Bond insurer Ambac Financial Group Inc. paid $850 million to Citigroup Inc. to terminate a guaranty contract tied to $1.4 billion in troubled mortgage-related securities.
The move sent shares of Ambac and other bond insurers higher, as investors anticipated more cancellations of similar contracts, which could help the insurers clear out some of their losing positions.
Ambac, based in New York, said it settled a contract that represented one of its largest exposures to problematic collateralized debt obligations, which are securities backed by pools of mortgage bonds or other debt.
The CDO in question was backed by securities issued by other CDOs, and was highly likely to default. Ambac had previously agreed to cover interest and principal payments on the $1.4 billion security.
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