Ambac soars 50% on collateral posting
Bond insurer posts $506 million of collateral to support guaranteed investment contracts after downgrades, delighting concerned investors.
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| Investors reacted positively to Ambac's posting of more than $500 million in collateral to support guaranteed investment contracts Tuesday. |
NEW YORK (CNNMoney.com) -- Shares of Ambac Financial soared by more than 50% Tuesday after the bond insurer said it had ample collateral despite downgrades from credit raters.
In a statement released Tuesday, Ambac said credit rating downgrades of its Ambac Assurance bond insurance unit resulted in the company posting $506 million to cover its guaranteed investment contracts (GICs). It also was forced to post $270 million for terminated investment agreements.
Ambac runs a large GIC business that gives companies a guaranteed rate of return on a certain amount of money. When the insurer was downgraded, investors worried that the company would not be able to post the collateral needed to support its contracts. As a result of this "persistent and unfounded speculation regarding Ambac's liquidity situation," the company released a statement on its collateral posting.
"Despite the challenging current environment, it is important for us to continually communicate that we have ample liquidity to manage our commitments going forward," said Ambac Chief Executive Michael Callen. "Our company-wide resources available are a multiple of any conceivable collateral or termination requirement in our financial services businesses."
The bond insurer has been under pressure since insuring a large number of risky mortgage-backed bonds. The risk of an increase in insurance claims forced Ambac to boost capital, resulting in a downgrade from its perfect credit rating by Moody's, S&P and Fitch.
Ambac (ABK) shares surged 52.5% to $2.12 Tuesday. 
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