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Ambac Pulls Out Of Writing Protection On Synthetic CDOs

Ambac Assurance Corp. has suspended writing credit protection on pools of corporate obligations that include standard or modified restructuring language because it does not think its concerns over the definitions are being satisfactorily addressed. In an e-mail to the International Swaps and Derivatives Association's end user committee, Michael Schozer, managing director and head of structured finance and credit derivatives at Ambac in New York, said, "We have decided to suspend writing new business with the standard Restructuring language, even at the "super AAA" level."

However, Schozer told DW that the firm would continue to write protection on cash CDOs and asset-backed securities, because these do not include restructuring. The firm is also open to writing protection on synthetic deals if the structurers can negotiate a more acceptable definition .

The e-mail is a reply to another e-mail sent on behalf of the group of six to the ISDA end user committee, which stated, "The feeling on the part of the bank hedgers and dealers is that the definition does not need to be addressed at this juncture." The main reason was the fact that deals were still being executed with restructuring as a credit event.

Ambac's credit-default swap portfolio is approximately USD26 billion (notional).

Click here to read Ambac's e-mail.

Click here to read ISDA's e-mail.

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