Martin Z

Evaluating Ambac: Intrinsic Value Withstanding Market Volatility

The door of muni gurantee business will be cloased at least to ABK. people are not stupid enough to buy insurance from a broke insurance company. and investors will assign no value to this kind of insurance insurance when purchasing wrapped bonds.
Cash flow positive means nothing here. Rating agency will downgrade the ABK to junk, that will lead to more collateral posting on the CDS portfolio, ABK will have trouble posting and regulator will step in, the counterparties(major banks) will end up owning ABK jointly in a massive restructuring. End result: ABK equity holder wipe out. Counterparties write down all of the CDS(if they haven't done so already)