Wisconsin Regulator Approves Ambac's Connie Lee

Bloomberg reports that Ambac has received approval from the Wisconsin regulator to launch its Connie Lee subsidiary as a municipal bond insurer.

Ambac Financial Group Inc., the world's second-biggest bond insurer, received approval from Wisconsin regulators to begin offering municipal bond insurance through a newly created insurer called Connie Lee.

Ambac rose as much as 15 percent in late trading as Wisconsin regulators, which have jurisdiction over the New York- based company, approved a plan to move $850 million out of Ambac Assurance Corp. into the new business, according to a statement today. Ambac is seeking to obtain an AAA credit rating from Moody's Investors Service and Standard & Poor's for Connie Lee.

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Connie Lee, set up by Congress in 1987 to help finance university construction by insuring their bonds, hasn't written any new policies since Ambac bought the company 11 years ago, according to executive comments earlier this year.


So it looks like Connie Lee will start off with $850 million, which should allow it to insure around $40 to $80 billion (assuming leverage between 50x to 100x). Contrary to some bearish views, there is a market for muni bond insurance so I think the business potential is there.

The real question is whether it can garner a AAA rating from the rating agencies. I have a feeling that it is going to be difficult to get a AAA rating any time soon. I can see the rating agencies waiting a long time--1 year or more--before they give it the rating. I'm not sure what management will do if they don't get the AAA rating in a reasonable amount of time.

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