As of March 31, 2008, Ambac had recorded approximately $1.0 billion of mark-to-market losses, including an impairment loss of $789 million, against this transaction. As a result of the settlement, Ambac expects to record a positive pre-tax adjustment of approximately $150 million to its aggregate mark-to-market. In addition, the stress case losses in the rating agency capital models for this transaction exceeded Ambac’s final payment and therefore, the settlement will result in an improved excess capital position for Ambac Assurance Corporation.
Michael Callen, Chairman and CEO of Ambac, stated, “The primary benefit of this agreement is that it eliminates uncertainty with respect to future losses related to this transaction. We view the final outcome as favorable in light of the numerous widely circulated models that assumed a 100% write off for this transaction. This settlement also confirms our view that transaction mark-to-market adjustments are not indicative of ultimate credit impairment.” Mr. Callen continued, “This is an important milestone in our efforts to work with counterparties as we evaluate settlement as well as other restructuring opportunities related to our CDO exposures.”