Ambac Provides Financial Details Related to Collateral Requirements of Its Investment Agreement Business

Ambac Provides Financial Details Related to Collateral Requirements of Its Investment Agreement Business

NEW YORK.- Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced that in response to persistent and unfounded speculation regarding Ambac’s liquidity situation, it has released information about collateral requirements and terminations of its investment agreement business related to recent actions by the rating agencies. “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 Chairman and Chief Executive Officer, Michael Callen, “Our company-wide resources available are a multiple of any conceivable collateral or termination requirement in our financial services businesses.”
Rating agency actions affecting Ambac Assurance Corporation (AAC) during June resulted in $506 million of increased collateral posting requirements in the investment agreement business and investment agreement terminations of $270 million:

* The downgrade of AAC by Standard & Poor’s to AA on June 5, 2008, resulted in an incremental collateral posting requirement of approximately $76 million.
* Moody’s downgrade of AAC to Aa3 on June 19, 2008, resulted in an incremental collateral posting requirement of approximately $70 million and investment agreement terminations of approximately $270 million.
* The action by Fitch to withdraw the ratings of AAC on June 26, 2008, resulted in an incremental collateral posting requirement of approximately $360 million.

The current collateral and termination obligations have been adequately covered by the investment agreement asset portfolio.
Aggregate collateral requirements and terminations for the investment agreement business at various AAC rating levels, starting with the lower of AAC’s two current ratings (currently Moody’s at Aa3)

The book value of investment agreement liabilities at May 31, 2008, amounted to $6.9 billion (down from $7.7 billion at December 31, 2007). The market value of the investment agreement asset portfolio, including cash of approximately $400 million, as of May 31, 2008, is approximately $5.6 billion. In addition, the market value of interest rate derivative contracts held by the investment agreement business is positive $160 million.
Based on May 31, 2008 investment agreement asset portfolio market values:

* Upon a downgrade of AAC to A+ or A1, which Ambac believes is unlikely, Ambac estimates that the investment agreement asset portfolio has sufficient value to meet projected cumulative collateral requirements and terminations.
* Upon a downgrade to A or A2, which Ambac believes is unlikely, Ambac estimates that the investment agreement asset portfolio is insufficient to cover the projected cumulative collateral requirement and terminations by approximately $1.0 billion.
* Upon a downgrade to A- or A3, which Ambac believes is unlikely, Ambac estimates that the investment agreement asset portfolio is insufficient to cover the projected cumulative collateral requirement and terminations by approximately $1.1 billion.

In the event of cash and/or security shortfalls in the investment agreement business, management anticipates utilizing the resources of AAC (through inter-company transactions). Utilizing the resources of AAC would allow time for the assets in the investment agreement asset portfolio to recover in value and would preempt claims on insurance policies issued by AAC and prevent the realization of losses in the investment agreement asset portfolio. Ambac is in discussions with the Office of the Commissioner of Insurance of the State of Wisconsin (OCI) with respect to its strategies for managing the collateral posting and termination obligations of the investment agreement business. These discussions have been positive. Ambac believes that it will obtain OCI’s approval of its plans to address the collateral posting and termination obligations of the investment agreement business in the event of downgrades to the A/A2 rating level. AAC’s investment portfolio is valued at approximately $12 billion with over $1 billion in cash and short-term securities at May 31, 2008. At the A/A2 rating level, Ambac management would evaluate its various resources and utilize those considered most appropriate to satisfy the contractual obligations of the investment agreement business.
Management continues to closely monitor the cash requirements of the investment agreement portfolio and manages the related cash and securities portfolio accordingly. The Company expects to report its second quarter 2008 earnings on August 6, 2008, and will provide a comprehensive update on its financial services businesses.