Ambac to Pay CDO Counterparty $850M

Ambac Financial Group has agreed to pay a counterparty $850 million to cover losses on mortgage-related collateralized debt obligations. The New York-based bond insurer would not identify the counterparty or provide details about the transaction. The CDO was collateralized by subprime and other types of residential mortgages. "The loans weren't all necessarily subprime," an Ambac spokeswoman told MortgageWire. Ambac was originally on the hook for $1.4 billion in losses on the investment, which has been described as a "CDO-squared." In March Ambac had booked $1 billion in mark-to-market losses on the deal and can now recapture $150 million. "It's a good deal for us," said the spokeswoman. Ambac is slated to release earnings on Aug. 6. The bond insurer and its competitors are potentially on the hook for billions of dollars in losses on subprime-related bonds that they insured. The transaction that Ambac settled, known as "AA Bespoke," was one of its "largest CDO exposures," the company said. Ambac can be found on the Web at http://www.ambac.com.