NEW YORK - Troubled bond insurer Ambac Financial Group Inc. on Tuesday officially approved a quarterly dividend of 7 cents, two-thirds less than its previous payment.
Ambac cut the dividend as part of plan to preserve capital to ensure its crucial "AAA" financial strength rating. The plan initially included raising more than $1 billion in capital, but Ambac scrapped that part of the plan saying market conditions were not conducive.
Bond insurers are facing mounting pressure from ratings agencies to raise fresh capital to hold in reserve to protect against future claims. As mortgage delinquencies and defaults have increased, ratings agencies have worried bonds backed by the troubled loans would default as well, leading to an unmanageable spike in claims.
Bond insurers such as Ambac pay principal and interest on bonds when the issuer can no longer make payments.
Fitch Ratings cut Ambac's rating to "AA" from "AAA" and both Standard & Poor's and Moody's Investors Service are reviewing Ambac's rating. Bond insurers typically need "AAA" ratings to attract new business, so ratings downgrades would likely drastically reduce Ambac's business, further straining earnings potential.
The dividend will be paid on March 5 to shareholders of record as of Feb. 11.
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