurance or issuance of debt securities.
Ambac also said it would trim the value of securities it guarantees by as much as $3.5 billion and cut its dividend to 7 cents from 21 cents, it said. It intends to establish a pretax loss provision of $143 million related to the declining value of home equity line of credit and closed-end second-lien residential mortgage-backed securitizations.
As a result, Ambac expects operating losses of as much as $5.80 a share when it reports fourth-quarter results on Jan. 22. Analysts polled by Thomson Financial expect a profit of $1.68 a share.
A call to Ambac spokesman Peter Poillon in New York was not immediately returned.
Ambac's announcement sent shares of the insurer plummeting as much as 27% Wednesday morning. More recently, the stock was down 25.2% to $15.82.
"Ambac has bought itself some more time with this plan, but there are still some very tough questions overhanging Ambac and the entire bond insurance sector," says Donald Light, senior analyst at research and consulting firm Celent, noting that uncertainty still abounds for the monoline group. "Are there enough investors out there to put more equity into Ambac? Even more importantly, will there be additional rounds of capital raising by Ambac and other bond insurers before the credit crunch reaches the bottom?"
Monoline insurance firms, including Ambac and
, have been under considerable pressure due to the collapse in the subprime mortgage market.
Rating agencies have zeroed in on the group noting that the insurers need to significantly beef up their capital reserves in order to brace for increases in delinquencies and possible defaults in the credit markets so that it could cover claims. Fitch Ratings has said that it would downgrade Ambac if it was unable to raise at least $1 billion in fresh capital.
MBIA, under similar threat from Fitch, last week
slashed its dividend to 13 cents from 34 cents and planned to issue $1 billion in surplus notes.
Callen has been a member of Ambac's board since it went public in 1991. He sits on a number of committees, including its audit and risk assessment committee.