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Ambac Plunges on Debt Concerns

Shares of Ambac Financial lost more than one-fifth of their value on Wednesday after the bond insurer once again raised the specter of seeking bankruptcy protection in a regulatory filing.

NEW YORK (

TheStreet

) -- Shares of

Ambac Financial

(ABK)

lost more than one-fifth of their value on Wednesday after the bond insurer once again raised the specter of seeking bankruptcy protection in a regulatory filing.

In addition,

Reuters

, citing people familiar with the matter, said late Tuesday that senior debtholders of the company had

formed a committee

to nudge Ambac toward a prepackaged bankruptcy plan.

The stock was off 31 cents, or 29%, to 76 cents in recent trades with volume already above 26 million. The shares had traded as high as $1.27 in Tuesday's session.

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Ambac initially got a boost from news that it had

commuted $16.4 billion in debt securities

but in a Form 8-K filed with the

Securities and Exchange Commission

in relation to the news, it noted that it could opt to stop paying interest on its existing debt as early as the current fiscal second quarter of 2010. Since this decision would consitute an event of default, Ambac warned its creditors would be empowered to demand they be paid back immediately.

"As a result, the Company may consider, among other things, raising additional capital to the extent possible, a negotiated restructuring of its outstanding debt through a prepackaged bankruptcy proceeding or a bankruptcy without agreement concerning a plan of reorganization with major creditor groups," it then stated in the 8-K. "No assurance can be given that the Company will be successful in executing any or all of these strategies."

Ambac first added language about the

prospect of a prepackaged bankruptcy filing

in its Form 10-Q for the third quarter of fiscal 2009

--

Written by Michael Baron in New York

.