Ambac Assurance Corp. (AAC) released its estimated credit derivative impairment and loss as well as loss expenses for the second quarter, Ambac Financial Group said today.
The group projects statutory impairment losses on credit derivatives to rise by $1.6 billion in 2Q09 to $4.9 billion by June 30.
The insurance firm also estimates the $800 million statutory loss and loss expenses incurred for the quarter ended June 30.
The bond insurer said that the increase in impairment losses was driven by rising forward Libor rates, which increase estimated future cash outflows and causes further deterioration of the underlying collateral within the CDO of ABS transactions.
The statutory loss and loss expenses relate primarily to deterioration in ACC’s second-lien and Alt-A MBS financial guarantee portfolios.
Ambac said the increase in the estimated impairment losses in 2Q09 is net of the impact of a settlement that reduced a significant portion of exposure under a CDO of ABS transaction that closed in July and a commutation of all of the exposure under a different CDO of ABS transaction that it expects will close by the end of July.
The two transactions, with an aggregate of $2.8 billion net notional outstanding as of March 31, are expected to be settled with counterparties for a total cash payment of $750 million.
Additionally, Ambac announced that it will discontinue paying the semi-annual interest on its directly-issued subordinated capital securities beginning Aug. 1 to preserve cash.
The insurance firm will also discontinue paying the monthly dividend on AAC’s outstanding auction market preferred shares beginning Aug. 1.